Even When Successful, Game Studios Are Still Being Shut Down

Capitalism is an inescapable force in the gaming world. Whether you’re playing a game on your phone and encounter levels locked behind microtransactions or have to pay for the latest Elden Ring downloadable content (DLC), studios are always looking for ways to make money. So why do game studio shutdowns seem so common?

Xbox recently announced that it would shut down multiple studios, including Arkane Austin and Tango Gameworks. Even producing a game as successful as Hi-Fi Rush didn’t secure Arkane Austin’s future. Here’s why studio shutdowns remain a trend and may not slow down anytime soon.

Closed Studios Secure IPs

People often talk about how massive companies like Xbox and Microsoft could easily sell their studios instead of closing them down. It would save jobs and keep projects in production for the fans anxiously waiting for them. That might even be the ethical thing to do, but major brands don’t see it that way.

Riot Games announced in January that it would shut down its label, Riot Forge. The label had recently created Bandle Tale. Described as a cute deep-dive into League of Legends, the game was popular but not super financially successful. If Riot Games had responded to this loss in profit by selling Riot Forge instead, Riot Games would have lost the right to collect revenue from Bandle Tale. It would be an even more significant financial loss in the long run.

Xbox and Microsoft would lose money similarly by selling their studios to other companies. The intellectual property (IP) for each studio’s games would go with the minor studios, causing a financial loss for the companies that formerly owned them. The revenue loss isn’t a concern if the studios no longer exist. The games continue being available to play after their studios shut down.

Subscriptions Offset Revenue Loss

Gaming used to require going to a store to purchase the latest hard copy of whatever game you wanted. Now, everything’s accessible online. Subscription services make that twice as monetizable for big companies.

Xbox offers Game Pass, which is a monthly or annual subscription connecting players with new releases instantaneously, plus exclusive discounts and access to all games made under Xbox studios. It generated the company an additional $309 million in the final quarter of 2023 alone. If Xbox stands to save additional money by shutting a studio down without too much of a deficit due to reliable revenue streams like Game Pass, shutdowns become more likely.

You might love playing Assassin’s Creed Valhalla due to its realistic depiction of Viking culture and incredible graphics. The game’s success, which generated higher sales than any other Ubisoft game after crossing the $1 billion mark, didn’t stop the company from laying off employees in 2023 and earlier this year. In addition to the revenue from the Ubisoft+ subscription service, its parent company, Xbox, didn’t stand to lose much from the shutdown alongside other profitable streams like Game Pass.

Market Factors Also Influence Studio Lifespans

There’s some truth to the idea that game production has grown more costly over the last decade. Bigger games require extensive teams. Team members have to cover their bills, which rise with inflation. They ask for higher pay and if the game studios raise wages, each game must be even more profitable.

Findings from the Competition and Markets Authority (CMA) noted that video games used to cost between $50-$150 million to make, but games coming out in the next two years average around $200 million and may cost even more. When a game comes out, its development is essentially over. The tech company that owns the studio may shut it down because it can’t keep paying $200 million to keep everyone working on less demanding patch updates and DLC.

The economy also plays a role in why game studios are still shuttering. People aren’t spending as much in 2024, causing a slight economic slowdown that requires a slowdown in production. If there’s less demand, companies can’t secure as much funding for big games.

More minor games requiring smaller teams become more of a priority. Production on bigger games might also pause until there’s more demand. In the meantime, companies shut down game studios. There’s the hope that the team members can find work when the games return to production, but there’s no guarantee it will happen soon after their studio closes.

It’s also important to note that consumer interests have shifted. In 2020 and 2021, most people stayed at home in quarantine. Video games became a welcomed way to pass the time. PC game revenue grew by 7.4% or $35.6 billion during the same time. The same research also shows a 32.8% spike in people playing mobile games throughout that period.

Now, people can resume their typical lives with vaccines, masking and fewer public restrictions on gathering in enclosed spaces. Video game profits have declined each year since, reducing the need for as many game studios churning out the same amount of content.

AI Is Influencing Game Production Teams

You can’t reflect on changes in the tech industry without checking up on AI involvement. Companies like Microsoft use AI tools to speed up production and save money. Artificial intelligence can churn out storylines and dialogue for non-playable characters (NPCs).

The monsters you need to fight in video games soon won’t require production teams. You might have loved solving puzzles and fighting enemies in Sonic Frontiers, but Sega recently partnered with an AI company to let players generate their own monsters in future games. It might result in fun battles, but it decreases the need for expansive development teams and additional game studios.

Company leadership teams across industries often publish statements about AI not replacing human creativity, but businesses operate solely to generate a profit. If AI will save money during video game production by eliminating the expenses associated with employees, companies will likely continue shutting down studios.

Watch for More Closures

Unfortunately, studio shutdowns will likely continue in the video game industry. Unless there’s a higher demand for big games, increases in consumer expenditures and potentially less profit from other revenue streams, closures aren’t going to hurt tech companies as much as the people who get laid off.