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Video game companies are running out of money as investment drops by $1.3 billion

Video game companies are running out of money as investment drops by $1.3 billion
Why does it feel like an industry crash is imminent? (Picture: Rockstar Games)

There’s finally explanation for the spate of job cuts in the games industry, even as Microsoft prepares to spend $69 billion on Activision.

It’s becoming increasingly obvious that there’s something fundamentally broken within the games industry at the moment. There has been a worrying swathe of layoffs across multiple companies, that have happened almost simultaneously, with the makers of Fortnite laying off 900 and complaining of ‘financial problems’ .

While there’s unlikely to be a single explanation for this, a major contributing factor appears to be that the industry at large isn’t getting the same financial support it used to.

In the third quarter of the 2023 fiscal year, venture capital groups invested $700.3 million (about £574 million) into gaming . This may sound like a lot, but it’s the lowest amount in three years.

According to data from financial data company PitchBook, and shared by Bloomberg , the games industry was attracting more than $2 billion (about £1.6 billion) every quarter for two years until midway through 2022.

That’s a significant drop and one that has undoubtedly spooked publishers given rising development costs, inspiring more of them to increase the prices of their games and, sadly, cut staff.

It’s worth remembering that the industry enjoyed a massive boon in 2020 thanks to the coronavirus pandemic and ensuing global lockdown. With everyone stuck indoors, more and more people turned to video games for entertainment.

However, while any sensible person would’ve know that wasn’t going to last, and things would gradually return to normal, that’s not how businesses think and so they’ve ended up pretending to themselves for as long as possible, before suddenly slamming on the brakes as they finally accept the jig is up.

Not to mention gaming is becoming an increasingly expensive hobby, in terms of both time and money, and not everyone can, or wants to, commit to it, especially with a cost of living crisis still going on.

There’s also been dwindling interest in new technologies likes the metaverse, Web3, and NFTs.

Investors are now seeing video games as too much of a risk, with PitchBook analyst Eric Bellomo adding: ‘Outsize returns come from a small collection of games, but it is very hard to pick those games at an early stage’ and so venture capital firms are raising ‘the bar for titles and studios they fund.’

Fortnite – Epic Games’ solution to dwindling profits is redundancies and raising the price of Fortnite’s in-game currency (Picture: Epic Games)

Game companies now appear to be stuck in a vicious cycle where, in order to offset this drop in funding, they’re cutting costs by cancelling projects and firing staff. Except this is only going to make investors even more wary about handing their money over, as publishers essentially advertise their financial troubles.

What doesn’t help is the ludicrous amount of money being spent on studio acquisitions, something that was also inspired by the pandemic-induced boon.

In sadly ironic timing, rumours suggest that Microsoft’s painfully slowly purchase of Activision Blizzard is likely to go through next week, costing them a grotesque $69 billion (approximately £56.5 billion),

However, despite being able to afford what is the most expensive acquisition in gaming history, Microsoft was still compelled to fire 10,000 employees across multiple developers at the beginning of 2023.

Many jobs are also certain to be lost as a result of the acquisition, which always happens when positions already exist at the parent company.

More: Trending Starfield Metacritic score is down to 83 on Xbox following Edge review Zelda: Breath Of The Wild is the best video game of the last 30 years says Edge magazine Games Inbox: Is Zelda the best video game franchise ever?

Elsewhere, Embracer Group’s own flurry of acquisitions has, unsurprisingly, come back to bite it. After a $2 billion deal fell through , the company has cancelled multiple projects, issued redundancies across its studios, and shut down studios such as Volition .

There’s also talk of it selling Borderlands studio Gearbox to another company, just two years after buying it for $1.3 billion (about £1.07 billion).

So, we have companies spending money they don’t have and their efforts to make that money back resulting in redundancies, increasingly expensive products that ordinary people can’t afford, and investors turning away in droves.

It’s too soon to predict where things could go from here, but it’s probably not to a good place…

Borderlands – are video games simply becoming unsustainable? (Picture: 2K)

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