Riot and Microsoft layoffs the same, but different | This Week in Business

This Week in Business is our weekly recap column, a collection of stats and quotes from recent stories presented with a dash of opinion (sometimes more than a dash) and intended to shed light on various trends. Check every Friday for a new entry.

It was another brutal week in the industry right from the start, with Riot Games laying off about 530 people on Monday while reciting a lot of the familiar lines we've been hearing for the past year.

QUOTE | "We're changing some of the bets we've made and shifting how we work across the company to create focus and move us toward a more sustainable future." – In the second sentence of his note to employees informing them of the cuts, Riot CEO Dylan Jadeja marks off two squares from the recent games industry layoff bingo card: "focus" and "sustainable."

He would waste little time filling in a third square as he brought up "the A-word" two paragraphs later.

QUOTE | "As CEO, I'm accountable for the changes we're making and where we're headed in the future." - Jadeja in his note.

So here's what a lot of us don't get. As the current CEO (and president for six years before that) of Riot, Jadeja was responsible for how the company was run. And as we can infer from his earlier quote, Riot was being run as an unsustainable business that lacked focus.

How exactly? Well, he goes on to talk about how Riot doubled its headcount in just a few years while making a bunch of big bets, investments that haven't paid off.

QUOTE | "We've left ourselves with no room for experimentation or failure – which is vital to a creative company like ours. All of this puts the core of our business at risk."

Yikes, that's not good. Whoever put the core of Riot's business at risk by not protecting its vital functions really pooched that one. They must all be trying to find the guy who did this.

Jadeja then goes on to talk about how the cuts aren't being done to appease shareholders or hit a quarterly earnings target.

QUOTE | "We've made this decision because it's a necessity. It's what we need to do in order to maintain a long-term focus for players."

You see? It's "a necessity." Riot simply doesn't have another move. It's been boxed in. It's in a strategically disadvantageous position.

To quote the Bob Dylan song "What Good Am I?": "If my hands are tied, must I not wonder within, who tied them and why? And where must I have been?"

This is what management is for, isn't it? They're the ones with the hand at the rudder, the ones with the necessary bigger picture view to ensure the ship is sailing smoothly where it needs to go.

But to hear Jadeja tell it, Riot management has not only run the ship aground, it put the company in a position where running the ship aground was the only option. And it did this in a time of plenty, when a pandemic and an investment community's near-insatiable appetite for games put Riot into a very privileged position where a goal like "building a sustainable business" was never going to be easier.

Riot management has not only run the ship aground, it put the company in a position where running the ship aground was the only option

And not only that, but this management that receives outsized compensation specifically for their vision and understanding of the bigger picture appeared to be just following the herd, taking advantage of an industry boom fueled by a global pandemic to over-invest and expand into new fields while disregarding any notions of having a sustainable business.

It's a story we've heard a whole lot over the past year, from Epic, Unity, Embracer, ByteDance, Sega, Amazon Games, and more.

Why are these execs being paid the big bucks if all they can do is copy each other's shoddy homework?

And exactly what kind of accountability is Jadeja facing, as CEO? Well, he did put his name on the very sad memo saying he is accountable, so he is seemingly prepared for some criticism from the peanut gallery, which we'll be happy to give. And that's about it.

There's no mention of resignation. No salary cut. No forfeiting of stock options or curtailing of bonus. Not even a commitment to sit in the dunk tank at the company's summer picnic. Nothing for the rest of the management team who orchestrated the current situation, either.

Riot's CEO would sooner skewer 530 people on his sword instead of falling on it himself

Jadeja used the word "accountable" because he knows it's a good thing to be, but the actual content of the memo shows how little value he places on the idea of accountability. And not just because he would sooner skewer 530 people on his sword instead of falling on it himself.

QUOTE | "While we'd love for this news to remain within our virtual walls, we know that's not realistic..." – In his note to staff, Jadeja admits for no apparent reason that the company would love to dispose of hundreds of employees without anyone ever finding out about it, which is the sort of thing you say when you see absolutely zero value in the concept of accountability.

We shouldn't really be surprised. This is very much in keeping with Riot's history on the subject of accountability.

