Why are so many gaming companies going through massive layoffs?

2023 had its ups and downs in terms of video game releases, but the scale definitively tipped the wrong way for thousands of game developers who lost their job within the last 12 months. Mass layoffs in gaming companies continue in 2024, and many fans are trying to figure out why.

The latest gaming company to announce a wave of layoffs is Riot Games, which is the perfect example to show just how bad the situation has gotten. Riot is one of the biggest players on the market and yet it classified its decision to terminate over 500 employees as a “necessity.”

This necessity Riot is speaking of is the same one that resulted in layoffs throughout 2023 at companies such as Epic, Bungie, and Gearbox, among many others. We’ll hardly surprise you by revealing that said necessity is revenue. Any company needs to hit a certain revenue level to keep itself afloat, and when those goals are failed, morbid consequences quickly follow. But why now? Why are so many different companies in the gaming industry laying off employees in such a short time window? The likely reason is strictly business, and yet infuriating to think about.

Why are there so many layoffs in the gaming industry?

The root cause for layoffs in any industry is almost universally insufficient revenue, but there’s a little more to it. The COVID pandemic of 2020 and 2021 forced people to stay home more than they would under normal circumstances. Gaming being one of the easier and, dare we say, best hobbies to pull off in a home environment resulted in a huge boost to the gaming industry.

That spike of interest toward gaming prompted many companies to go all-in and capitalize on the unusual circumstances as much as possible. While that worked splendidly in the short term, it was never going to be sustainable and the results of that all-in strategy are being seen now.

The theory goes that gaming companies who benefited greatly during the pandemic assumed the vastly increased revenue stream would continue even after the world returned to its relatively normal state. Turns out you can’t apply emergency logic to regular circumstances. Revenues have gone down and adjustments have been made. Unfortunately for some people, it’s usually those at the foot of the food chain that bite the bullet, hence why thousands of game developers lost their job within the last year or so.

There are more factors at play, such as the general economic crisis that spread worldwide these past couple of years, as well as industry-specific issues like poor game sales and overblown budgets. These all play a role, but by themselves, they cannot lead to an industry-wide crisis, because economic instability, poor resource management, and disappointing game launches have always been there; these are potential threats you simply accept at this point.

The outlier is a pandemic that ballooned the gaming industry beyond its realistic measurements, which then led to unrealistic revenue projections. Once those proved unsustainable, the casualties started falling like trees. It’s only unfortunate that shareholders’ dreams resulted in thousands of game developers’ nightmares.