Studio Closure

News of Telltale Games’ closure highlighted the fact that quite a few game studios have closed this year. There has been a lot of reflection on everything from the precarious nature of work in games, to the viability of certain types of games, as well as an outpouring of support for at least some of the developers affected. I count at least two personal acquaintances among people affected by studio closure this year, and so have wavered in even approaching this topic. The closing of a business is unremarkable, but the disruption it creates to owners and workers can be life changing. My problem is that I am only equipped to talk about the closing of a business, and so can only offer an impersonal take on a personal issue. My hope is that despite this limitation, I can offer a possible explanation for what is going on, what it means, and how we might respond to it.

Why do studios close?

A studio closes because it has more money going out the door than coming in and it is unable to bridge the gap. This is a boring reason which accounts for the majority of closures of any business, not just game studios. It has nothing to do with hot takes on there being ‘no audience for that kind of game’, the developers being bad at their job, or an asserted (and counterfactual) correlation between wokeness and brokeness. These explanations are great examples of reasons that seem obvious until you think about them and then they make absolutely no sense. So we’re going to think about them.

A studio’s revenues are going to be tied to their ability to sell games, and so surely if there is no audience for its games it won’t be able to stay open. This is certainly possible, but it ignores the fact that the studios that have closed have fairly established track records and it assumes that a studio’s costs are fixed, which they are not. I had never heard of a game called ANATOMY until just now, but it’s the top selling game on itch.io. There’s an audience for that. Tastes change, and audiences can grow and shrink, but if there’s an audience for a $3 indie I’ve never heard of, there’s an audience for an established developer and their back catalogue. Now, reaching that audience, setting an appropriate price, making sure the lights stay on before the games are released, and scaling operations to match circumstances are all factors that will affect a studio’s ability to stay open, but this is a much narrower scope than what is implied by pontificating on ‘the state of the market.’ Business management often isn’t sexy, but it’s what’s at play here. Spiderweb Software and Grey Alien Games have been around a long time, despite armchair market analysts declaring there being no market for those types of games.

For the same reason, the skill of the developers has very little explanatory power. The majority of studios being discussed had established track records, and only two of the 10 major closures had an average metascore of less than 70 (and most were in ‘green’ territory). Anyone who has worked in a poorly run office knows that the first people to detect problems are the rank and file staff, and they are often able to do a good job despite the situation they find themselves in. The number of people who directly control the kinds of decisions that ultimately determine if the studio has enough cash to keep going is very small and management quality is not a characteristic you can directly observe in a game. You cannot point to games you don’t like and say which one was the product of poor management without some external source of information.

There is, however, a perfectly plausible and boring reason for a profitable development studio to be shuttered. We’ll start by considering a subsidiary of a larger company. If the parent company sees opportunities to earn a greater return than what it can earn from continuing operations at a given studio then, from a purely economic standpoint, it makes sense to allocate those resources towards their most effective use. This is the same logic that applies when someone decides to take an office or teaching job instead of being a cashier at McDonald’s. This is not intended to be a normative claim (at least without a number of qualifiers and clarifications) so much as it is an intuitive illustration of how a studio that is successful by one criteria (profitability) may be untenable to another criteria that may be more relevant to the final decision maker.

Companies that are not subsidiaries face a similar risk. Telltale’s closure was surprising because it had seemed to be successfully turning around from its earlier troubles, with critical success for the latest Batman game and sequels to its most noteworthy releases (The Walking Dead, and The Wolf Among Us) in development. The culprit seems to have been withdrawal from financers, Lionsgate, AMC, Smilegate, or all three. As with a parent company, the inability to find financing is as much a product of the opportunities available to the financiers as it is their assessment of the studio’s future prospects (it is also worth noting that gaming is outside the core business of Lionsgate and AMC). Anecdotally, it also seems that Telltale was attempting to reduce the cost of producing its games and so it makes the failure of the financing round all the more frustrating, since it seems to reinforce the idea that Telltale could very well have successfully continued save for the fact they could not be financed long enough for the turnaround to finish.

None of this is to say that no game studio has failed because the underlying product was bad, or that they released an overpriced game into a crowded market. Gamasutra is filled with those kinds of post-mortems. But these kinds of explanations don’t credibly explain why 10 studios with experienced teams have closed, while the boring accounting explanation lines up with the known facts. The question is, what do we do with this information?

Human resources

It’s upsetting that something so boring from a business standpoint creates so much turmoil for individuals. Nobody who has lost their job as a result of the processes above is likely to take much comfort in knowing that the parent company perceived them as a lesser opportunity, or that the bosses failed a funding around, nor should they. But is there anything more I can say beyond pointing out that it’s foolish to blame the people who are now looking for a new job for their circumstances?

The closures have added a sense of urgency to a broader conversation about working conditions and the possibility of unionizing. There isn’t a lot to add to that discussion when focusing on closures. It would be better if large numbers of workers did not need to lose their job without severance after working countless hours of unpaid overtime for this conversation to resonate, but we play the hand we’re dealt. Beyond the possibility of it being a catalyst for change, I do have a slight sense of optimism that stems from a longer term view and a particular perspective of what a game studio is.

In simplest terms I think a company that makes video games is a machine that turns person hours, computers, and software into games. If that machine can produce the same game with fewer hours, computers, or software then it has become better at making games (this is equvalient to saying they make a better game with the same resources as well). Computers and software are not able to organize all of these factors in more effective ways, but people are. The real thing that differentiates one video game making machine from another are the processes it has in place to make sure it makes video games better than all the other game making machines. People learn over time and also compete which means that we are getting better games at lower prices than ever before. To put this in perspective, you can buy the full game Deus Ex today for the inflation adjusted price of the Doom shareware demo in 1994.

