On the brink of the storm: The gaming Industry’s battle with economic change

The gaming industry is experiencing significant turbulence, marked by strategic shifts and economic challenges. In 2023 alone, in the United States, the United Kingdom, Canada, and Japan, the sector saw over 10,000 job losses. This troubling trend continued into 2024, with an additional 8,000 layoffs in just the first few months. These aren’t merely statistics; they signify profound changes within the industry, affecting both the titans and the upstarts of the gaming world.

For instance, Microsoft’s 2022 bid to acquire Activision Blizzard aimed to make it the third-largest gaming company, following Tencent and Sony. Despite these ambitions, Microsoft faced substantial economic headwinds, leading to a reduction of 10,000 positions (mentioned before) in response to slowing revenue growth.

You might ask, it’s a gaming industry, so why can’t companies prioritize creativity and fun over economic motives? Sure, it’s fun for consumers, but not for business owners. The business models prioritize strategies that maximize player value, often at the cost of employee job security.

This pattern of layoffs, usually timed just before the end of the year or early in the year, is not just a tactic to trim budgets but also a reflection of deeper systemic issues. These include rapid growth followed by market contractions, strategic blunders, and the harsh realities of economic downturns post-pandemic as indoor activity decreases. Companies like the Embracer Group and Unity have made significant missteps, from overzealous acquisitions to alienating their communities with new fees, respectively.

As we explore the strategies the gaming industry can use to manage these uncertain times, a few questions arise that we’ll answer below.

• How can the industry change its approach to workforce management and technology adoption to thrive in an AI-dominated future?
• What lessons can be learned from recent upheavals to ensure a more sustainable and innovative way forward?

Let’s explore how the gaming industry can prepare for an AI future.

Rising development costs, technological advances such as AI and automation, economic pressures, and changing labor relations cause mass layoffs in the gaming industry. Below, we explore the reasons for these workforce reductions in more detail, offering insight into the challenges and strategic decisions shaping the industry.

A significant driver of layoffs in the gaming industry is the substantial increase in development costs. Previously, budgets for AAA games ranged from $50 to $150 million but have recently escalated to upwards of $200 million. This surge in expenses is pushing companies to streamline operations and reduce headcount. High-budget titles like “Call of Duty” and “Grand Theft Auto” now exceed $300 million, which leads to a cautious approach focused on established intellectual properties, often at the expense of innovative new projects.

Ma Huateng (also known as Pony Ma), co-founder and CEO, signaled a strategic shift in November, moving away from smaller businesses and focusing on investments in artificial intelligence.

Integrating artificial intelligence and automation into game development is profoundly reshaping the industry. AI’s capability to replicate voice and kinetic performances threatens traditional roles, such as those of video game actors, by enabling companies to produce content without human actors. This technological shift displaces jobs and introduces complex intellectual property and security issues.

This leads to many problems, including significant layoffs and intellectual property or security issues. Therefore, in the wake of the Hollywood strike among writers, there is great potential that the gaming industry’s CEOs may also face this.

AI has also sparked contention in labor negotiations, particularly highlighted during talks by SAG-AFTRA, advocating for better control over using and replicating actors’ likenesses and performances in video games. The potential for strikes looms as actors seek to secure protections against the exploitative uses of AI, similar to their counterparts in the film and TV industry.

These ten companies can also face possible strikes:

• Activision Productions Inc.,
• Blindlight LLC,
• Disney Character Voices Inc.,
• Electronic Arts Productions Inc.,
• Epic Games, Inc.,
• Formosa Interactive LLC,
• Insomniac Games Inc.,
• Take 2 Productions Inc.,
• VoiceWorks Productions Inc., and
• WB Games Inc.

Economic challenges are compelling companies to reassess their business strategies. Twitch, for instance, announced a 35% workforce reduction as part of a broader initiative to develop a more sustainable business model. This decision followed rising operational costs and shifting market dynamics, such as increased network fees and unprofitable ventures, despite growing user bases since the pandemic.

Amid these disruptions, there’s a growing movement towards unionization within the industry. Workers seek better terms and protections, including fair wages and job security in the face of automation. This push towards unionization reflects a broader demand for equitable treatment in an industry facing profound changes.

For instance, workers at companies like Activision Blizzard are starting to unionize, which puts video game actors on a better playing field. Let’s remember the 2016 video game actors’ strike did affect the development of a handful of major titles, such as Life Is Strange: Before the Storm and What Remains by Edith Finch.

