Big tech fails to level up its gaming ambitions

The dollar signs tech companies once saw in video games are turning into pink slips.

What happened: Microsoft laid off 1,900 staff from its gaming division. Activision Blizzard — which Microsoft acquired in October after a long review by regulators — got the brunt of it, with smaller cuts at Xbox and ZeniMax, which operates developer and publisher Bethesda.

• Eliminating areas of overlap is common post-acquisition, but a memo said the company is pursuing a “sustainable cost structure” across the entire gaming division.

Catch-up: Layoffs hit a number of game companies over the last 12 months, but the most recent (and severe) are coming from ones owned by big tech firms.

• Tencent-owned Riot Games, which develops League of Legends, laid off 530 people earlier this week, about 11% of its staff.
   
• Gaming-focused streamer Twitch laid off roughly 35% of its staff earlier this month. Its parent company, Amazon, cut 180 from its other gaming teams in November.
   
• ByteDance has laid off hundreds of people and retreated from gaming after failing to mesh its rapid approach with the long development cycles of video games.

Why it matters: Big Tech flocked to gaming to cash in on a market worth US$184 billion, but now that’s running up against a push for efficiency. Once a growth opportunity, a boom in pandemic demand is now normalizing, showing that they may have over-invested.

• Also, blockbuster “AAA” games are now high-production affairs, making them even more costly and time-consuming to develop.

Zoom out: Video game companies have run into trouble when they’ve pursued growth like Big Tech. Unity and Epic Games both had big layoffs recently after years of acquisitions in and outside of gaming. Companies that have stayed in their lanes — like Nintendo, Electronic Arts, Konami, and Square Enix — have all been performing well financially.