We are left with two facts: a company/video game machine failed for one reason or another, and that the people, the most important part if you want to build a company of your own, are now available to be put to better use. This is where my optimism comes from.

The closing of a studio means the destruction of that process that organized the factors that make a game unless someone steps in to preserve it. Most of the time it’s not worth saving since it was one that resulted in a closure, but since the closing of the previous company had little to do with the people who are now unemployed, there is a wealth of experience and talent just waiting to be put to good use and comes with the added bonus of being able to tell you “Don’t do that, that’s a really dumb idea” if you repeat the same mistakes. My personal hope is that some of the developers who are affected by the layoffs don’t wait to be picked up for a new venture, but are the ones who develop the better way of doing things. If this happens, then we can continue to expect more, better, and less expensive games in the future.

This optimism is not simply a product of wishful thinking. Poor treatment of the talent, and so poor management, certainly was a factor in the closing of some of these studios. You simply cannot expect talent to flourish in an environment where it is overworked and viewed as expendable without severance. Talent may persevere in such an environment, but how much productivity was lost through the failure to attract/retain talent and the inefficiencies created through overwork? A future Telltale should retain the features that allowed it to be a unique voice in gaming, while making sure those working there are taken care of and that management has their interests in mind when times get tough. This does not even need to be altruistically motivated (though it would be nice), since an experienced worker familiar with the process will simply do more and better work than an equally talented but unfamiliar worker.

Some of these dynamics in terms of unrealized value being unlocked with the closing of studios are on display through the willingness of other studios to hire some of the people affected by the layoffs. Better run studios don’t just gain the value the former employee was bringing to the studio that was closed, but the value that wasn’t being realized by an inferior process.

In the short run the layoffs are tragic and I wish people didn’t have to go through this sort of thing. In the longer term, this can be a more positive thing. Because life is short, and while it may be comfortable in the short term to remain in the status quo, I am not convinced that anyone is well served by staying in a position that is not using their talent to the fullest. Is it really better to carry on through a succession of mediocre years at a firm that values you less? Or is the short term shock in employment worth moving to something that better uses your talent? I suppose to some extent this is a matter of preference or risk tolerance, but this is how we seem to sort out the best allocation of our time and resources as a society.

Of course, different countries handle this allocation better than others. Canada may enable the creation of some of these new studios through government funding. Some forms of social assistance can help ease the transition. Unions and employers can help in this regard too, as industries with substantial booms and busts often do need to encourage the workforce to save for low points in the cycle. With all this in mind, I do believe it is better that unproductive uses of people’s time go away and that they be freed to do something they are better at, and this is partly due to my own experience.

Dismal science fiction

After high school I worked in the film industry. Specifically I worked in the camera department and worked on quite a few science fiction shows that are a bit old now but are still the sort of thing I’ll hear “I loved that!” about. This is the kind of job I know lots of people are desperate to get into, and I made decent money doing it. I never took a holiday or a break until a strike came and there simply was no option to work. After a few weeks I realized how much I had come to define myself through this work and how unhappy I was without being occupied with the 12-16 hour days of setting up or rolling.

I had a few false starts but I ultimately went to a college, originally with the intention of studying philosophy. When I took an economics class I was fascinated by ideas like comparative advantage and wanted to learn as much as I could. I needed to overcome some truly atrocious math grades from high school and a lack of sophistication with that subject, but the interest in econ got me through it. College turned into university, which turned into admission to the honours economics program, which turned into graduate studies.

That’s at least one way of looking at it. The truth is, my friends who knew me during the film years and after (before I enrolled) said I would be very well suited for university and that I would love it. I’ve always loved reading, and what time wasn’t spent on set was spent at the library. I was focused on the short term certainty of a profession that I was competent at, but, on reflection, did not truly align with my deeper passions.

Would it have been better if I didn’t do film? Probably not. I did get a better work ethic when working in it, and I was an undisciplined student as soon as I knew I was going into film. Would I want to repeat the transition period? I would probably want to hit the person writing this post if I read it during that time, because things got very dark indeed. But with the benefit of hindsight I can say that whatever my limitations as an economist (and there are many), I am better suited to it than moving camera stuff for the rest of my life.

I  also recognize that my optimism is also a reflection of the fact I was fortunate enough to land on my feet. This is why I do not take it for granted that existing social programs are sufficient, or that nothing should be done to make these transitions easier. The fact is we all do better if people have the least friction possible in being able to find that better use of their talent. I am no longer taking up the job for someone who was born to lug camera gear and movies got a little bit better than they otherwise would have, while I’m now at one of the few places that uses a fairly arcane subject I studied at university.

Even if I didn’t count friends among people affected by this year’s layoffs, I’ve read enough about the difficulty of working in games that the closures sound like insult to injury. But I’ve also gotten a peek at how the story ends. These workers are smart people with a unique set of skills. Some may find they’re happier or better suited to another line of work, while others will find themselves at studios that better appreciate their contribution. Some may finally have had enough and found their own studio and realize the projects that went ignored. And so my disappointment at hearing the misfortune of others must always be mixed with a hint of excitement at the possibilities of what they may now accomplish.


Note on affiliate links: I have an affiliate status with GOG.com for which I am given a portion of sales for traffic I drive to the site. The inclusion of a given title is for illustrative purposes first, but when it is available on GOG I will provide such a link. As always, I encourage you to do your own price comparison or buy on your preferred platform.

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