‘Survive Til 25’: How Game Studios Are Keeping The Lights On Amid the Layoffs – IGN

Just two years into the studio’s existence, Kevin Hovdestad, game director at Big Blue Sky Games, finds himself pining for better days. Better days not only for the relatively new developer behind the upcoming cozy shopkeeping sim Merchants of Rosewall, but for the industry at large.

“I would love to be in the place that we were a year and a half ago,” Hovdestad tells IGN with a tinge of wistful sorrow in his voice. “We have people on the team that we hired off of blind applications. They weren’t even applying to a job posting, they just sent an email and said, ‘your company looks awesome, how do I get in?’ And we interviewed them and went, ‘Yeah, you’re a good fit, welcome aboard.’”

“I couldn’t do that today,” Hovdestad continues. “Even if a world-class developer just walked up and said that they would take a 50 percent pay cut, I couldn’t hire them, even if I wanted to. And that’s in a world where we haven’t had to lay anybody off.”

Despite being founded in 2022, Big Blue Sky, the developer has already seen total opposite ends of the economic spectrum facing the industry this decade: the unprecedented highs of the post-COVID game production that prompted record investment in the medium, and the devastating lows responsible for the sudden retraction that’s left thousands of layoffs and dozens of studio closures in its wake.

As the industry finds itself rubberbanding into the current economic reality, developers are faced with tougher decisions than ever before, all while they struggle to secure what little capital investment is available, and desperately fight for what little precious time their audiences have.

While adjacent entertainment industries struggled under the pressures of a global pandemic in 2020, video games thrived. Players of all ages found themselves with more time on their hands, and put that time into the quarantine-friendly hobby of gaming. By 2021, 227 million Americans played video games in some capacity, according to the Electronic Software Association’s Essential Facts report, up from 214 million in 2020.

As interest in gaming grew, (one of many factors that encouraged corporate and creative ambitions), publishers and developers aimed for the stars: expanding teams with new hires, greenlighting ambitious new projects, and for the biggest of game companies like Sony, Microsoft and Embracer, acquiring developers and intellectual properties, all in hopes of big returns down the line.“

It was that wild time where money was a little bit cheaper to use, and if you were looking for places to put it that had growth opportunity, gaming is a very attractive place to go,” video game industry analyst and executive director at Circana Mat Piscatella tells IGN. “For games, companies, if you see, ‘hey, that studio or that publisher is expanding pretty rapidly, well we better start doing that too.’ And so you get a lean in on believing, because why wouldn’t you? Everyone’s playing video games, the market’s going up 20, 30, 40 percent every month. What’s not to love?”

While some analysts and publishers predicted a “post-pandemic dip,” on the consumer side when things eventually returned to normal, it was those publishers and developers who bore the brunt of 2023’s cold splash of economic reality. The growth triggered by the pandemic not only tapered off, it receded, leaving many of these companies stranded without a way back into safer waters.“

The money got expensive and interest rates went up,” Piscatella said, adding that the industry’s rapid expansion, the slowdown in growth and the troubled investment situation created a perfect, disruptive storm. The market conditions combined with the ballooning cost of making a game over the last decade left developers, particularly smaller independent outfits, scrambling to adjust in the aftermath.During development, creators are always considerate of where they can make smart cuts to avoid common pitfalls like scope creep and overblown budgets. But that’s changed drastically since 2023.

“In this climate, choices aren’t exclusively about, ‘is this a good creative fit for the vision we had for our product,’” Hovdestad says. “They’re, ‘We’re on a budget, we can’t afford another 30 minutes a soundtrack, so this is going to have to do.’”

Alongside scope reduction, cost-saving measures like skimping on licenses for game creation tools and organization-wide resources are just some of the ways developers are creating an economic safety cushion.

“I’ve had people come and say, ‘Hey, we should unify these legacy tools together and pay for the enterprise level license for this’ and I have to look at the cost and go ‘that’s $10,000 we don’t have right now.’ It’s not that it’s not a good idea or that we shouldn’t do it. It’s that we just can’t rationalize it.”

Even important morale-related expenses like service awards for employee milestones and annual in-person team meetups — which are particularly important for an all-remote studio like Big Blue Sky — are being put on hold to save cash.

“We could do world-changing stuff for our game right now for very nominal amounts of money, but that money doesn’t exist,” Hovdestad said. “And I don’t think that’s a story that any other studio is telling any differently.”

These economic conditions are causing other developers to pause development of their next project altogether. GlowUp Games co-founder Latoya Peterson tells IGN that the high upfront cost of hiring developers, engineers, and artists before development even begins makes putting projects on ice a smarter decision than sailing forward, especially for a leaner studio like hers.

“For a lot of studio owners, it’s risky to go into a new project without knowing how your funding is going to shake out first,” Peterson said. “So until you get that commitment from a publisher that will support it, a lot of folks are holding off until the waters are warmer.”

Peterson explains that there are investors with game-changing money looking for titles. But they’re few and far between, making seed round funding more of a lottery than a sustainable way to make games.

“The ones who don’t win big, which tend to be the smaller indies, we’re kind of scraping and waiting to see what’s going to happen.” she says. “It’s why a lot of us are doing work for hire, we’re doing smaller projects, we’re maintaining the projects we currently have. But you’re not trying to take on the kind of expenditure that you would need on a new game.”

Peterson is not alone. Kai Nyame Abbey tells IGN that her dev team, Studio Hitsuki, are in the unique position of having the majority of their development work so far being under NDA. Securing funding without being able to share their work is a no-go. Instead, they’ve been crafty with how they’re working within the confines of the resources they do have.