The gaming industry is experiencing significant workforce cuts due to escalating development costs, technological advancements, economic pressures, and improving labor relations. These factors collectively demand strategic adjustments from companies aiming to manage these challenging times.

HRForecast specializes in strategic HR planning and analytics. It can offer essential solutions for game companies going through these difficult times. Using data analytics, HRForecast can help companies predict future skills needs, identify gaps in their current workforce capabilities, and make informed decisions about whether to develop those skills in-house or outsource. This approach can help gaming companies better align their staffing strategies with long-term growth goals and market demands, potentially reducing the need for future layoffs while ensuring they have the right staff to adapt to the developing gaming environment.

In addition, HRForecast can play an essential role in helping companies understand and implement AI and automation technologies in ways that complement, not replace, human creativity and innovation. By analyzing job roles and workflows, HRForecast can identify AI opportunities to automate operational tasks, freeing people to focus on the creative and strategic activities that drive game development. This balanced approach to AI integration can help game companies improve efficiency while maintaining the creative spark central to creating exciting games.

Let’s review some precise use cases:

HRForecast can significantly help game companies facing rising development costs with its smartLibrary and benchmarking features. These resources help you understand the changes in the job market due to generative artificial intelligence (GenAI) affecting many jobs. HRForecast facilitates effective talent acquisition and skills development for gaming companies by providing real-time market data and detailed information on job roles and skill requirements. This strategic workforce planning (SWP) allows game companies to streamline hiring processes and minimize costs associated with expanded vacancies, helping to maintain a competitive advantage and effectively manage development costs.

By applying artificial intelligence and machine learning through its smartLibrary system, HRForecast can categorize and match training content to specific company needs, addressing relevant skills gaps and supporting employee upskilling and reskilling. Its targeted approach curbs unnecessary costs and ensures content distribution aligns with strategic business goals. In addition, HRForecast’s ROI calculator can quantify L&D ROI, giving gaming companies a clear indication of the financial benefits and advantages of growing their content investments, ultimately leading to more sustainable content distribution practices.

HRForecast uses analytics to provide gaming companies and various industries insight into workforce dynamics and industry trends. It identifies roles and new skills suitable for automation, helping such companies. So, for example, HRForecast helped A1 Group adapt training programs, Detecon skills assessment, improving workforce planning and digital transformation services. Merck Group used HRForecast to predict the impact of automation and align workforce strategy with digital health advances. Deutsche Telekom partnered with HRForecast to create AI-enabled learning pathways, preparing employees for AI-enhanced roles. This strategic foresight has enabled these companies to integrate AI technologies and automation effectively and streamline operations while maintaining competitiveness without losing talent.

HRForecast can significantly improve the integration of new technologies in gaming companies by using its experience in analyzing labor market trends and competency requirements, as demonstrated in cooperation with the German Association for Quality (DGQ). Through detailed analysis of over 47,000 job profiles across industries, HRForecast has identified current market needs and predicted future skill needs. For gaming companies, this means learning about the latest technology skills and integrating them into quality management and other department functions.

HRForecast can be a key solution for gaming companies during labor negotiations and strikes, providing deep insight into industry trends, skill requirements, and workforce dynamics. By analyzing data from over 500 million job postings and various other sources, HRForecast gives gaming industry HR leaders a clear understanding of current market conditions and emerging skills. This capability allows companies to proactively address skills gaps through targeted training programs and development initiatives, thus matching employee skills with the changing requirements of AI-enhanced roles. In addition, during labor negotiations, comprehensive market analysis from HRForecast helps ensure fair compensation strategies and fosters a culture of transparency. This strategic approach helps reduce the risk of strikes by addressing workers’ critical concerns about skill relevance and fair pay. It also improves worker morale by demonstrating a commitment to their professional growth and well-being.

HRForecast can help gaming companies offer a strategic toolkit to orient economic pressures and downsizing trends, providing detailed labor market and location analysis solutions. Using HRForecast services, gaming companies can make well-informed decisions about where to open new operations or consolidate existing ones, focusing on locations that offer access to a skilled and cost-effective workforce. For example, in cooperation with IAV GmbH, HRForecast helped the company conduct a comprehensive analysis of the labor market and make strategic decisions regarding the location of its program initiative.