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Lower profit expectations, not your workforce

I have been a videogame fan ever since I bought my first console. Spending all the spare money I had, I picked up an N64 with 3 games (Super Mario 64, Goldeneye 64, and Top Gear Rally). I then proceeded to spend nearly every spare penny I got on new games for the system. Since then, I have bought every new system that came out from the Dreamcast all the way up to the Switch. In fact, the only one I haven’t picked up is the Wii U. When it comes to Xbox, I have had multiple systems. While I may only have had one original Xbox but I used to keep 3 Xbox 360s (downstairs, upstairs, and one for taking out). I currently have an Xbox One X downstairs and an Xbox One S upstairs. I have over 100 physical Xbox One games and almost 300 available for download.

All of this is not to brag but to point out how much I adore video games. It’s a hobby that has turned into a career. I love the escapism, the joy, and sense of accomplishment they provide. It has introduced me to some really great people who have gone from online pals to real-life friends. However, there has been a dark cloud brewing over the videogame industry for a while now. It has nearly always been there, but it has grown bigger over the last few years and now has the potential to harm my favourite hobby. What is this cloud I hear you ask? Well, to put it bluntly, profits and profit expectations!

Now before you go complaining that I’m some sort of a hippy socialist, I’m really not. I have no problem with people making money out of computer games. In fact, I hope that people do make money so that it leads to more great titles and franchises. I think you should have to pay for art as it takes people time and effort to create that art. My issue is when profit forecasts are put before livelihoods, quality, and customer welfare. I believe that this is not only leading to bad games but is damaging the industry as a whole. Let me explain.

Video games have come a long way from the days when you could buy a magazine with a page of code that you could copy into your computer to get a game. Those days are long gone, and now most AAA games have hundreds of people working on them. The credits video for Assassin’s Creed Odyssey is over 30 minutes long as it lists everyone who worked on it. This requires layers, upon layers, on top of layers of organisation. This uses serious amounts of money. Now, if you spend (for example) $50 million in creating a game, I have no problem with you expecting to make over $100 million back on your investment. However, when you make profits larger than that and then lay people off because it’s not enough money, something is going horribly wrong.

A few days ago Activision Blizzard announced record profits for last year. The company had a mind-boggling net revenue of $7.5 billion. According to the same press release, their operating margin was 27%. Basically, this means that they made a profit of over $2 billion! This is a seriously impressive amount of money. Despite these record figures for the company, they announced that they are going to cut nearly 800 jobs. Just over a week earlier, Electronic Arts had an earnings call where they talked about their disappointment in the sales figures for Battlefield V. They said that the product ‘struggled to gain momentum’ and failed to meet their sales expectations for the quarter. This is a game that has sold more than 7.3 million copies! I understand they need to make a profit but these companies are making massive profits yet it doesn’t seem to be enough.

If you’re running a company that makes a record profit of $2 billion at a healthy margin of 27% yet feel the need to lay off around 8% of your staff, something is going seriously wrong. For Blizzard, most of the layoffs seem to be from the IT, QA, and eSports departments rather than the development teams. However, people at King (developer of Candy Crush), Vicarious Visions (Skylanders, Crash Bandicoot N. Sane Trilogy, and support on Destiny 2), and High Moon Studios (support on Call of Duty and Destiny) were not so lucky. Obviously, our best wishes go out to everyone (and their families) who are affected by these layoffs. It’s funny how no executives seem to have lost their jobs, though.

The issue seems to be around the fact that profits were not as large as expected. So, who made these expectations? I’m pretty sure it wasn’t the guys and gals in IT, QA, or even eSports. I highly doubt that when Vicarious Visions and High Moon Studios were supporting Call of Duty and Destiny that they put forward sales estimates. Also, if you want to make more money, how about releasing more games? Activision only published 3 games in 2018, Call of Duty: Black Ops IIII, Crash Bandicoot N. Sane Trilogy, and Spyro Reignited Trilogy. Blizzard Entertainment has only released 5 games in the last 14 years. I’m not suggesting that they should just churn out titles (though it seems to work for them with the Call of Duty franchise). If you want to make more profit, though, why not invest in developing more games.

I get that these corporations are massive and have to answer to shareholders. However, if you keep giving these shareholders unrealistic expectations of the turnover they can expect, you’re creating bigger problems for yourself down the line. The people who make these predictions/expectations are the ones who should be paying for them with their jobs. Shareholders and investors are important, but you have to be realistic with them. The video games industry cannot keep growing at an exponential rate; it’s just not possible. You also shouldn’t try and make up your shortfalls with predatory gambling practices that prey on gamers (yes, I mean loot boxes).

Games are art and a business. It’s possible for both to work side by side and to benefit one another. As much as an indie developer creates their art because they want to, they do it to create profit. As you scale up towards AAA level productions, you also scale up the level of risk (though, the risk for indie developers is still pretty huge). Companies need to be compensated for this and deserve to make sizeable returns. However, every year we seem to hear from publishers that a particular title didn’t meet sales expectations. This is often despite the game selling more copies than a previous entry did. These predictions are being done to tantalise shareholders but are crippling the companies. The executives of these companies need to be held responsible before we see major casualties.

Steve Clist
Joint Editor-in-Chief at our sister site XboxEnthusiast, Steve also has a serious love for Nintendo. His first console was an N64 and it was love at first sight. He may specialise in racing games but will give anything a shot. He's also a serious guitar player and musician. Basically, Steve rocks. Need we say more?

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