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As employees walked into work, the reporter asked if they knew why they weren't getting paid. For a few 38 staffers, this was news. They weren't getting paid? Really? Was this some sort of mistake? A clerical error? The end of the world? What the hell was going on?
Within the next week, Schilling would tell his staff they didn't have to come into work anymore, and by the end of May, 38 Studios would be gone. Employees all had to find new jobs, while a dejected, bankrupt Schilling found himself entangled in lawsuits that carry on even today.
Over the past few years, we've heard a litany of gloomy stories like that one. THQ going bankrupt. Disney shutting down LucasArts. Major studios like Irrational (BioShock), Junction Point (Epic Mickey), and Team Bondi (L.A. Noire) closing. Waves of layoffs at independent developers big and small. Even mega-publishers like Electronic Arts and Activision regularly downsize, shutting down studios and laying off staff on what seems to be a cyclical basis. EA's headcount, for example, dropped from 9,300 in March 2013 to 8,300 in March 2014, according to SEC filings, and though we don't know exactly how many people they hired or fired in the past year, the headlines have been grim.
And it happens all the time. Just last week we saw big layoffs at Rock Band creator Harmonix and a total shutdown at Mythic, the longrunning studio best known for developing Dark Age of Camelot. Recently there were layoffs at EVE developer CCP. Every other day it seems like there's a new story about game companies showing their employees the door. Estimates from the website GameJobWatch peg 2013's layoff count at over 3,400, and that leaves out job losses that weren't reported by the press.
Yet, paradoxically, the video game industry is booming. Americans spent $21.53 billion on games and hardware last year, according to the Entertainment Software Association, and sales of the new-gen PS4 and Xbox One have exceeded most pundits' expectations.
So why are layoffs such a common occurrence? Why are so many video game studios closing? Why do we hear so many stories about layoff cycles and "reorganizations" that leave even the most successful developers out of jobs? Why does it feel like the people who make video games are always on the hook?
Over the past few weeks, I've been in touch with some 50 people who have worked in various fields of game development, from QA to publishing. Speaking under condition of anonymity in the interest of protecting their careers, these developers and publishers told me stories about their experiences in what has become one of the most volatile industries around.
"Layoffs are more than just losing a job; they're gaining a mountain of uncertainty, stress and financial concerns," one developer told me. "I have moved my family more than seven times over the last 16 years, across the country and up and down the west coast. I'm a pro at living with very few material possessions, as I grew tired of lugging them around. As you can imagine all those moves put an enormous stress on relationships, both personal and professional. Your circle of immediate friends shrinks to zero with every move."
"If you haven't been there yourself," said another developer, "it's hard to explain how it feels to suddenly have no real idea how you're going to pay for gas, or rent, or food or any of the other things you've taken for granted since getting a 'real' job."
"In general I wish there was a lot more job security in this industry, and a focus on allowing actual lives to be lived for employees," a third developer said in an e-mail. "Laying off near-entire teams simply because projects end is MESSED UP."
Why does this happen so often?
Say you work for a video game studio. You and your team have just released a new game, and you're damned proud of what you've just put out. It's not perfect, but you did the best you could do with the budget and time constraints you had, and now you're excited to take a nice long vacation.
One day, you get called into a meeting. The company has to cut costs and will be "reducing headcount." You---along with 20 other people---are no longer employed. This wasn't for incompetence, or negligence, or anything else that you could control. You did nothing wrong. Your name just happened to be on the wrong list at the wrong time.
Get drinks with someone who works in the video game industry and you're bound to hear at least one story like this. In gaming, layoffs are routine.
"The ideal situation for a big studio is to have multiple projects running at once so that team members can cycle on and off as needed," said Holden Link, a game developer who runs the layoff-tracking website GameJobsWatch. "Every time one project ships, the next one should be 'ramping up.' The 'seasonal layoffs' happen when things in that cycle don't go as planned. Maybe one of the projects got cancelled. Maybe it simply got delayed. Any change of plans like that can lead to layoffs."
For an independent studio with no big financial backers, poor planning or just bad luck can leave the people in charge unable to pay their staff.