After all, this is the Riot that promised changes to address its sexist workplace culture after a Kotaku exposé in 2018, then tried to dodge the lawsuits of women trying to hold it accountable, arguing it forced them to sign away their ability to sue for harassment when they were hired.

Accountability!

This is the same Riot that tried to cheap out on settling that lawsuit for $10 million only to have the state of California intervene to say that the number was way too low, which we know it was, because that led to an eventual settlement ten times as big as the originally announced one (but still just a quarter of what California suggested the women could have been owed).

Accountability!

It's the same Riot that took an executive who "repeatedly touched subordinates' balls or butt or farted in their faces" and gave him a two-month unpaid vacation as punishment.

Accountability!

Given that history, it's not terribly surprising that Riot management's idea of accountability for strategic missteps at the executive level is to literally decimate the workforce beneath them without touching the people actually responsible for bringing the company to its current situation.

Cutting staff for fun and profit

One thing I did like about Jadeja's letter is that it showed some thought had been put into its layoff process, including how it communicated the cuts to staff, how long they would have to wait before hearing whether they were among the layoffs, how much severance they could expect (a minimum of six months), what it would be doing to help those working on visas, and so on.

Epic did something like this with its own cuts last year, and as much as we can (and should) criticize the decisions that led to these cuts happening, these sort of steps are good for not only reducing the amount of misery laid off employees go through, but they help set a bar for other companies to live up to and surpass when it's time for their own cuts.

Let's compare that with yesterday's layoffs at Microsoft. Riot sent its memo around to employees, and then posted it publicly to break the news to the world. Unlike Riot, Microsoft had word of its layoffs leak out through the media, with early reports from IGN and The Verge.

Riot said it would be informing impacted employees within an hour. On Microsoft's end, Spencer's memo only told employees that "Those whose roles will be impacted will be notified," which yes, you will probably have to do that at some point if you want them to stop showing up for work.

It would be wrong to slot the Microsoft cuts in with the trend of companies that painted themselves into a corner and are forced to shed staff

(A later staff memo from Matt Booty said that laid off employees would be notified later that day, with some in EMEA or APAC offices finding out as late as next week.)

On top of that, Spencer's original memo wasn't even sent to everyone within the Microsoft Gaming group who now had reason to worry about their job.

QUOTE | "These Xbox layoffs are such a mess that staff across Activision Blizzard are texting *me* to try to find out if they might be impacted. Nearly 2,000 job cuts and people now just have to wait around to see if they're part of the bloodbath." – Bloomberg reporter Jason Schreier on social media Thursday morning.

You'd think Microsoft would be a little better at this given its recent (and abundant) experience laying people off.

While Spencer did gesture in the direction of "a sustainable cost structure," it would be wrong to slot the Microsoft cuts in with the trend of companies that painted themselves into a corner and are forced to shed staff, because Microsoft seems to be doing just fine.

STAT | $22.3 billion - Microsoft's net income was up 27% year-over-year to $22.3 billion in its most recently reported quarterly earnings.

STAT | 13% - Xbox content and services revenue was up 13% year-over-year.

STAT | 23% - Operating income for the More Personal Computing division (which includes Xbox) was up 23% year-over-year.

STAT | $3 trillion - Microsoft's market cap broke $3 trillion this week, making it only the second company to ever reach that valuation.

Of course, we weren't the only ones to have noticed the juxtaposition between Microsoft's financial fortunes and the urgency with which is it unloading employees.

QUOTE | "Microsoft's announcement that it will be laying off 1,900 video game workers makes clear that, even when you work at a successful company in an extremely profitable industry, your livelihood is not protected without a voice on the job." – The Communication Workers of America, in a statement released a few hours after word of the layoffs broke.

It's true that acquisitions often lead to layoffs. But it's still a choice to shed staff at all, and another to decide thousands of people have to go. And it's a particularly galling choice in the case of one very profitable company buying another very profitable company.

A lopsided relationship

Right now, employers understand that they have a transactional relationship with their employees. They are paying them a set amount of money for services rendered. It's just business, and business sometimes requires a cold and calculated approach, like laying off hundreds of people to correct your own mistakes, or because you think the work they did could just be divided up and added onto the plates of the people who are left.

