I hate going the “good news, bad news” route, but sometimes there’s just no other way to frame it.
For gamers, 2023 will likely go down as one of the best years for games in over a decade. Coming out of the COVID-19 pandemic, it’s clear that a lot of games were given extra time and attention because of those grim circumstances, and it’s paid off handsomely for them. Baldur’s Gate 3 has dominated the conversation for months. Starfield finally came out. And we’ve had any number of high profile sequels such as Horizon Forbidden West, Jagged Alliance 3, and Remnant 2. Throw in new games such as Lies of P and Dave The Diver, and it’s hard to argue this was a bad year for games.
The games industry, however, has not had such a great year. Microsoft completed its acquisition of Activision-Blizzard, which is undoubtedly going to come back and bite a lot of gamers down the road, but that wasn’t the biggest story of the year. Neither was Unity’s ridiculous attempt to extort more money from developers by trying to add a “per installation” surcharge retroactively to every game made with the Unity engine. No, the big story this year seems to be the near-slaughter of game developer workforce ranks through layoffs and studio closures. A few layoffs here and there is one thing. But it feels like it’s been nothing but layoffs all year. I can barely read “Embracer Group” without twitching in sympathetic anxiety for all the poor bastards who’ve been sacked, or the ones who may yet be on the chopping block.
How did it get this screwed up?
Business In The Time Of COVID
The COIVD-19 pandemic did a real number on the world. It completely shanked everything, and I do mean everything. “Normal” was nowhere to be found. Hell, we haven’t even really returned to “almost normal” by this point. A number of companies were showered with government largesse to keep working, to find novel ways to provide goods and services while still working to minimize the spread of the disease. In and of itself, the basic idea is sound. The conditions of the US Government’s “Paycheck Protection Program” seemed pretty reasonable: 1% interest loans which could be forgiven later if 60% of the funds were used for payroll. It’s one of those things that governments can and should do when you’ve got a truly massive situation that is beyond the everyday operational environment of both businesses and government. Everybody is at risk, therefore, the government “of the people, by the people, for the people” should respond appropriately.
But the devil is in the details. That government largesse needed to have some major strings attached; carefully delimited uses of those funds with full documentation about how they were disbursed in accordance with those limitations. It also needed a good sized stick to go with it, significant penalties for improper disbursement or fraudulent documentation. Instead, what we got was a lot of cash thrown willy-nilly in the mistaken belief that it was better to be seen as “Doing Something” than actually doing something effectively. GameStop’s initial position that its stores were “essential businesses” was pretty ridiculous, so you kinda have to wonder how much money they received. And despite some $30 million USD going to various small game studios, it still wasn’t enough to keep the lights on for some.
Yet it seemed that the bulk of games industry was pushing money out to other people. Sony set up a $100 million USD “Global Relief Fund for COVID-19. CD Projekt RED donated almost $1 million to a medical charity in Poland. Which begs the question, “How?” Turns out that having digital storefronts set up managed to keep the lights on by selling digital copies of games while brick-and-mortar stores were shuttered. And with live service games coming up with (or pushing out) new collaborations and expansions, the big companies managed to keep going. In fact, they were doing so well, they hired more staff. It made sense at the time. Nobody knew how long exactly the pandemic was going to last, and if they could somehow expand on what was bringing in revenue, having that additional capacity and manpower would pay off in the long run. You don’t get big games done in short timeframes anymore. By the time the pandemic would be over (so the thinking likely went), teams would be fully stood up, projects would have gone from pre-production all the way to release, and the revenue streams would bring in boatloads of cash.
Unfortunately for those finely tuned plans, the pandemic didn’t last that long. Indeed, its official “end” in May of 2023 would be just enough time to get a game into at least a pre-alpha state, given current development cycles and assuming there was a project already lined up and ready to go. Having to pay all of those employees and contractors without government assistance, big companies started feeling the pinch and weren’t willing to take a hit. At the same time, with people going out more, the captive audience publishers had for things like live-service games was radically reduced. We went out to touch grass for the first time in over two years, and the industry seemed to take a massive hit as a result.
Dead Live
If there’s been one startling example of this particular trend, Bungie’s Destiny 2 certainly leads the pack. The Lightfall expansion landed with a thud. The developers seem hellbent on making the game’s “Season” content an exercise in outrage and scorn, as if trying to figure out how much abuse players will take before breaking out the torches and pitchforks. It seems as if every week, somebody at Bungie is pulling a chit from a bag with a dare on it to try and enrage the fanbase more. What’s more aggravating is that they’re basically tormenting players with terrible gameplay to get a few minutes of really good storytelling.
You can imagine my surprise when news got out that Bungie had missed their revenue projections by 45%. I had suspected they might be losing some revenue, given the discontent of the player base, but I genuinely was shocked at the amount. More shocking is the news that Sony might be motivated (or at least compelled) to dissolve Bungie completely if they can’t get their act together. Up to this point, Bungie has managed to make the best of being acquired until they basically get fed up and part company. That may not be happening this time. Worse, Sony specifically acquired Bungie on the premise that they would be helping Sony assemble a slate of brand new live service games and take care of the backend for those new games.
Back when everybody was cooped up, this might vaguely possibly have been a viable strategy. But with the pandemic declared over, and people having choices outside of video games again, this now sounds like a recipe for failure. Personally, I don’t think Sony has a snowball’s chance in Hell of making even a third of those games a reality. The thing everybody in the industry seems to forget about live service games is that they demand a lot of players’ time. Especially given the “seasonal” content model so many of them have adopted. Frankly, there’s only so much room for live service games in a player’s life. Digital Extremes seems to understand this and they’ve tailored Warframe to allow players a means of finding a happy medium regarding player engagement (and yes, I threw up in my mouth a little writing that). Meanwhile, Bungie and Massive are convinced that the best way to go is disposable narrative chunks that are inaccessible after a year, leaving new players frustrated and confused about what the hell’s going on in their games. I’d think the 45% revenue drop would be a wake-up call for Bungie to make it easier for new players to get into Destiny 2. I can’t imagine the new player experience for The Division 2.