Take the case of Ready At Dawn, the video game studio working on the upcoming PlayStation 4 game The Order: 1866. Though the studio had found some success making God of War games for the PSP, they had trouble convincing publishers to buy their other prototypes, according to a person who worked there. And in July of 2010, as the studio finished off God of War: Ghost of Sparta and prepared to move onto The Order, the folks at Ready At Dawn laid off 13 people---only to re-fill those same positions back six months later. (Ready At Dawn declined to comment for this article.)
The thought might seem silly---why get rid of developers just to replace them in a few months?---but this sort of thing happens often. And the explanation is simple, according to one ex-employee. The development team didn't need those people for pre-production---the period of time in which the basics of a game are conceptualized and designed---so Sony, the publisher, wouldn't pay for them. (Sony didn't respond to requests for comment on this story.)
It's common for publishers to not want to pay for developers who aren't needed, and the ex-RAD employee says that was the case here. Without Sony's checks, Ready At Dawn couldn't afford to keep paying those people during pre-production. Months later, when The Order: 1866 entered full production, Sony's budget allowed Ready At Dawn to hire back for those same positions.
"It's weirdly common to hear about people getting laid off from the same company more than once---i.e., they get laid off, rehired, and laid off again in a span of two or three years, often without a different job in between," said Link. "Those scenarios are a vivid illustration of these kind of layoffs---the company didn't need someone for a few months, then decided they needed them full time again until something else went wrong."
Some developers have grown resentful of publishers because of these kind of arrangements.
"It's just business to [publishers]," said an ex-Ready at Dawn employee. "It's really impersonal, and they just want to put a price tag on pre-production. The same thing happens for the end of the project. You can always see concept artists get really worried towards the end, like, 'When are we going to sign a DLC contract?'"
A deadline's coming up...
In the video game industry, layoffs usually hit either A) after a game is finished; or B) once a game is cancelled. Reason B at least makes logical sense: it stands that if a company no longer has funds to make a game, they'll no longer be able to afford the staff who were working on it.
But why do so many studios bring down the axe when a game is completed and everyone should be celebrating?
The problem in big-budget game development, developers say, is over-saturation. In order to maximize sales, a publisher will often set a hard release date for a game. In order to hit all the deadlines and make that date, a development studio will often hire as many people as possible. Once the game is done, a studio could find itself bigger than it can ever really afford to be.
"In the console industry, every year [is] a grind to get ready for the Christmas season, or to some other release date," said one person who has worked for several major publishers. "Since hitting dates is top priority, there's always over-hiring in order to make sure the work gets done."
What about the big guys?
Though the major publishers are publicly-traded companies with massive bank accounts, even top dogs like EA and Activision let go of staff on a regular basis.
Priority number one for public companies is keeping shareholders happy, which means showing big numbers on their earnings reports every quarter. When those spreadsheets start looking sickly, a publisher can save money by cutting one of their biggest costs: people. (The average yearly salary for game developers, according to a Gamasutra study, was $84,000 in 2013. That means firing ten people could save a big publisher $840,000 per year, not counting whatever they save on benefits and other expenses.)
These cuts are often coupled with robotic corporate-speak like "shifting resources" and "lowering expenses." One person who worked at an EA studio during a major wave of layoffs said he was stunned hearing the language in EA's most recent financial report.
"It was probably one of the most heartbreaking things I had ever experienced," that ex-EA employee said. "When Blake Jorgenson, EA's CFO, spoke out at the fiscal year reports and said, 'While navigating through a year of tremendous change in the industry, which included a challenging console transition, we were able to exceed revenue guidance, lower our operating expenses, double operating cash flows and invest in new products and services for the future,' I barfed a little in my mouth because that bit regarding lowering operating expenses is corporate PR talk for axing studios and employees."
Though it's easy to think of publishers as big heartless corporations, several former EA employees noted that the company made efforts to give new, relocated jobs to people who were laid off. "I don't think there's a 100% amazing way to end somebody's employment," said one person who worked at EA, "but I do believe that EA went much further than they had to in helping the outgoing employees."
Ex-EA staff say the company would offer "above industry standard" severance practices and often try to get laid-off employees positions in their other studios. "There was normally a genuine attempt to help former employees find employment either within another part of EA or elsewhere," said another person who worked for the publisher. EA declined to comment for this article.
