Data & Dimensions | Ep. 17 (Video) - Gaming Layoffs, M&A and the Search for Capital

View Full Transcript

Neil Barbour: (Cold Open) I would say that these layoffs are largely being driven by margin pressures. That's the first thing that management is looking at. But to some degree, management teams must be at least thinking about the potential of AI to make game development more efficient.

Neil Barbour: Welcome to Data and Dimensions, a podcast at the intersection of entertainment, industry and interactivity. I'm Neil Barbour, an analyst with S&P Global Market Intelligence. So this week, I want to talk about all the layoffs going on in the video game industry, what's behind those restructurings and why it might be so difficult to reabsorb all that talent back into the business and maybe what that means for the long term of the segment. I'm going to walk through 3 different data sets here, all interconnected, all pushing toward the same story.

And the first one is just the labor market. So if you haven't really been locked into the headlines around gaming over the past 18 to 24 months, one of the big themes circling the space is downsizing, layoffs, studio closures, teams being spun out of larger organizations.

It's tempting to say that this has been a secular movement toward rightsizing after a lot of hiring during the pandemic. And while I think that's true, there have been reductions at Meta's VR division, for example, and mobile publisher Playtech took a haircut. So that exhibits that a lot of segments have been hit. But the reality is that it does seem like most of the really big moves are concentrated around AAA gaming, console specifically, PC gaming tangentially connected to this space as those two merge. Certainly, there still is a lot of casual PC gaming and other genres that show up on PC gaming that aren't as heavily exposed to console gaming, but the two share a lot of the same titles, particularly as cross-platform development becomes easier.

Microsoft is an obvious example here of the downsizing that impacts AAA console and PC gaming. So there were cuts at Activision Blizzard, and that's the publisher of Call of Duty. Bethesda's publishing portfolio was chopped up a little bit. Bethesda, the game developer itself, took a lot of hits. The same pattern shows up at Ubisoft, they went through some restructurings. They took on some capital from Tencent and reshaped what their core portfolio looked like. And in that process, they laid some people off.

Sony closed its London studio. There were reports that they were downsizing at Bungie, Warner Bros. cut Monolith, Embracer reshuffled what Crystal Dynamics looks like, Eidos-Montreal, all of these had reductions either in staffing or studios were closed. You could say similar things at EA and Take-Two; those were more high-level staffing than I think there were a lot of studio closures, though. I'd have to relook at the headlines there.

It's easy to get lost in the anecdotal evidence, but there have been different projects around the web and around the Internet tracking these layoffs as well. I sometimes click on a site called Gaming Layoffs, and it said there have been something like 10,000 jobs cut this year alone. So that's a helpful metric to keep in mind, at least directionally, but it doesn't really take into account how a company might be scaling down one part of the business and maybe scaling up somewhere else or if these people were laid off at one company but then found a home somewhere else.

So where we get a better picture of the totality of the industry is our employment data on what Market Intelligence classifies as entertainment software. Market Intelligence is the division of S&P Global that I work for, and we have all these powerful tools to size up different verticals. And one of them is taking a headcount of a wide swath of companies, and these are public and private companies. Some of these are estimates, some of these are based on reported totals. You can see our methodology in more detail, if you go on the website. So our employment data suggests that the headcount in video games has indeed been drifting lower and for several years now.

It started in 2023 with a slight decline. I'm thinking around down 1% year-over-year. And then it accelerated through 2024 and then through 2025, the headcount declined in our basket of companies, which is fairly extensive.

Let's talk about that basket a little bit. It's somewhere around 3,000 companies. That's certainly not every video game company. It's pretty laser-focused on console, PC and mobile gaming development actually making the video games that end up as the end products that consumers play. It doesn't include a ton of middleware and upstream development software necessarily or, let's say, like AI tooling that helps aid or assist in software development, but some of that is mixed in here.

All that is to say this is not an exhaustive basket of companies in the video game space, but it's a pretty good count. the point is that in that basket of companies, the headcount among those entertainment software companies was down 3.5% in 2025.

So the layoffs are accelerating or at least the reductions in headcounts are accelerating. I scanned through some of the data through July of this year, July 2026, it looks like that rate of decline is holding fairly steady, losing somewhere between 0.5 point to 1 point every month. And so I think that will probably average out to another 3.5% drop.