On the other hand, developers often have a very different relationship with their work. They are passionate. Driven. They pour their entire heart and soul into making games. They are part of a team Creating Something Special. They do it to push the envelope. They do it for the players. They do it because they love video games.

The mismatch in how workers and employers approach the job is where so much of the suffering we see in games comes from

That's all well and good on its own, but motivations like those are easily exploitable. Find someone who buys into those ideas fully and they'll put in long hours. They'll put the work above their friends, their family, their physical health. They'll give 110% while you're only paying them 100%, and that's a 10% savings right there!

When that developer who gives it all they got burns out because it turns out they actually didn't have quite that much to give, or when the latest game underperformed, or the board just felt that the stock price could use a boost, well, that's when the company can sever the transactional employer-employee relationship and shove them out the door, because it is, after all, just business.

And that mismatch in how workers and employers approach the job is where so much of the suffering we see in games comes from. Developers too often are willing to accept worse pay or working conditions for the good of the project or the company, while management is incentivized to trim any extravagance to run with the utmost efficiency. That has a tendency to produce some pretty unhappy outcomes for developers.

Throwing a culture fit

The insidious thing about that above dynamic where passionate employees are exploited and discarded by bottom-line-focused bosses is that management doesn't even need to pursue it intentionally or maliciously for it to take over a company. They certainly can, but I do believe it can happen organically as well as people filling those roles tend to be immersed in cultures that reinforce those traits.

Let's go back to Riot Games for a moment and a 2014 write-up of Riot co-founder Brandon Beck's Montreal Games Summit keynote address.

QUOTE | "To continue to be a creative industry, gaming has to be a magnet for talent, Beck said, and it can't be losing the best and brightest to other industries that treat them better. Companies that view their people through the simple metrics of a balance statement are losing the key ingredient to success." – Beck decried the industry's lacking treatment of developers in 2014.

"As a culture... you want to be uni or brussels sprouts. You want to be polarizing..."Brandon Beck

That's great to hear, right? It's the people that matter and they need to be treated better. But just a few minutes earlier, Beck was detailing a cultural philosophy at Riot that lends itself to the kind of shoddy treatment of people that ends up driving them to other industries.

QUOTE |"As a culture, you don't want to be plain vanilla. You want to be uni or brussels sprouts. You want to be polarizing, and you'll be a magnet for cultural fits." – Beck, explicitly saying that you want your culture to drive some people away. He was not clear about which people.

It's worth noting that when Beck gave a version of the same talk at the 2015 DICE Summit, he added, "And others will self-select out" to that line.

That's a sentiment the company has consistently and publicly embraced over the years. It's so determined to have new hires assimilate into its workplace culture that since 2014 it has offered to pay them a portion of their annual salary to quit in the first 60 days if they're not fitting in. And what is the culture they need to fit into?

QUOTE | "We operate on a foundation of shared mission, values, passion, trust, and mutual respect. If someone gags on the unique flavor of our culture, they'd be doing themselves and the company a disservice to hang on just for the paycheck." – Riot, in the blog post introducing its "Queue Dodge" system.

I don't see why someone would gag on the unique flavor of "shared mission, values, passion, trust, and mutual respect," considering those are pretty vanilla platitudes we wouldn't be surprised to hear from basically any company. On the other hand, I can see why someone would gag on the unique flavor of a boss repeatedly farting in their face (even if it was done in a mutually respectful way).

More than that, I can see how identifying those who don't fit your culture and paying them to go away can reinforce a monocultural workforce with a very specific kind of person overrepresented therein. And I don't even mean sexist dudebros here; I mean anyone without the emotional distance from the job to understand it as a business deal between them and their employers. I mean the type of "passionate" employee attracted by the prestige of a big-name developer as much as pay, one who just wants to work on a series they love, one who is only too eager to sacrifice for the company.

For a company that makes such a big show of diversity and inclusion, Riot sure is willing to spend a lot of time and money weeding out anyone who doesn't fit

But even after the perils of Riot's uni-and-brussels-sprouts cultural approach made themselves abundantly clear with the 2018 exposé and gender discrimination lawsuits, Riot not only kept its Queue Dodge in place, it temporarily expanded it in 2022 to include people who had already been with the company for a while but decided they no longer fit the culture.