Unfortunately, Bungie’s upper management doesn’t seem to have taken the hint, which moved them to lay off a hundred people that probably deserved to be there, and needed to be there. Between the “extra content” Bungie is promising with a shorthanded development team and the threat of Sony simply putting them out of our collective misery, it’s hard to feel much in the way of sympathy for them.
The Hog and The Trough
If there is one company who has contributed more to the general sense of malaise in the industry this year, it would have to be Embracer Group. Epic Games might have laid off the single largest amount at any given time this year, and Hasbro may have outdone them in the tabletop space, but Embracer’s constant drumbeat of layoffs and studio closures unquestionably makes them the aggregate leader.
And why is this happening? How is it one holding company can wreak such havoc on an entire industry?To answer that question, you have to look back a couple of years, right at the start of the COVID-19 pandemic. In September of 2019, THQ Nordic officially changed its name to Embracer Group. Prior to this, the company had been steadily acquiring companies which had good properties but troubled balance sheets, but weren’t doing more than buying up a few companies a year. Publishers such as JoWood Interactive and Koch Media were snapped up for pennies. Subsequent to their renaming, Embracer went on a tear. In 2020, they bought up twenty different game companies and their associated internal studios. Another twenty game development and publishing companies were bought up in 2021, along with a tabletop game company (Asmodee) and Dark Horse Media, the parent company for Dark Horse Comics. 2022 saw Embracer buying up three high profile studios (and their entire back catalogs) from Square Enix, along with seven other studios and various IP rights. They spent billions of US dollars, Swedish kroner, and euros to make these acquisitions, and kept issuing stock to try and get more money into the coffers in order to fuel the acquistion plans.
Yet the edifice was already starting to get shaky by the end of 2022. Square Enix Montreal (renamed to Onoma) was shut down in November of that year, only a month after going through the rebranding process. And from there, the hits just didn’t stop coming. Campfire Cabal, a wholly new studio set up in September of last year, was closed down unexpectedly in June of 2023. Volition, a well known studio responsible for games such as Saints Row and Freespace, was shut down in August. Free Radical Design, creators of the game TimeSplitters, was shut down earlier this month. And between those signal closures, studios and publishing companies from every section of Embracer’s massive portfolio were hit with layoffs.
The inflection point for this cascade of doom and gloom lies in a single busted investment deal. In June 2022, the Savvy Gaming Group (owned by Saudi Arabia’s Public Investment Fund) pumped roughly $1 billion USD into Embracer. A year later, Embracer was reportedly looking for another injection of cash from Savvy to the tune of $2 billion USD. Apparently, that was too big of an ask for Savvy, and the deal died. With this, Embracer CEO Lars Wingefors announced a restructuring program which is expected to carry through to March 2024. In retrospect, it seems painfully obvious now that Embracer got too greedy, that their studio shopping spree couldn’t be sustained with new blocks of stock issued and foreign investment even in the short term. In doing so, they dug themselves into a hole that not even cuts to executive salaries could hope to fix. Doubtlessly, this will greatly impact the development and release schedules of countless projects currently underway.
A Calendar Darkly
What can we, as gamers, expect from 2024? In the wake of such a banner year for games, does it get better than this? The answer depends very heavily on how you’re looking at the studios which product the games.
From the perspective of release schedules and previously announced titles, 2024 looks like it’s not going to suffer a drought of good games. Sequels will clearly be dominating, with the next section of Final Fantasy VII Remake and Hellblade II coming out. New games without previous entries will also be appearing either as full releases (such as Rise of The Ronin and Banishers: Ghosts of New Eden) or Early Access titles (like Enshrouded and Nightingale). It’s clear that there’s not going to be a sudden shortage of games in the near future.
However, there’s a distinct probability that various game studios will experience further cuts and closures well into 2024, possibly throughout the entire year. These cuts could disrupt or eliminate releases that are planned for late next year and beyond. It might be 2025 or 2026 where we see a distinct shortage of good games. And big studios re-hiring people won’t magically put those projects back on schedule.
That said, it’s also possible that we’ll see a number of new titles from indie studios and smaller AA outfits. Historically, people who’ve been cut loose from larger game studios catch on at smaller studios or start up their own. Assuming, of course, that they still have a desire to work in the industry even in a startup capacity. The big question mark is how many of them aren’t coming back after what has to be one of the worst years to be in the industry. The term “meat grinder” is not inaccurate for the sort of conditions developers have had to endure of late. There’s no telling how many of the recently unemployed are thinking, “It’s been real, and it’s been fun, but it ain’t been real fun.” And, again, just because these newly unemployed people start up their own studios or join smaller outfits, it doesn’t magically translate into games six months later.
Bottom line: the video game industry has stuffed itself into a cocked hat, then tried to squeeze itself down deeper into the crown this year. And that will ultimately come back to bite them as players shift their attentions elsewhere. Only an idiot would believe video games are going away entirely. They’re not, and somebody telling you they are is selling something. What’s likely to happen is a shift away from the AAA space. Not a complete abandonment (Sony and Microsoft can always be counted on to pump out toxic levels of hype and copium), but a reduction. We’ll still be enjoying the games of 2023. We’ll very likely enjoy the games of 2024. What we enjoy beyond that is anybody’s guess.
