There are companies were layoffs, while awful, are understandable. Supermassive Games just recently comes to mind. Electronic Arts made $5.85 billion in profit (would've been even higher, but there was a big stock buyback). It's not a "struggling company."
For a relic of the past, it's interesting that there's record-high interest among developers in joining unions. We've even seen several pop up in the last year at ZeniMax, at Raven, Blizzard Albany, and so on. Every developer I've spoken to in the past year has agreed on one thing: It's clear the suits are not trying to make a sustainable business. Doesn't matter how stellar you are, if they can squeeze profits higher, you're on the chopping block.
Fighting back however you can is the only way this industry still exists in a few years.
Sorry, but ratios matter.
Specifically, the ratio of *net* earnings to expenses.
Sustainablity matters.
Specifically in the form of trends.
Good corpotate management is figuring out not where you were last year but where you'll be next year. Or the year after. And in corporate game development where cycles run five years or more that means the planning horizon ru s 6 years or more. And if the trends are not sustainable, no rational manager is going stand still, waiting for the actual collapse.
EA was not struggling last year but that does not mean they're not under pressure or that they'll be fine just by doing nothing. And that $6B revenue? How much did it cost? $100B like Sony? What woukd it cost next year? And the year after?
Didn't we just see Sony going into a panic over their cash cow margins dropping to 6%? From 9% last year and 12% the year before? Wouldn't that suggest 3% for 2024 and zero for 2025? Is EA facing better conditions? We don't know but EA does.
Remember that corporate costs are not linear or proportional to product output/sales. (Economics 101!)
Some costs are variable and output dependent (say the cost of building consoles or shipping disk boxes) but the biggest costs are *fixed* (buildings, utilities, *staff*) and recurring. Worse, they are front-loaded! You have to spend well ahead of when the revenue arrives. And if the revenue doesn't arrive?
(Have you heard of China's evergrande? They spent and spent well above and beyond what they were taking in, assuming the future would be like the past and customers would always show up. Nope. Customers stopped buying. They had no reserves. Last month bankruptcy court mandated that EVERGRANDE be liquidated.)
Well run companies need safety margins, cash reserves. Because stuff happens. Wars. Pandemics. Somebody builds a better product. People learn to live without your product. Your can't miss game misses. Change is continuous and the future will not be the past with a different calendar.
Way back when Bill Gates ran Microsoft in Albuquerque, he mandated that the company maintain enough "cash" reserves to operate a full year without taking in any revenues. They still do even when they take in $100B a year. Not necessarilly because they expect to go a year without revenues but because stuff happens. And because a poorly run company like ABK might become available "cheap" if you can scrounge up $70B in cash.
And don't forget that company execs are empoyees too and they have to answer to the owners, which in the case of EA and MS and Sony is the stockholders who mostly are *not* billionaires. In Microsoft's case, some 70% of their stock is owned by institutional investors, funds managers and *pension funds*. The dividend and stock value belongs to thousands upon thousands of ordinary people who count on that money to survive, too. Things might be different in your neighborhood but in the US 60% of families own stock and the big tech companies are among their most common properties. The execs have a *responsibility* to protect those people's property. If they don't they'll get fired, too, like Ryan did at Sony.
Now, EA in particular, if you read their report you'll notice they are cutting back on licensed proerties. Specifically, *Disney* properties. Which makes sense in a dozen ways. Disney licenses are expensive and they are underperforming everywhere. Their brands have cratered and a major portion of the US population now considers "Disney" a cuss word. So backing out of a deal that might cost $100M on a potentially toxic dud is sensible. So is pivoting back to your own staff's creativity and your own stagnant IP. (Notice how much Spencer highlighted that in jusyifying the ABK deal? Notice what SEGA is doing? Sony will follow suit. Wanna bet INFAMOUS is coming back?)
It might be painful to the humans being fired (no sugarcoating here) and the PR and optics may be bad but it very likely is *necessary* if EA is still to be independent in five years. It's an ugly job but somebody has to do it. And bear in mind the people moving out are *not* minimum wage time clock workers but rather skilled white collar STEMers making on average $100K a year (according to the glass house web site) in salary and benefits, likely more (those benefits and employment taxes basically double the employee cost) so the savings are significant and *recurring*. Oh, and no, a union would not changed a thing. The US is not Spain or France. Unions might delay firings but they can prevent them.
You might not have noticed but the vast majority of the tech people fired last year quickly found jobs elsewhere, often in other industries adapting to the changing times. STEMers are actually in high demand. They are not now living under a bridge, even if it means moving to another state.
Big business is complex.
And way more on the inside.
Finally, consider that EA has been on the market since MS announced they were buying ABK.
No takers.
Not at any reasonable price.
Not Apple. Not AMAZON, NETFLIX, GOOGLE. Or Sony. (hah! Between the trial docs and the hacked data, they'll be lucky not to be bought out themselves.)
Again: change is coming and the bloodletting is just beginning.
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