The ‘Zoom boom’ left gaming giddy. Now it's sobering up

After the world reopened, the gaming sector's heyday came to an end. Now, the leading firms are making layoffs to get in shape.

The gaming industry is having to recalibrate after the lockdown boosted user and revenue figures.
The gaming industry is having to recalibrate after the lockdown boosted user and revenue figures.

The ‘Zoom boom’ left gaming giddy. Now it's sobering up

Just as the health effects of COVID-19 can linger on years later, so too are the economic effects of the pandemic continuing to cause ripples.

When the world shut down and people were confined to their homes for months at a time, there was not much left to do other than watch TV, play video games, and keep in touch via videoconferencing platforms.

Thank goodness for the internet.

Named after the popular video conferencing software, this period has been dubbed the ‘Zoom Boom’ on account of the financial boost to businesses in these areas. Gaming, which was already a huge industry, had never had it so good.

The morning after

Fast forward to today, however, and the world looks very different.

Covid-19 has been tamed. The world has reopened. People have started going out again and travelling. Meetings are once more face-to-face. And our screen time has dropped from its peak in 2020-22. Even dedicated gamers are gaming less.

Some industries recovered strongly: think of travel and tourism. But video conferencing platforms, internet TV streaming services, and gaming have shrunk.

Companies that kept the world connected and entertained during lockdown—and that often grew at breakneck speed to meet demand—now look financially exposed.

Cue a round of layoffs and cost-cutting, which is, in many ways, a market correction.

Gamers line up to play Dragonball Z during the first day of Europe's leading digital games fair Gamescom.

These firms were lavished by a Covid-induced sales surge. Revenues rallied, share prices shot up, and investors piled in. Cash was abundant. Recruitment was dizzying. There seemed to be a new starter every week.

The era was marked by notable successes and substantial revenue accumulation, especially for games such as The Legend of Zelda: Tears of the Kingdom, Baldur's Gate 3, Alan Wake 2, and Marvel's Spider-Man 2.

Editorials in trade magazines had a giddy tone. The industry was now worth $200bn, bigger in many ways than Hollywood. What could possibly go wrong?...

Numbers falling

This tale will be familiar to many: opportunistic and spontaneous growth, rapidly burgeoning payroll, and strategies that foresaw the good times lasting forever.

However, last year, the Zoom Boom seemed to be going bust. US gaming revenue fell by 2.3%.

Consumers were applying the brakes, spending less and using less. The average weekly gaming time of 16.5 hours in 2021 dropped to 13 hours in 2023.

All the graphs and charts pointed in the wrong direction. Indeed, the falls began in 2022. There were 6% fewer gamers in the US in 2022 than in 2020.

Given the problems, companies began making layoffs: 8,500 in 2022, followed by 10,500 in 2023, and a staggering 6,200 in January 2024 alone.

The industry's most dramatic slowdown for 30 years has been painful, with growth propelled by smartphone games having reached its limits. Last year, spending was down 2%, to $107bn.

Companies that kept the world connected and entertained during lockdown, growing a breakneck speed, now look financially exposed.

Three big platforms

This downturn is evident in control-based games that run on the three major platforms: PlayStation (owned by Sony), Nintendo (owned mostly by Japanese conglomerates), and Xbox (owned by Microsoft).

Microsoft laid off 1,900 employees, or around 8% of its total gaming division, after its mammoth $75bn acquisition of Activision Blizzard.

Embracer Group laid off about 900 staff and shuttered the veteran British game developer Free Radical Design in December.

Epic Games, the creator of Fortnite—one of the most successful games of the decade—laid off 830 employees, while Electronic Arts (EA) also reduced its workforce by 6% or 780 staff.

Sony Interactive Entertainment, maker of the PlayStation gaming platform, announced plans to lay off 900 people and completely shut down its London studio.

Other equally significant examples include Ubisoft, Naughty Dog, Sega, and Unity Software, all of which have announced their intentions to lay off a quarter of their employees, totalling about 1,800.

Bracing for change

The cost-cutting wave comes as companies slim down to keep their businesses viable as revenue declines.

Across corporate America, similar streamlining initiatives are underway. Firms see warning signs from China and know that some heavy economic weather may blow in, so they aim to be lean when it hits.

This January saw the highest level of job cuts in 10 months, with technology and finance firms responsible for some of the contraction. Around 242,000 jobs were lost in the technology sector in 2023.

This included more than 18,000 at Amazon, 12,000 at Google's parent company Alphabet, and 11,000 jobs at Microsoft.

On July 28, 2015, a Microsoft logo is seen on an office building in New York City, US.

No big gaming firm seems to be facing sudden collapse or bankruptcy, however, in the way that some big financial firms went belly-up in the crash of 2008-09.

Demand for gaming and video-sharing remains strong, but the growth rates of the pandemic boom years now seem distant.

TwitchTracker, which monitors Amazon's gaming and video-sharing site Twitch, reports the average number of viewers on Twitch streams per year: 2.11 million in 2020, 2.78 million in 2021, 2.58 million in 2022, and 2.44 million in 2023.

While slightly lower than their pandemic peak, these latest average viewing figures still surpass pre-pandemic levels. Nevertheless, various companies are still grappling with excess labour.

Steadying the ship

The sector has been highly active in terms of mergers and acquisitions, so some jobs now overlap with other positions in newly acquired firms, particularly in back-office functions such as HR, PR, marketing, and accounting.

In other cases, external finance has funded rapid expansion, which, without subsequent growth, can prove unsustainable.

Sweden's Embracer Group, a game publisher with 135 studios worldwide, had to make tough decisions, including cancelling games and laying off staff following a period of ambitious and fast-paced development.

Staff and cost cuts by means of market correction show where these tech companies overstretched themselves or whether their ambitions fell short of reality.

The industry has not been immune to the impact of high inflation or interest rates seen in many countries, triggered in part by military action increasing the cost of food and energy.

Less disposable income hits gaming just as much as other pastimes.

Amid economic uncertainty, gaming companies are ditching some of their biggest and riskiest projects, prioritising core revenue streams and sustainable profits.

Ready for tomorrow

With the appearance of clouds on the world's economic horizon, gaming companies are ditching some of their biggest and riskiest projects, prioritising core revenue streams and sustainable profits.

Yet, there is still a need to diversify and expand game offerings and keep the pipeline pumping out dynamic new titles.

At the same time, the industry and its employees face a new challenge in the form of artificial intelligence (AI), which is increasingly used in creating and developing games and content.

How firms harness the power of AI to increase and expand their offerings will determine their success in the years to come.

Likewise, in their efforts to slim their payroll, they need to be careful not to dispense with the very talent that will keep the world entertained when the next pandemic hits.

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