I'm being a little overly precise there. I think it's going to be in that 2% to 5% range, and we're probably going to lose employment a little more quickly in 2026 than we were in 2025. Though I would be careful with month-to-month data. We prefer to take the temperature on this metric annually because the games business has classically had a boom and bust cycle. So like if you are making a game toward the end of development, you tend to staff up a little more so you can get all the assets in place, you can do the QA, or quality control, you need. You have people playtesting and figuring out where the bugs are and what works and what doesn't.

You tend to do what they used to call crunch, although I don't think the industry uses that term anymore, but you bring in a lot of people to get a game across the finish line for a specific date. A developer can grow rapidly in that period. And then once the game ships, sometimes it will scale down. Now that's changed over recent years as things like DLC and different kinds of support and microtransactions need to be maintained through the launch period and then a year or 2 after the game releases, so that the team can stay somewhat large. But what's baked in is that the game industry doesn't look the same in the middle of the year as it does toward the end of the year just because of the different release cadence. A lot of games tend to be released at the end of the year.

So staffing could be larger in August, September, October, November. The game gets out the door, maybe they scale back a little bit. All that is to say that I would be cautious about pulling a line in June or July out for the rest of the year. But if I had to pull up my crystal ball right now and look at where the data is taking us, it does look like the downsizing is at least consistent and probably accelerating. I would say the overall trend line suggests that maybe some layoffs are being absorbed back into the industry, but certainly not all of them. You would expect that if 10,000 people were let go this year and none of them found a job back in the gaming industry that the rate of headcount decline would be a little steeper.

There would be more people leaving the industry net-net. The headcount figure reflects the net movement of people in and out. So it looks like definitely not everyone is coming back into the industry, but maybe some of that headcount is being reabsorbed back into it. There are fewer game jobs now than there were last year, the year before and the year before. But before we move on from this point, I would say, and sometimes this gets lost in the broader reporting is that there are not fewer game jobs now than there were 10 years ago. The industry would almost have to be cut in half to get back to 2015 levels.

I'm sure that's cold comfort for anyone seeking a job inside the game industry because they'd much rather see staffing go up than down, almost everyone would. But it does illustrate how quickly the game industry has grown. So why is this happening? Why are companies trying to run leaner after staffing up so quickly during the pandemic? And that's what I'm saying is that the industry itself has expanded so rapidly over the past 15, 20 years as mobile has come on and been a bigger consideration as console gaming itself has leaned into different monetization strategies that have made it more successful and have grown the player base and grown the total addressable market. So yes, why are companies starting to run leaner now after staffing up so quickly over the past decade?

Well, I think the easy answer is that revenue growth after accelerating so quickly over the past 15 years has slowed considerably over the past 3. So publishers were making a lot of money, particularly during the pandemic. They had a good ramp, let's say, from 2015 through the end of the previous console generation and into the next. They were making a lot of money, and they wanted to make more games to keep that rate of growth going. But all of a sudden, the total addressable market stopped growing and they were stuck with all this overhead, and that was a big drag on their margins. So there are a couple of things to point to here of why the rate of growth declined.

One was you can probably point to a pull forward of demand into the pandemic. Once people went back to their normal lives and maybe some of the government money dried up a little bit, some of that was reflected downstream into gaming. The rate of growth had just declined because people weren't at home playing games all day was the big headline reason why secularly gaming slowed down in that time. There are other things that come in and out of the market. But basically, the pandemic created an excellent environment for gaming growth. And then when that environment started to dissipate, a lot of the opportunities started to dissipate.

So now they're left with staffing levels that were addressing a different trajectory for the gaming industry. Each company is wrestling in their own way with it, but that's the core of the story. I don't want to get too far in the weeds here. We've talked about different angles in our analysis on Cap IQ Pro and other podcasts, but that's an easy sell. What I want to double-click on today is that we have concrete evidence that there is a lot of talent out there that won't be ending up with a new game job very quickly. So that's more programmers, more designers, more artists, producers, experienced people looking for a new home, particularly if they want to stay in gaming.

The segment cannot or is not retaining that talent organically as I think our headcount data shows. So you might expect that some form of capital outside of the gaming industry or adjacent to the gaming industry might see an opportunity. So is that happening? Well, that brings us to our second data set.

Let's talk mergers and acquisitions.

