Gaming Layoffs Cut Costs at Expense of Fresh IP

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Last year was a major win for mainstream recognition of video games, with highly successful TV and film adaptations of “The Last of Us” and “Super Mario,” respectively, making strong cases for the medium.

But while Hollywood gawked at the power of prominent gaming IP, the developers who make such games continue to pay the price.

A headcount reduction of 5,900 is estimated to have taken place throughout January 2024, more than double what was seen throughout the entirety of 2023. While 2022 wasn’t without shrinkage, the most intense layoffs that year were largely the result of regional instability stemming from Russia’s invasion of Ukraine, mainly through sanctions.

As dramatic as layoffs were last month, much of it stems from the intense M&A activity that began in 2022. In January 2023, Microsoft announced 10,000 roles would be cut across the company, affecting Xbox and Bethesda teams in its gaming division a year after the $69 billion deal to acquire Activision Blizzard was first announced.

A year later, the “Call of Duty” publishing group is finally a Microsoft subsidiary, only to be caught in a second wave of devastating layoffs. Activision Blizzard employees reportedly comprise most of the 1,900 layoffs Microsoft Gaming announced in January, while “League of Legends” powerhouse Riot Games said it would part ways with 500 Rioters and significantly scale back projects in development to prioritize flagship IP.

When such companies rely on esports-friendly live services like “League” or “Call of Duty” to thrive, it’s understandable why new projects would be axed, on account of having less or no employees at all to devote to them.

Electronic Arts said it logged a record $1.7 billion from live-service net bookings in the last quarter of 2023, per last week’s earnings release. Much of that came from “EA Sports FC” and its latest release in September, which followed EA laying off around 700 workers earlier in the year.

Take-Two Interactive cut roles around the same time, defending the decision as something that would “position the company for another extended period of success” — i.e., “Grand Theft Auto 6,” which is due in 2025 and is rumored to have cost as much as $2 billion to make.

In 2022, Take-Two acquired mobile games giant Zynga for $12.7 billion, granting it access to more revenue from in-game spending that would theoretically aid in development costs for its biggest AAA titles. EA also made mobile-driven acquisitions in recent years, most notably Glu Mobile for $2.1 billion in 2021.

If it ultimately benefits earnings, keeping investors happy, most gaming companies won’t see much issue with cutting hundreds or thousands of roles and spending billions to keep live services afloat, even as some workers upend their lives in the process relocating to work at such companies.

Still, Microsoft Gaming CEO Phil Spencer has expressed his own dismay and worry over such heavy dependency on giant properties. Per emails leaked throughout the course of Microsoft’s court battles to acquire Activision Blizzard in 2023, Spencer lamented how AAA publishers have “tried to use production scale as their new moat” in order to ensure their biggest franchises would stay at the top of bestseller lists each year — only for these production scales to end up “[hurting] their ability to create new IP.”

Even if its newest game lost the No. 1 spot to “Hogwarts Legacy,” “Call of Duty” is the exact kind of property Spencer is referring to, and it was still technically No. 1 in 2023 by franchise sales, per Circana’s Mat Piscatella.

Now Spencer is eating his own words. Mere months after the successful launch of September’s “Starfield” — the first new IP from Bethesda Game Studios in decades — Microsoft Gaming’s layoffs resulted in the cancellation of a new Blizzard IP that was reportedly in development for six years. Per Bloomberg, more than 100 people were working on the project, codenamed “Odyssey,” which was said to be an online survival game. In the meantime, rumors are emerging that past and upcoming Xbox exclusives may release on competitor PlayStation 5. Such widening of its customer base may be the only way to ensure other new IP will be able to cast a sizable sales net.

It’s hard to imagine new IP isn't also in jeopardy at Bungie. After years of independence, the “Destiny 2” studio was bought by Sony for $3.7 billion in 2022, after Sony’s interest was piqued by multiple unannounced games in development, in addition to its existing live service. Bungie ended up cutting 100 roles near the end of 2023 as engagement in “Destiny 2” lapsed.

Industry layoffs are also bungling attempts to resurrect classic IP, such as “Deus Ex.” Despite the franchise’s reputation for helping to popularize the immersive-sim style of video games with its 2000 debut, Square Enix was reportedly not interested in Eidos-Montréal continuing the series after middling sales for its last entry in 2016.

Instead, Square Enix assigned the studio to “Marvel’s Guardians of the Galaxy,” which bowed in 2021. Underperforming sales for that and Square Enix’s “Marvel’s Avengers” in 2020 caused the publisher to sell Eidos and other studios to Embracer Group in 2022, which led to the announcement that a new “Deus Ex” title was in development.

But after years of buying up studio after studio, Embracer Group began significant restructuring efforts in 2023 after a $2 billion deal with Saudi Arabia’s Savvy Games Group collapsed. Eidos was not able to escape layoffs and cut 97 roles last week, resulting in the cancellation of the new “Deus Ex” title.

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