Tencent’s Riot Games announces 2024 layoffs to ‘create focus’

  • 2024 brings layoffs at Riot Games and Twitch, cutting staff amid industry challenges.
  • Riot Games and Twitch restructure, leading to significant workforce reductions.
  • Layoffs in gaming reflect economic pressures and strategic shifts at major companies in 2024.

The gaming industry is facing a wave of significant layoffs in early 2024, marking a continuation of the cost-cutting trend that began last year. Tencent’s Riot Games, a prominent player in the sector, recently announced a substantial workforce reduction. The company plans to eliminate 11% of its staff, totaling around 530 jobs. This move also includes scaling back Riot’s division, which publishes independent developers’ games.

2024 layoffs rock gaming industry

Dylan Jadeja, the CEO of Riot Games, conveyed the decision in a letter to employees, later shared on the company’s blog. Jadeja emphasized the need for strategic adjustments and operational streamlining to ensure Riot’s future sustainability.

The company’s current situation stems from ambitious 2019 expansions aimed at enhancing the player experience. Riot Games ventured into new experiences, leading to rapid growth and transforming it into a multi-game, global entity. This expansion doubled the company’s size, driven by operational changes and new talent acquisitions.

However, Riot now grapples with a lack of clear focus, as numerous projects have not met expected returns, leading to unsustainable costs. These financial challenges have restricted the company’s capacity for experimentation, a vital aspect of Riot’s creative ethos.

In response, Riot implemented measures such as project prioritization, hiring slowdowns, and focusing on cost control. Despite these efforts, it became apparent that more significant changes were necessary. So the company reduced its workforce to concentrate on projects delivering the most player value.

Jadeja stressed that this decision was crucial for Riot’s long-term health and was not driven by shareholder interests or short-term financial goals.

The layoffs include reductions in staff for Riot’s game Legends of Runeterra, launched in 2020. Subsidizing this title’s development through other games was deemed unsustainable. Eric Shen will assume the role of executive producer for Legends of Runeterra, replacing Dave Guskin, who announced his transition to other Riot projects in a blog post. Riot’s Forge division, which focuses on publishing indie games, will also experience cutbacks.

Tencent, a major player in the gaming industry and Riot’s parent company since 2015, has faced its challenges. Tencent’s involvement began with an initial investment in Riot Games in 2011. The company, headquartered in Los Angeles, has witnessed changes in the broader gaming landscape.

Riot Games community shows solidarity for the Rioters (Source – X).

For instance, Microsoft’s plan to acquire Activision Blizzard in 2022 positioned it as the third-largest gaming company, trailing Tencent and Sony. Microsoft, too, has encountered hurdles, cutting 10,000 employees amid slowing revenue growth.

Tencent, known for its widely used WeChat app in China, has seen revenue fluctuate for seven consecutive quarters following a pandemic-era growth spurt. Tencent-backed Epic Games reduced its staff by 16% in September. Moreover, Tencent’s shares fell 12% in late December after China introduced new regulations to limit excessive gaming.

Pony Ma, Tencent’s co-founder and CEO, indicated a strategic shift in November, moving away from less scalable activities and focusing on artificial intelligence investments.

Amazon’s Twitch joins layoff trend early in the year

This trend of workforce reduction extends beyond Riot Games. Amazon’s Twitch, another significant entity in the streaming and gaming sector, announced a 35% reduction in its workforce, impacting around 500 employees.

Twitch publicly addressed the layoffs in a blog post, including an email from CEO Dan Clancy to staff. Clancy expressed disappointment that the news leaked before the official announcement. The layoffs were part of an effort to develop a more sustainable business model for Twitch, despite distributing over US$1 billion to streamers last year.

The past year saw Twitch grappling with leadership changes, rising operational costs, and community dissatisfaction. These challenges led to the layoffs of 400 employees after Emmett Shear handed the CEO role to Clancy. Amazon further reduced the workforce by closing the Crown channel and its Game Growth group.

Twitch also announced the shutdown of its services in South Korea, one of the most prominent esports markets, citing high network fees. Despite user growth since the pandemic lockdowns, Twitch has struggled to achieve profitability. The platform’s shift to ad revenue has not yielded the expected results, and Bloomberg reports that Twitch remains unprofitable nearly a decade after Amazon’s acquisition.

Operating large-scale live streaming content is costly for Twitch. In 2022, Clancy revealed that each high-volume streamer costs the company about US$1,000 per month, primarily due to Amazon Web Services’ rates.

“Delivering high definition, low latency, always available live video to nearly every corner of the world is expensive,” Clancy said, highlighting the financial challenges of Twitch’s operations.

Why are continuous layoffs occurring in the industry?

This analysis is based on commonly observed reasons and is purely an opinion. One classic strategy to boost short-term profit margins involves layoffs. Although it’s a controversial practice, it’s not unusual for executives to improve their quarterly numbers by reducing staff. The rationale is that the company can always rehire if necessary later.

A notable trend is the timing of these layoffs, often occurring right before Christmas, primarily driven by this financial strategy – or even early in the year.

Rapid growth or poor decision-making also contribute to layoffs. The concept of infinite growth, often championed by economists, doesn’t always hold up in reality. The gaming industry, for example, experienced a surge during the pandemic due to increased indoor activity. However, as people spend less time indoors post-pandemic, companies anticipate a downturn and preemptively reduce their workforce.

In some instances, companies make strategic errors. The Embracer Group, for example, aggressively acquired companies in anticipation of Saudi investment that never materialized. On the other hand, Unity has been losing money for a prolonged period and further alienated its community by introducing a fee for each installation of games developed using its engine. Such missteps have led to layoffs.

Another factor could be the potential shift towards AI, specifically Large Language Models (LLMs). Businesses globally aspire to increase production with fewer employees; AI integration could be a step in that direction. The move towards AI, however, raises concerns about copyright issues and moral and ethical implications, making this a complex and potentially contentious development to observe.

The gaming industry’s recent wave of layoffs reflects various factors, from strategic shifts to economic pressures. As the industry continues to evolve, companies are navigating the complexities of technological advancements, shifting consumer habits, and economic uncertainties, all of which shape their operational decisions and workforce management.