Once upon a time, you can imagine a publisher hearing that Arkane Austin was up for grabs. This is the studio that played a key role in making Dishonored and Prey, which were pretty big games over the last generation of hardware or the last 2 generations of hardware. or maybe it would be strange to see a studio like Monolith without a home. They were the developer that made the Shadow of Mordor, Lord of the Rings games. maybe not super mainstream games, but definitely punched above their weight, played a major role in the last couple of generations of hardware. But in this cycle, these studios were not really divested as going concerns. They were just closed. So some employees were reassigned where possible and others were pushed back into the labor market. there are a dozen reasons why they would decide to dissolve instead of selling a studio like this.

Maybe they didn't want to give the competition an advantage. Maybe they tried to sell and they didn't find a good offer. Maybe the profile of the studio, the composition of the studio had changed so dramatically that it wasn't as effective as it was 5, 10 years ago. I'm not talking about these studios specifically as examples that I named in the previous that I just named, but those could be impacting other studios. I'm just coming up with scenarios. I don't have any particular insight or information on what happened at Monolith or Arkane.

But if you look at gaming's M&A market, you can see pretty clearly that there just aren't a lot of acquirers out there anyway. So there was a real surge in M&A during the pandemic, and most of that was folding independent studios into larger ecosystems. And some of those were much higher profile than Monolith or Arkane. So look at Sony picking up Bungie or look at Microsoft buying Activision. And in truth, last year was still pretty substantial from an aggregate valuation perspective because the Saudi Public Investment Fund offered to take EA private. So that's another form of headline consolidation among mega publishers and other investment interest.

But outside of that, we're just seeing a slow trickle of maybe a couple of $100 million-plus deals per quarter with a few smaller deals layered in. You might expect maybe a monolith or Arkane, and I'm sorry to pick on them. Those are just the ones I have in my notes here. Maybe they could go for somewhere in the sub-$1 billion range, maybe they're worth, and I'm just pulling a number out of nowhere here like maybe they're worth $500 million, but those aren't the studios that are being targeted here. When I reviewed second quarter transactions specifically, and there's a similar texture over the past couple of quarters. What stood out was that the transactions were generally not centered around those console or PC developers.

Much of it is around ecosystem plays. So monetization platforms, social gaming businesses, mobile publishers. Those are the the big targets in the M&A space. So just to pull 3 deals out here in the most recent quarter, there was an investment into Wemade and its WEMIX blockchain gaming ecosystem that came out at about $600 million. DoubleU Games offered to buy the remaining stake in DoubleDown, which is a social casino platform. Integrated media company bought indie publisher PlayStack.

So that's tied to what you might classify as traditional development. They're the publisher of Mortal Shell or at least they were tied to certain publishing rights around Mortal Shell. Balatro, which is that card game poker hybrid card game that was a big hit last year. The Case of the Golden Idol, smaller hit, but still well regarded among the Indie crowd. it involves a lot of what we might consider traditional game development, at least around indie or AA, but it's still about buying a portfolio of games instead of targeting development assets directly. Studios aren't in demand, a landing spot for an ecosystem for studios might be a more attractive investment spot than a developer specifically. And we saw this when we were at ICON earlier this year. So, it cuts both ways.

So let's move on to the third data set, which is fundraising. So if M&A isn't providing the sufficient landing zones for the talent being divested from these mega publishers, maybe venture capital is filling the gap? Well. Unfortunately, fundraising data presents a similar picture as M&A, way down from the pandemic and the opportunity ceiling is even lower. So instead of looking at M&A deals at $500 million and lower or in that range typically, again, leaving EA and Activision Blizzard aside, the best you can really hope for in fundraising is something like $200 million.

And even that's more or less out of the question for most targets. I'll just define fundraising a little sharper here. I mean private companies raising outside capital from investors, venture firms, strategic investors or private equity. That's what we're looking at here.

One of the big nuances I would underline here is that fundraising activity did improve in some respects in the most recent quarter. The market is not completely frozen. And that works for M&A as well. That accurately describes the M&A market as well. And it would be wrong to imply that investors have walked away from gaming in either market. I just want to keep underlining.

There's still money. But it's also down significantly from the pandemic era. You can see these charts that this article was in gamesindustry.biz, which I'll touch on a little bit later or if you're a Cap IQ Pro subscriber, you can go on and see the report. But the trend is downward. We usually show about 8 to 12 quarters, and you can see fundraising and M&A activity are up into the left and go down into the right. Directionally, that's not what what the market would hope or particularly people looking for investment were hoping for.

