When Paramount Global announced on February 13 that it was slashing 800 employees, or about 3% of its workforce, CEO Bob Bakish was sent packing. He praised the employees' work performance. “Your talents have helped advance our mission to unleash the power of content around the world,” he wrote in a company-wide memo. “We are a better company because of you.”
It's a demoralizing memo that's been circulating a lot lately. Since the beginning of this year, the media, technology, and video game industries have been hit hard by layoffs. Microsoft has cut 1,900 employees across Xbox and Activision Blizzard. Amazon has cut “hundreds” of roles at Prime Video, its studio Twitch, and its audio platform Audible. Google's parent company Alphabet also cut hundreds of jobs. And the Los Angeles Times said goodbye to 20% of its newsroom.
Why are so many companies cutting staff now? Experts say a type of copycat effect could occur across the industry as layoffs begin.
“It's pressure from investors,” says Peter Cappelli, a professor of management at the Wharton School. For example, if investors decide that a large tech company is overhiring and pressure it to lay off workers, that could force neighboring companies to do the same, he said. “And it creates a norm that that's what you should do now.”
Companies that cut costs by cutting jobs may see their stock prices rise temporarily. But Cappelli says there is little evidence that mass layoffs aimed at achieving synergies are “really effective.”
Sandra Thatcher, a professor at Harvard Business School who has studied the “hidden costs” of layoffs for decades, says companies don't take into account the potential losses when they cut jobs. “Companies that do this tend to be less profitable than companies that don't have layoffs, and that can last for as long as three years,” Thatcher says. This is because the total cost of layoffs includes things like severance pay, benefits, and job support for former employees. There are also some less obvious drawbacks. Layoffs leave employees “demoralized and scared,” Thatcher said. “If you think of this in human terms, it's like they're telling people, 'You're okay, you can stay as you are, until I decide you're not.'”
Still, layoffs in the intellectual property industry are one of the main ways that managers can adjust costs and revenues. In the games industry in particular, further layoffs are likely by mid-2024, said Yoshio Osaki, president and CEO of IDG Consulting, with the industry accounting for nearly half of the latest layoffs. It is estimated that it is complete.
However, I am beginning to see a bright side. Major game studios are shifting their focus from growth to profitability, doubling down on leading franchises, similar to media companies' streaming strategies, Osaki said. Even after the layoffs, “they'll still continue to spend more money and bigger budgets on a lot of existing franchises, but they're pulling back from a lot of new games and his IP.”
He predicts that Microsoft's massive $69 billion deal for Activision Blizzard will likely lead to more gaming and transmedia M&A. The goal of industry players is to gain enough scale to enter the “upper echelons” of media companies and thereby earn a “disproportionately high” return on investment.
“So while layoffs are increasing, we are also seeing a widening gap between the haves and have-nots,” Osaki says.
VIP+ analysis: Gaming cuts reduce costs at the expense of new IP