“Our team participated in an internal game jam to develop a short prototype to showcase at GDC this year,” she explains. “Giving ourselves the opportunity to showcase projects earlier in development has helped us validate our games’ designs and assess if players are clicking with it. Getting that feedback from external sources before dedicating large amounts of time and cost in each project has helped us stay smart about [what] will keep us afloat for the months to come.”

Abbey also says the team’s been accepting of contract work.

“When a team member has to cycle out of our creative IP work and onto client projects for a few months, it is with the understanding that they are here because they are passionate about making games,” she said. “Being competent at their current freelance role should not be a reason that they don’t get to cycle back onto our original projects.”

For developers forging ahead into the rough waters of securing investment, things are precarious. In 2022 and 2021, venture capital investment across the industry amounted to $14.6 billion and $16.2 billion in total respectively, according to investment research company Pitchbook. In 2023, that figure dropped to just $4.1 billion.

Marginalized developers are especially vulnerable to these ripple effects: Companies led by men received 76 times more funding than companies led by women, according to Polygon. And while Pitchbook doesn’t have statistics on how many minority developers received funding, developers like Peterson, who is Black, says this rings true for people of color.

“It’s like that old adage: America gets a cold, Black America has the flu. It’s the same thing in [games] funding,” she says.

Fernando Reyes Medina, founder and Latin American Director of Latinx In Gaming, tells IGN that many Latinos are struggling to secure their fair share of what little money is being stretched across the industry.

“Especially this year, there’s a lot of hesitation and extra diligence from investors and publishers,” Medina says. “But I think the challenge that we have is this extra layer of unconscious bias that maybe other folks don’t have to face. It just makes everything kind of impossible.”

With gaming only just gaining a foothold in Latin America, local investment simply isn’t at the same investment level as American funders. This means Latin creators and studios are competing for the same dollars as American studios, placing them at a significant disadvantage. When trying to get noticed, factors like language barriers and the perception that they’re not as experienced or as capable as their American, often white counterparts is an all too common hurdle.

“Maybe your English isn’t perfect or you have an accent that has an association with ‘oh this person might not be as smart,’ even though you’re having very complex conversations when speaking your native language,” Medina says. “I’ve noticed that a lot with myself and with others.”

“We as Latino developers, we’re in this, like, chicken and egg problem. We cannot get bigger budgets and bigger projects because nobody’s giving us the chance to do so,” he continues. “But particularly this year with how things are, it’s even harder to break through that glass ceiling.”

Those lucky enough to secure a piece of the pie aren’t through the perilous woods of game development just yet. Kristian Segerstrale, CEO of Super Evil Megacorp, a primarily mobile-focused developer who’s had a mix of live-service hits like the MOBA Vainglory as well as cult darlings like the 2023 roguelike, TMNT: Splintered Fate, says his studios managed to not only weather the current storm hanging over the industry, but grow by 40 percent. But he doesn’t attribute the growth to pure business acumen, but to luck and the fact that Megacorp had the same hardships developers are experiencing by the thousands now, but back in 2017. When their single title Vainglory wasn’t profitable enough to sustain the company, they were forced to put aside that business model, becoming a multi-title studio working on multiple, varying games at once. They decided to diversify risk by both self-publishing and working with third-party publishers. They also transitioned to an all-remote model two years before the pandemic, ridding them of the financial overhead of maintaining an office.

But even with the odds in their favor, the challenges of turning whatever money is invested in them into profit remain, and are arguably tougher than ever before in 2024.“We compete with TikTok, YouTube Shorts, with every other possible form of media out there in the attention economy,” Segerstrale says. “It’s just making it harder to reach wider audiences.”

The sheer amount of games on the market also makes it tougher to stand out than ever. Most players are still obsessed with the biggest titles of the last five years. Newzoo reported earlier this month that despite the games industry reaching $93.5 billion in revenue last year, the vast majority of games taking up player’s time are all live-service games that came out at least 7 years ago.

“Games are getting really good at pulling their audiences back and retaining them,” Segerstrale says. “This means that for a new title to launch, not only is it more expensive to make, not only is it harder to find the audience for the title, but even if you do find your audience, these players are getting shouted to by all of their existing games to come back and forget that new game because they have a new update. So even holding on to your players is much harder.”

Teams that haven’t been able to navigate these tough times have meant the upending of thousands of livelihoods. In 2023 an estimated 10,500 layoffs shook the industry. 2024 is already on track to surpass last year’s figure with 9,000 layoffs as of May. Publishers like Embracer, whose brazen greed and mishandling of hundreds of the industry’s best talent has killed entire studios and projects that could have found a way forward on their own.

But from the ashes of these tragedies are permanent lessons developers of all sizes are learning from.“Sometimes the game industry can feel like building sandcastles,” Segerstrale says, referencing how fleeting the success of a single game can be. “If you feel like you cannot build an ongoing revenue model for the game, then it’s probably important for that game to somehow be a stepping stone to something else. Use that game to finance the R&D of a specific engine or a specific learning for the next game.”

Others, like Hovfestad see an opportunity for something more transformative: unionization. He believes the industry will recover from its current state, but is doomed to repeat this same cycle of profitability, consolidation and decline without real action. “The model that a lot of people are advocating for now isn’t to have 600 people that Activision unionize to some form of small union,” he says. “It’s to get a whole bunch of devs across the industry to form an IATSE, a SAG-AFTRA. That way you know that the treatment of people on projects will be a certain way, as opposed to your small union will independently try to negotiate with your colossal employer.”

“When the dust settles, making games isn’t that different from recording an album or releasing a movie. When a game ships, live service or not, there is immediately a drop off in the amount of work required,” he explains. “And unless you have a big, well-oiled system where all of those people will get shunted from project A and project B, for some of them there’s nothing left for them to do after that game goes gold. We’re all paying for this one way or another, and the industry just doesn’t have a solution in place yet.”

Trone Dowd is a freelance writer for IGN.