Activision, the mega-publisher behind Call of Duty and Skylanders, grew by 200 employees from 2012 to 2013, jumping in headcount from 6,700 to 6,900, according to their SEC filings. This growth comes despite layoffs at the Activision-owned Treyarch among other studios in 2013.
Finding a new job
Developer hires don't often make headlines, but it'd be unfair to talk about layoffs without mentioning that game studios are frequently employing new people. Studio websites are always full of listings for positions of varying levels and backgrounds, and it seems like there are always companies looking to staff up for their next big game.
When Take-Two shut down the Boston-based Irrational Games earlier this year, for example, they held a big job fair, and recruiters from all around the country came to hunt down new talent. Ex-Irrational employees found new work at studios like Blizzard (Irvine, CA), 343 (Seattle, WA), Arkane (Austin, TX), and various other development companies across the world.
But for many developers, a life of constant relocation just isn't practical. How many people---especially those with families---can just uproot and move across the country every time someone above them decides that layoffs are necessary?
Over the past few weeks, many developers have told me stories about packing up their lives and moving across the country, or struggling for months while looking for a new opportunity after "routine" layoffs. For some, ditching the dream of making video games has been the only practical option.
"Let me tell you," said one former AAA developer who has switched careers, "a honeymoon is much more fun when you know that when you get back, you're going home to a job and not to an unemployment check."
Not every game developer who has moved to another field is happy with the career shift, of course. One quality assurance tester who has been laid off from two different gaming companies told me he's now reviewing content for an adult entertainment website, and miserable about it.
"This is really not what I want to do," that person said. "There is me and another QA games tester and between us we have over 12 years QA games experience but we watch porn all day."
One high-ranking employee at a major publisher told me he doesn't expect to see the current status quo change without some sort of miraculous shift in both studio management and publisher expectations.
"Part of the reason is studio heads and even publishers don't wish to accept that the current 'boxed'/premium model of development---where the perceived need to engage in a technological arms race with their peers occupies as much time as creativity in execution---railroads them towards having to wield the axe as a game ships," that person said in an e-mail.
"Because there's so much money tied up, hitting dates to hopefully land in a favorable spot and recoup their investment becomes paramount. That in turn necessitates crunch, which spawns a bunch of challenges in itself."
This cycle of over-hiring staff just to fire them later isn't just toxic for them and their families. Imagine you're a game developer, and you're crunching---working 14 to 16-hour days---for a video game studio that you know could axe you as soon as the game is done. How much incentive do you really have to give it all your best effort? Will you really care if that game turns out to be any good? Are you really going to be able to make great art with the cloud of layoffs hanging over your head?
"It's an unacceptable state of affairs where a studio can have a bona fide hit and then need to lay people off---something that increasingly appears to be the status quo," said the employee of a major publisher.
"Indie development may not be the cure-all some people believe, but it's hopefully driving a more pragmatic approach to using more off the shelf tools and some (very) polished packages to make great games vs always needing to build your own edifice from scratch."
Some studios do things differently...
Over the past few years, some game companies have figured out how to avoid layoff cycles. One Ubisoft Montreal employee reached out to assure me that in ten years at the studio, he's never seen layoffs. (He estimated that the studio employs a whopping 2,700 people, which by Ubisoft's criteria is enough to make about three games.)
Other companies have also been open about their emphasis on staff retainment, like the studio 5th Cell, whose executives have bragged about hiring employees "for life." Employees of some game studios, like Civilization developer Firaxis Games, have nothing but positive things to say about their experiences there, though even Firaxis, like just about every other developer on the planet, has gone through waves of layoffs. (A 2010 statement from Firaxis parent company Take-Two was as robotic as it gets: "Firaxis has realigned its development resources in order to streamline its development process, reduce costs and maximize the overall performance the studio.")
One big exception is Nintendo---the folks behind Mario and Zelda never go through layoffs, and CEO Satoru Iwata's explanation in a 2013 Q&A makes you wonder why other companies haven't followed their lead (emphasis mine):
Regarding why we have not reduced the number of the personnel, it is true that our business has its ups and downs every few years, and of course, our ideal situation is to make a profit even in the low periods, return these profits to investors and maintain a high share price. I believe we should continue working toward this ideal. If we reduce the number of employees for better short-term financial results, however, employee morale will decrease, and I sincerely doubt employees who fear that they may be laid off will be able to develop software titles that could impress people around the world.