For a company that makes such a big show of diversity and inclusion, Riot sure is willing to spend a lot of time and money weeding out anyone who doesn't fit. And they do that because from management's point of view, there are obvious benefits to it.

If you're feeling charitable, that obvious benefit is having everyone on the same page, pushing in the same direction.

If you're feeling less charitable, the benefit is that if you hire the right type of person and create the right type of office culture, they'll practically exploit themselves!

QUOTE | "People just naturally do it. Because we hire a particular type of person who's motivated and passionate and wants to leave their mark on the industry. That's why they come to Naughty Dog." – Naughty Dog co-president Evan Wells spells it out in a 2016 interview, as recounted in a 2020 Kotaku article about the studio's crunch on The Last of Us Part 2.

So… unions?

Sometimes it's tempting to advocate for developers to unionize simply as a petty, spiteful gesture of defiance, thumbing a collective nose at an executive class that has habitually offloaded the consequences of their mistakes onto the people below them, or simply manufactured misery with layoffs because it's a healthy habit for companies to get into. (If that's really the case, then I have excellent news about the current health of the games industry.)

And while I won't pretend I'm above doing something out of pettiness or spite, I think there are increasingly convincing arguments for unionization.

For one, what are developers getting by not being unionized? Certainly not job stability. Companies are cutting them by the hundreds left and right, whether there's a pressing need for layoffs or not.

Does it make it harder to get rid of workers who really shouldn't be there? Sure, but that's because it makes it harder to get rid of you, too. And judging from the abundance of horror stories of non-unionized companies who held onto workers who should have been fired long before, it's not like these companies are making appropriate use of that ability to easily dismiss people.

In fact, Riot specifically seems to enjoy using it to punish people for tweeting about diversity and inclusion.

And as far as arguments that unions will restrict companies and rob them of the flexibility they need to be successful, the layoffs from executives who strategically boxed themselves in with terrible decisions shows the absence of unions isn't much protection on that front either.

All of those aside, the real reason I would like to see unionization across the industry is that I believe it would start correcting that lopsided, dysfunctional relationship between corporate employer and corporate employee.

Right now, companies like Riot go into every contract negotiation – and we use that word lightly, considering how many individual developers are in no position to push back against whatever the initial offered terms of a deal are – as a business looking to make the most efficient use of its resources.

But developers are human beings with so many more motivations. They may be chasing a dream, eager to work on a game they're passionate about, or excited about working on a popular AAA franchise. Maybe they just want a team to work with, people to rely on who rely on them. Maybe they're just happy to be there, or desperate for any kind of paying work. Whatever motivations they bring to the table, it means they will often settle for what they can get instead of what they deserve.

And that would be fine, if it were only themselves they were selling short. It's their life and their choice to prioritize what they want, after all. But it hurts their fellow developers, lowers the going rate for talent, and undermines the ability of any developer to ask for more because these companies know there's a functionally limitless pool of people out there who won't try to negotiate better terms for themselves and are only too willing to throw their personal lives into a furnace for the sake of the umpteenth installment of a franchise or the next big live service flame out.

At least with unions in place, contracts will be negotiated between a business looking to get the best deal for its stakeholders and a union looking for the same. It makes for a more even playing field where both sides at least understand the nature of the game they're playing, no matter who has the actual leverage.

What unions can do is make the transactional nature of employment clear to both sides.

Unions can't fix everything, of course. Games will still flop. Layoffs will still happen. Shareholders will still demand growth without end. Management will still pursue ill-advised-yet-trendy strategies, and the rank-and-file workers will still suffer for those mistakes when the bill comes due.

What unions can do is make the transactional nature of employment clear to both sides. And I think that's the realization at the heart of corporate pushback to unions.

Because when game developers treat their job as a job rather than a load-bearing wall on which they have built their identity and self-worth, they're liable to demand things like better pay, limited work hours, appropriate time off, or work-life balance.