So again, like M&A, the important question is not only whether the money is moving, but it's what it's choosing to find. So when I look across the recent fundraising activity, the same pattern is showing up. Investors are gravitating toward businesses that look scalable, repeatable, and more platform-like or at least ones with hooks outside of traditional gaming, too. That seems to really light people up and talking about Blockchain still grabs a lot of investor attention. Play-to-earn, these are unproven. I'll double-click on that later.

Let's put that on the back burner for now. But a few deals to illustrate the point in the most recent quarter. VeruroPlay just raised $215 million from NCCorp to help its planned acquisition of JustPlay, a European play-to-earn platform. Grand Games raised $70 million led by Baldican Capital. That's a mobile publishing story. So the company is known for Magic Sort and Car Match.

And you see these APAC publishers pop up and they have a pretty good hit regionally, and they want to expand globally. And so they take on this $50 million to $100 million, so they can staff up and invest into user acquisition. That's a big story in fundraising in particular. There was a VR location-based company, EVA, wants to expand across Europe, gaming adjacent. So location-based VR is like a VR arcade. So you go to what might once have been a laser tag facility and you say, I want to play VR for an hour and you pay $50 upfront, and they give you the headset and you cycle through the games they have.

But you have to go there. It isn't something consumers buy for home entertainment. So again, mobile-first businesses are really big here, and that's understandable because these studios are less cost intensive, at least in terms of developer burn rate. User acquisition is a major problem in mobile, but that can be solved without an extraordinary amount of additional money, particularly if you have your goals in check. And that's not irrational. Investors have their own constraints.

They want business models that have the chance to scale without every dollar of revenue requiring another dollar of development cost. And that's reflecting how expensive it is to make a game on console or PC, particularly a 3D game with a ton of assets in it, a ton of content. It just takes an army of people to put all that stuff together. They want something or someone building toward predictable engagement, high margins, strong retention and the possibility of very large outcomes. And frankly, a lot of the talent entering the market, they're not coming from those kinds of games. The potential for large outcomes is there.

If you have a AAA game that is a huge hit, that's an excellent opportunity in this market. But games take a lot of developers and a lot of time to make. So they end up locking up that capital for a long time. Like I said, particularly if you're making a big AAA game, that's 5 years of development. A veteran combat designer, intern programmer, level artist or producer may be highly valuable, but the fundraising market just isn't underwriting that development right now. So let's take another look on why this might be happening?

So when I shared some of this work with gamesindustry.biz, one of the questions the reporter had was why M&A activity appeared so weak and why capital seemed increasingly concentrated around live services, mobile, et cetera. So why would investors behave this way? I outlined it as I went, but maybe let's put a finer point on it.

First, growth has slowed compared to the pandemic era expectations. Some of this is thawing as this console generation matures, we've seen some big hits already this year in the console and PC space. I'm thinking of Resident Evil earlier this year, Wolverine is coming out in a few months. Grand Theft Auto VI is coming out in a few months. So maybe investors see those success stories and they may look at some design docs that appeal to them a little more. They can make the numbers work.

But generally speaking, they see the macroeconomic headwinds and they see better opportunities in other places.

Second, development costs remain extremely high. I want to use MindsEye as a cautionary tale here. Build A Rocket Boy spent years developing a game under Leslie Benzies, a former executive of Rockstar Games, and the project reportedly carried a large budget, perhaps $100 million, $200 million, $300 million, which is not out of the question for those big games. But this one was backed by private equity. So we saw a deal as large as $100 million targeting that game. There were a few other tack-on deals there.

I don't have the aggregate off the top of my head, but it was more than $100 million. And that capital was locked up for two, three, or four years in some cases. And then when it launched in 2025, reviews were poor, sales expectations were not met and the studio went through multiple rounds of layoffs afterward. That's the nightmare scenario for investors and publishers, again, locking up years of capital and then not seeing anything at the end, basically a complete write-off.

I would say the third thing here is that user acquisition has become more expensive across the board. So that's a big story for mobile where games need massive marketing budgets to keep their players coming in their direction. But it's increasingly going to be a problem for console and PC as well. And this is the macroeconomic headwinds I was talking about in the first point. Hardware prices are going through the roof on these consoles, and we talked about it 2 weeks ago in the previous episode, and that's largely downstream of the DRAM crisis. So there's going to be a slowdown in hardware sales.