I believe we can become profitable with the current business structure in consideration of exchange rate trends and popularization of our platforms in the future. We should of course cut unnecessary costs and pursue efficient business operations. I also know that some employers publicize their restructuring plan to improve their financial performance by letting a number of their employees go, but at Nintendo, employees make valuable contributions in their respective fields, so I believe that laying off a group of employees will not help to strengthen Nintendo's business in the long run.
UPDATE (6/6/2014): Sadly, just one day after we published this article, Nintendo announced that they'd laid off 130 people and shut down one of their offices in Germany.
Speaking of morale...
Some companies might handle these layoffs well, but for many game developers, the process of getting laid off is totally degrading.
In 2007, at a studio in London, employees were summoned to the cantina and told that layoffs were coming, and that they could expect to hear within a week who would be affected, according to a person who was there. When they all got back to their desks, they found that the company had installed software in every computer that would tell the IT department when anyone attached an external USB drive, that ex-employee said.
"I guess [the studio] was worried that people would take the code and assets and release them on the internet," said the employee. "In reality that meant that people couldn't use assets for their portfolio (which is otherwise pretty common practice when changing jobs)."
And then there's the case of the telltale phones. A few years ago, when former game publisher THQ was facing financial difficulties following the flop of their uDraw tablets, the publisher started downsizing at their various studios across the world. At one of those studios, according to a person who worked there, then-THQ boss Danny Bilson flew out and called everyone into a meeting. THQ was doing layoffs, Bilson announced, and employees who were axed would receive an email letting them know.
Immediately, phones started buzzing throughout the room.
"Anyone who had their smart phone hooked up to company email knew instantly that they'd been let go," said a former THQ employee. "It got ugly pretty quick."
I've heard way too many stories full of these brutal details. Sometimes people are physically escorted from the building, as they were during various layoffs at LucasArts during the mid-2000s, according to a person who worked there. Once, at the failed publisher Midway, some employees were brought into a conference room and told "Those of you in here are not fired," a former employee told me.
All of these game studios have one other thing in common: Immediately after a round of layoffs, everyone goes out drinking. Often they start at their desks.
Is this sustainable?
Several of the developers who contacted me for this story said they were fed up with layoff cycles and had left the video game industry entirely. Some told tales of endless relocations and unreasonable hours, and bragged that in their new fields, they were paid more to work less.
Many industry people agree on one thing: these regular layoffs are ultimately harmful to the designers, artists, programmers, musicians, testers, writers, and every other person who has some hand in making video games. Few people want to be forced into looking for new employment every year or two, and though there are no easy stats about burnout rates in the video game industry, many observers believe that talented developers are leaving in droves.
"It's not fair for developers and their families to continue uprooting their lives over and over again, and it's not good for the companies to be paying a game budget's worth of severance and re-hiring fees every year," said GameJobWatch's Holden Link. "It's not emotionally or financially sustainable for anybody."
But inertia is hard to fight. How do you convince a multi-billion-dollar industry to change practices that prioritize short-term profit over long-term morale?
Not everyone has a solution for the layoff problem, though some have suggested that game developers embrace unions, or the contract-only system for talent that's common in the film world. And it is a problem---at least if you're interested in big-budget console and PC games with high production values like Call of Duty and Deus Ex. If these layoff cycles continue happening, talented people will leave the world of video games for more stable careers, and though we might not notice the effects of this right away, many of the developers I've spoken to over the past few months and years believe that something's going to give.
Now how much can developer burnout really affect gamers and the games they play? Logic suggests that happier, more stable developers would make better games, though quality is subjective and impossible to measure. Nobody likes seeing their favorite game studios shut down, and from a moral perspective, it'd be nice to know that the games we play are created by satisfied people who are treated well. Ultimately, as developers continue to burn out and leave big-budget gaming, we'll keep seeing smaller, more creative projects, which for many video game fans is a good thing.
We'll be sharing more gaming layoff stories in the days and weeks to come. If you've got a story to share, reach out. All contact will be kept anonymous.