But it's not like unions magically grant those things or make crunch disappear, either. Having a union just means that workers are at least in a position to negotiate these things rather than have terms dictated to them. It means they are treating their employment like a business arrangement rather than a machine that burns health and sanity to produce shareholder value. (And does so unreliably, at that.)

We are not our work.

We can enjoy it. We can take pride in it. We can do it to the best of our ability. I think most people who enter a field by choice rather than necessity do this, and making video games (like writing about them) is a hard enough field to break into (or remain in) that I suspect most of us are here because we wanted to be here.

So we can give our jobs all we have to give, and for many of us, we will do that with or without a union. But we cannot give them all that they will take, because in most jobs that is a bottomless pit that we can never begin to fill.

Having a union would just be recognition that we shouldn't have to.

The rest of the week in review

STAT | 6 – The number of stories about layoffs and closures this week, with Microsoft and Riot joined by Reikon Games, People Can Fly, and Black Forest Games, and UK recruiting firm One Player Mission closing shop after 26 years.

STAT | 50% - The UK-based IWGB Game Workers union saw its membership grow by 50% from December of 2022 to December of 2023.

STAT | 0 – The number of unionized developers at Microsoft who are among the 1,900 layoffs announced this week. In the very near-term, I could see companies laying people off avoiding their relatively few unionized employees to avoid taking a bigger PR hit. Or in the case of Microsoft, to stay on good terms with the CWA union that backed the Activision Blizzard acquisition in exchange for a labor neutrality agreement.

QUOTE | "If 2023 was the year of layoffs, 2024 will be the year of closures. Not just developers, but publishers, media, service companies... There are just too many unprofitable businesses in video games. We're looking at up to two years of pain." – A CEO of a public company, speaking to us for a roundup of games industry leaders' expectations on the state of the industry to come.

QUOTE | "2025 could very well be the best year in video games sales to date." - SJN Insights' Sam Naji says there's reason to be optimistic for the industry's fortunes next year, even if a lot of the reason why is Grand Theft Auto 6.

STAT | $189.3 billion – Newzoo's estimate for how much money the global games market will pull in this year, up almost 3% year-over-year. It expects the industry to continue growing at a compound annual growth rate of 1.3% through 2026. That's not enough to keep up with inflation, but it's certainly not reason for the kind of cuts we've seen in the past year.

STAT | €0.50 – The "core technology fee" Apple will charge for every install per year after the first million for an app if the developer chooses to make it available through alternative app stores. It's part of a number of changes Apple is making to comply with the European Union's Digital Markets Act, including allowing for people to distribute games and use non-Apple payment processing options.

QUOTE | "They are forcing developers to choose between App Store exclusivity and the store terms, which will be illegal under DMA, or accept a new also-illegal anticompetitive scheme rife with new Junk Fees on downloads and new Apple taxes on payments they don't process." – Epic founder Tim Sweeney, calling the new terms an example of "malicious compliance."

STAT | 1 – One day after the UK Competition and Markets Authority said it would be resuming an investigation into Apple's ban on cloud gaming apps on the iOS store, Apple announced it would change that policy and allow apps for services like Xbox Game Pass and Nvidia GeForce Now around the globe.

QUOTE | "Tax breaks don't create wealth; they create jobs. Jobs are great, don't get me wrong. But there's a limit to the upside of a tax break." – In an interview about the state of games industry tax breaks around the world, Nordicity's Kristian Roberts explains what they're good for, and what they aren't.

QUOTE | "That's something that we are religiously committed to in this business in a way we may not have been as committed to before – this idea of really killing anything that we don't believe wholeheartedly at any point in the development cycle is going to deliver the kind of success that we're looking for. If we don't believe either from our own internal testing or from external focus tests that they hold enough engagement, or they're compelling enough to be played many thousands of times for many years, then they are consigned to the bin forever." – In an interview about his new start-up ForthStar Games, co-founder and CEO Paul Gouge details his "test and kill" philosophy.

I can't even begin to imagine the anxiety of spending years working on a project knowing the boss is practically excited about flushing all that work down the toilet if the testing metrics ever dip.

Is today the day you find out you wasted years of your professional life for nothing?

No? Maybe tomorrow then. Maybe tomorrow.