And the market is as big as it's going to be right now, particularly for PS5 and Xbox Series consoles. They'll sell a few more consoles, but there aren't going to be tens of millions of new users coming into the market, dozens of millions of new users coming into the market over the next year here just because the consoles are going to cost more. I think the PS5 starts at $650 now, something along those lines, maybe that's the Xbox Series console. Consumers aren't used to those price increases late in their generation like that. I think they're going to turn against the value proposition. So my point is we're at the peak of the market. And so user acquisition is going to be more expensive, and it's going to be a story of really hypertargeting the users that already have the boxes and maybe that's more money in advertising.

Maybe that's just tuning the games in a certain way to really find the most advantageous market. But it's a problem across the board. User acquisition is just going to be more of a burden for developers and publishers, and that will lead to increased needs for capital. And investors probably aren't thrilled to put more money into what used to be the same returns.

I would also say the fourth thing here to really look at is that investors increasingly have opportunities competing for their attention. GamesIndustry.biz picked up on this and asked what's going on here? If the capital isn't here, then where is it? In our world, it goes without saying, it goes to foundational AI. Almost every spare dollar of investment is chasing AI in some way. You would think maybe there will be an overlap there for gaming from 30,000 feet or first principles, but it's actually deleterious to the opportunity for gaming.

I would say that these layoffs are largely being driven by margin pressures. That's the first thing that management is looking at. But to some degree, management teams must be at least thinking about the potential of AI to make game development more efficient. If one programmer can do the work of 2 because he has an AI assistant, maybe that gives them some cover for the headcount reductions. I don't know if we're really there in terms of the pipeline, but that has to be something that management is hedging for on some level, perhaps consciously at this point. So not only is it impacting layoffs, but investors are asking what are the best foundational AI plays that we can get involved in.

And so Video games are taking a hit because investors are thinking that maybe AI is disruptive in general, like some of the things that Jim and I have shown off, you could make your own game instead inside of AI, so you don't need to buy a game from someone else. Maybe that's disruptive. It doesn't look like it is right now, but anything is possible. And then there's the RAM thing we were talking about. So every time there's more investment in AI, that leads to the need for more compute, that leads to the need for more data center hardware, and that takes more RAM out of the channel that otherwise would have gone to console and PC hardware for gamers, so it constrains the addressable market. All right.

That was a mouthful.

Where does that leave us? The industry appears to have more experienced talent available today than ever, but the challenge is connecting that talent with capital so they can make the games that they want to make and bring those games to market and make money and keep the whole flywheel going. I think I've outlined the growing disconnect. Employment appears to be trending lower, and there are fewer financial outlets for that talent to persist elsewhere.

Now that doesn't mean the next generation of successful studios won't emerge from this period. In fact, difficult markets can be clarifying. They force teams to decide on what they're uniquely good at, what company they actually want to build and what risk profile they are asking investors to underwrite. Some of the most important game companies were founded during these difficult markets, founded or forged, let's say. Think of Riot being built during the 2008 financial crisis. They went on to make VALORANT and League of Legends huge games.

Epic pivoted into Battle Royale with Fortnite after they were in the wilderness in the post-Gears era as a developer, certainly as a tools publisher that Unreal Engine 4 was fine in that era, Unreal Engine 5 has its issues, I hear, but it's still a really important tool in the stack. I also think of Nintendo in this respect, rising from the ashes of the '80s game crash. I would say the ones that break through usually do more than say we have talented developers in an ambitious game idea. They find a clear lane for what they have. They find a way to translate traditional development strengths into a version of the business that partners and investors can understand and can sign off on. Maybe it's a smaller budget, a more constrained, more streamlined budget or a clearer audience play, a credible production schedule, a sharper go-to-market strategy or an efficient production pipeline.

Those are all things that could catch investor attention potentially. That may be where traditional game developers can meet investors halfway, not necessarily by abandoning the craft or pretending that every game studio needs to be a mobile operator or a blockchain platform or an AI tools company, but by being more explicit about how the craft turns into a financial business. And again, maybe that just means smaller scopes, more modular production, stronger community validation, but something to be the hook to get investors to make a $200 million swing. If I had the answer, I probably wouldn't be sitting in this chair, but I think there are opportunities. There are maybe unturned stones here that we're going to see turned over in the next year.

The larger question then is not whether gaming still has enough talent. It's whether that talent can reorganize into companies that match where capital is still willing to take risk. If that happens, this period, it's going to look less like a permanent contraction or a permanent slowdown and it's going to look more like the comfortable reset that maybe we saw in the '80s game crash. Getting there is going to take both sides to move.