You would have to have your head firmly buried in the sand (or somewhere else) to be unaware of the profound and ongoing contraction in the global game industry. So far this year, there have been close to 10,000 jobs lost… already matching the 10,000 positions eliminated in all of 2023. And that’s not counting the number of contractors and consultants left hanging, as well as the numerous unnamed indies that have likely vanished into the night.
But this week’s news seems to hit particularly hard, perhaps because it is a buffet of bad tidings. It stems from one of the biggest players in the game space – Microsoft – restructuring its game operations by shutting down the well-regarded Arkane Studios Austin, Tango Gameworks, and the scrappy upstarts of Halifax’s Alpha Dog Games (big respect to my old office-mate @ShawnWoods).
Depending how you measure trends, the past 12 months would be the fourth or fifth massive game industry contraction in the last 20 years. Some of these have been due to changes in consumer behaviour, some due to technical advances on the hardware side, some due to hype (NFTs anyone?), some due to market saturation… but a lot of it has been due to chronic bad upper management practices in an insular industry, one that is always able to count on a steady supply of bright-eyed young folks graduating each year, ready to live the dream in the cubicle of their choice.
And so the cycle keeps repeating itself, over and over, like a snake eating its tail, as if we are incapable of learning better practices.
Take a look at the LinkedIn profiles of those you know who are mid-career in the game industry: odds are, their track record will be a patchwork of multiple different companies with no period of tenure lasting longer than a couple of years. It’s grim for the employees and, frankly, that sort of churn doesn’t speak well for the companies either.
But there is a common saying among investors that great startups are built in down markets… and I happen to think that’s true. My hope is that this time we can build back better.
There are more than a few factors in our favour. First and foremost, there is now an abundance of great talent that can be easily had by those studios still standing, great and small. Coupled with renewed pressure to be leaner, more nimble, more efficient and more employee-focused, we will absolutely see some good companies become great. With less noise in the market, these teams and their products will stand out.
At the same time, you can bet that the brightest and best of those 20,000 laid off employees are already banding together to found a new generation of game startups. These first-time founders (and those taking a second swing) will be able to take full advantage of their skills, networks and expertise, but will also be better able to shake off legacy models, technologies and management approaches. There is no reason not to turn the page… if they want to.
Speaking as an investor already invested in the game industry, I want them to.
When we launched our Scaffold venture studio program for games in Alberta last year, we did not expect to be sailing into this particular storm… but now I am glad that we have. As an investor looking for that next great prospects, the timing could not be better.
Our team has been working with dozens of game startups in Calgary and across the province… and we have found that there is no shortage of excellent talent, resilient founders and compelling new ideas. Our job is to add capital (always in short supply) and guidance… Calgary companies like Studio Monsoon, Fortress Games and Neojac Entertainment make it easy for us.
That last bit about guidance might be the most important. Among these new studios, we have seen a real willingness to throw away yesterday’s industry playbook and build something better this time around. And I can guarantee that those startups and founders will be the ones that make it to the top of our quarterly short list when we deploy capital. We’ll be betting on that future.
(and, yes, go ahead and insert your favourite GIF of venture capitalists adding value in the comments below)
Matt Toner is the Managing Partner at Shred Capital in Calgary. Working with federal and provincial partners, their Scaffold venture acceleration program has a moonshot goal of doubling the size of the Alberta game industry by 2026.
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