Dangerous Roads: Carnage in the Game Industry

So first, a quick refresher on recent events:

In late spring of 2023, a major funding deal between the Swedish company Embracer Group and Savvy Games – a group backed by money from the Saudi government – spectacularly collapsed. 

The deal was supposedly worth two billion dollars in development funding over six years and had been in the works for some time. The two companies were deep into negotiations, and Embracer had signed up several development studios in anticipation of closing.

The Embracer deal collapsed only a couple of months after Silicon Valley Bank shut down in March. SVB’s closing had already dried up much of the free-floating venture capital investment that the game industry relied on to grease the wheels of development.

The Embracer and SVB debacles were a quick one-two punch to the game industry, but even before then, the industry was showing signs of overall softening. During the COVID pandemic, it seemed like games were recession-proof; people were staying home and staying inside, and gaming was a great way to pass the time.

Additionally, blockchain and NFT-based startups were the next big thing. Many of us in the industry sounded the alarm about how NFTs had the potential to ruin games even more than exploitative free-to-play models had a decade earlier. 

But the early hype over the technology – and the initial profits that resulted from that hype – made venture capitalists open up their wallets whenever a developer pitched an NFT-focused title. The eventual (and, in my opinion, entirely predictable) collapse of the NFT market added to the industry’s pile of woe. 

The Best of Times and the Worst of Times

All of these factors contributed to the environment we see today – mass layoffs, drying up of mid-sized studio funding, and the worst job market for game developers in years.

Indeed, the closure of several great studios such as Volition, and major layoffs at others such as Crystal Dynamics, Beamdog, and most recently Cryptic, can be directly attributed to Embracer Group’s collapsed deal.

It’s a gloomy picture, and many of my associates and friends were caught up in the churn. The shutdown of BonusXP where I worked wasn’t directly attributable to any of the factors I listed, but the overall difficult industry environment certainly played a role.

I recognize saying “things will get better” offers no comfort for out-of-work developers missing paycheck after paycheck. Without question, 2023 was a perfect storm of destructive factors all happening at once. The ripple effects are still being felt.

Yet games are still doing enormous business and are only predicted to get even bigger over the next few years. This year’s packed release schedule had the usual robust mix of blockbusters from triple-A studios, runaway indie hits, and innovative mid-tier games. I’ve said before that it’s one of the best years I’ve experienced as a gamer.

So the ray of sunshine is this: the fundamentals of the industry are strong. The next generation is growing up alongside my 14-year-old son, and I’ve met plenty of gamers in the making among his peers.

Out of the Storm

Where do we go from here? How do we, as an industry, navigate through the rocky shoals of 2023 and emerge next year into calmer seas?

Resets can be healthy; many of the business models that worked for the game industry in the past are proving to be outdated. We need collective adjustments at all levels. 

I wrote recently about the need for strong worker organizations that help advocate for developers and soften the blows of cyclical layoffs. That’s a crucial first step. 

At the same time, developers and publishers can work to break the layoff cycles by changing how games are pitched and funded. 

Games are often at the forefront of bleeding-edge technologies. Mobile platforms, virtual reality, and blockchain technology were all pushed forward and propped up by game developers. But too often, developers pitch titles that clumsily leverage new technology without proper consideration being paid to how the technology will benefit the player. 

On the flip side, too many venture capitalists want to fund projects that capitalize on the latest trends without a thorough vetting. When the only funding deals out there are married to the hot tech of the hour, developers are forced down a risky path. If NFTs suddenly generate buzz, an NFT-based game sounds like a great idea – provided the only criteria used to judge the pitch is the potential upside if everything goes perfectly.

Further, a handful of enormous corporations gobbling up developers like so many Pokemon have proven incredibly destructive for the industry. Embracer Group, even after cutting a horde of studios loose, still controls well over 100 teams. Tencent, a massive Chinese technology conglomerate, acquires new studios on the regular. Microsoft has fully consumed Bethesda and is in the process of digesting Activision.

Fifteen years ago, the game industry poster child for the comically oversized mega-corporation was Electronic Arts. Today, EA looks like a small independent player compared to the new giants.

The Room Where It Happened

Except for the players involved, most of us will never know precisely why the Embracer-Savvy funding deal collapsed. 

The bigger a company is, the more reluctant it will be to invest money in things that carry risk. A mega-deal will only go through if it’s perfect and the two parties are aligned. When Embracer accepted the first billion from Savvy, they absorbed a lot of criticism regarding the Saudi government’s dismal human rights record. Is it possible that a disconnect in core values played a role in the deal falling through?

Meanwhile, the teams making the games have to wait on the close of a mega-deal to keep the lights on, relying on future promises rather than steady, consistent funding.

From top to bottom, the game industry’s business practices and funding models are overdue for a shake-up. But I’m confident the shake-up is coming.

Disruption has always happened at the bleeding edge of game development. The first simple arcade games eventually led to a vibrant and thriving console and PC market, which eventually led to mobile games, streaming, and e-sports.

Today, so many fantastic independent developers are carving new niches outside of the big-budget triple-A studio funding model, engaging directly with their audience in ways that would have been impossible twenty years ago.

So don’t give up. Keep making great games and keep trying to make the industry a better place. We will emerge from this storm.

New blogs appear on ScreeGames.com every Tuesday, with a repost on Medium every Wednesday.