In this case, and for a lot of other studios, Embracer went on a buying spree some time ago, betting that a deal worth $2 billion with Saudis would go through. It didn’t, and now they are forcing cost cuts across all studios they own.
You’ve got some good answers already, but I can expand on it a little: businesses in most sectors are feeling the impact of increased interest rates - both because they can’t borrow as much themselves any more, and because there is less money coming in from investors because they can’t borrow as much either - but tech (including games) is doubly impacted because there was such a surge in demand during lockdowns. While other businesses tended to struggle during lockdowns, and have simply had that struggle replaced with a different struggle due to the interest rates, the tech sector grew massively during the pandemic.
People working at home, or furloughed, had more personal time and more disposable income because they weren’t spending money on travelling to work, on overpriced lunches, on dining out with friends, going to concerts, etc. It all added up, and they spent that money on streaming subscriptions, video games and just generally on recreational, home-based activities, many of which revolve around tech these days. So the tech sector grew a lot because of the low interest rates, and it grew a lot because more people were buying its products/services. And now, rather than having more disposable income, a lot of people are facing a cost of living crisis, meaning not only have they reduced their spending because they’re back in the office and dining out and going to concerts again (and all those other things people spend money on when they’re not confined to their house), but many people have less money to spend on gaming, subscriptions, etc, than pre-pandemic.
Also, because the tech sector was doing so well during the pandemic, it was an attractive prospect for investors (who themselves had increased money, as well as great interest rates), meaning it grew even more. Everything kind of fed into each other and the tech sector grew exponentially as a result. Whereas right now, not only does the increased interest rate for borrowing mean investors are throwing their cash around less in general, but the fact that the tech sector is struggling makes it a less attractive prospect for investors, meaning the whole sector kind of doubly loses out on that front.
So these tech companies invested their money into growing their companies and expanding their businesses’ scopes like good capitalists. Which does generally make sense - if you find yourself sat on a huge pile of money, it’s generally better to find a way to invest it into something useful (or to invest it into something makes you an even bigger pile of money if you see the Monopoly Man as aspirational). The issue is, most of them were somewhat short-sighted (plus global economics is a tricky thing to predict); they spent money as if it was always going to be coming in at the same rate. And now that they’re being impacted by increased interest rates on their own borrowing, the loss of investors, and the reduced spending power of consumers and they’re very suddenly having to make massive cuts to stay afloat.
I think the other thing you need to highlight is that during that rapid growth phase 2 years ago it meant building up teams. In tech it really became an job market where employees had lot of the power in negotiation which drove up the cost of labor to fill this surplus of openings. I worked at a company where team members were being offered 10k to 25k annual retention bonuses to not quit (if you want quit within a certain time you pay it back, but if you quit hopefully your new employer spots you a signing bonus to cover it). But with all of the factors you mentioned in this cool down, you end up with a problem that you now have too much staff, but also too expensive staff that you can’t afford. Employees are definitely losing now with the layoffs, but for the ones that were able to make job moves and survive the layoffs, they’re probably are doing much better because of it (at least from a compensation POV, not sure about anxiety worrying about being laid off next).
Games companies expanded like crazy due to low interest rates and high demand for games during the pandemic. Now interest rates are going up and people go outside again.
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What is going on here? Why are so many companies laying off their employees??
In this case, and for a lot of other studios, Embracer went on a buying spree some time ago, betting that a deal worth $2 billion with Saudis would go through. It didn’t, and now they are forcing cost cuts across all studios they own.
You’ve got some good answers already, but I can expand on it a little: businesses in most sectors are feeling the impact of increased interest rates - both because they can’t borrow as much themselves any more, and because there is less money coming in from investors because they can’t borrow as much either - but tech (including games) is doubly impacted because there was such a surge in demand during lockdowns. While other businesses tended to struggle during lockdowns, and have simply had that struggle replaced with a different struggle due to the interest rates, the tech sector grew massively during the pandemic.
People working at home, or furloughed, had more personal time and more disposable income because they weren’t spending money on travelling to work, on overpriced lunches, on dining out with friends, going to concerts, etc. It all added up, and they spent that money on streaming subscriptions, video games and just generally on recreational, home-based activities, many of which revolve around tech these days. So the tech sector grew a lot because of the low interest rates, and it grew a lot because more people were buying its products/services. And now, rather than having more disposable income, a lot of people are facing a cost of living crisis, meaning not only have they reduced their spending because they’re back in the office and dining out and going to concerts again (and all those other things people spend money on when they’re not confined to their house), but many people have less money to spend on gaming, subscriptions, etc, than pre-pandemic.
Also, because the tech sector was doing so well during the pandemic, it was an attractive prospect for investors (who themselves had increased money, as well as great interest rates), meaning it grew even more. Everything kind of fed into each other and the tech sector grew exponentially as a result. Whereas right now, not only does the increased interest rate for borrowing mean investors are throwing their cash around less in general, but the fact that the tech sector is struggling makes it a less attractive prospect for investors, meaning the whole sector kind of doubly loses out on that front.
So these tech companies invested their money into growing their companies and expanding their businesses’ scopes like good capitalists. Which does generally make sense - if you find yourself sat on a huge pile of money, it’s generally better to find a way to invest it into something useful (or to invest it into something makes you an even bigger pile of money if you see the Monopoly Man as aspirational). The issue is, most of them were somewhat short-sighted (plus global economics is a tricky thing to predict); they spent money as if it was always going to be coming in at the same rate. And now that they’re being impacted by increased interest rates on their own borrowing, the loss of investors, and the reduced spending power of consumers and they’re very suddenly having to make massive cuts to stay afloat.
I think the other thing you need to highlight is that during that rapid growth phase 2 years ago it meant building up teams. In tech it really became an job market where employees had lot of the power in negotiation which drove up the cost of labor to fill this surplus of openings. I worked at a company where team members were being offered 10k to 25k annual retention bonuses to not quit (if you want quit within a certain time you pay it back, but if you quit hopefully your new employer spots you a signing bonus to cover it). But with all of the factors you mentioned in this cool down, you end up with a problem that you now have too much staff, but also too expensive staff that you can’t afford. Employees are definitely losing now with the layoffs, but for the ones that were able to make job moves and survive the layoffs, they’re probably are doing much better because of it (at least from a compensation POV, not sure about anxiety worrying about being laid off next).
Corpo cost cutting trying to suppress wages and replace workers that the board can get another bonus.
Games companies expanded like crazy due to low interest rates and high demand for games during the pandemic. Now interest rates are going up and people go outside again.