Unpacking the Activision Blizzard Layoff

Just fair warning, unless you’re really into base-level business analysis, this is probably the most boring post I’ve written in a while.

Activision Blizzard just announced that it had a year of record profits.  Activision Blizzard just announce that they were laying off 8% of their workforce, close to 775 people.

This has a lot of people angry.  After all, that’s near 775 lives that now need to shift gears.  775 careers interrupted.  775 households potentially shaken to the core.  All while the company is facing the end of the most profitable year its had, and is compensating its executive team accordingly.  The contrast there is galling people.  It’s leading to a lot of anger on the interwebs, discussion of unions, attention to executive pay, and calls for CEO Bobby Kotick to be fired.  You see this posed as a proletariat vs. bourgeoisie issue all over the place.  People hate this, and between the news, the social media, just anywhere you want to look online, it’s not hard to see people expressing it.

To me, and I’d imagine to anyone else with any business experience or education, this is all so, so routine.  Nothing going on here that points to any ethical lapse, no abuses of power, nothing that seems to indicate any real wrongdoing.  Hell, a lot of the layoffs you’ll see out there are either misguidedly shortsighted or the results of significant mismanagement, and this one doesn’t even seem to be one of those.  It’s unfortunate, very much so, but this really does seem to be a normal happening of normal business functions, and really not worth all the vitriol it’s drawing.

It’s been a while since I’ve picked up my business pants for one of these posts.  And frankly, the Activision Blizzard layoffs are a function so utterly routine that I wouldn’t find it worth the effort to be typing up a post about it here.  But my opinion of this matter is so drastically different from that of the prevailing internet shouting that, well, here I am zipping them up once more.

So hey, from the business perspective, let’s go ahead and unpack what’s happening here with Activision Blizzard’s layoffs.

Just from the ground level, there’s a difference between firings and layoffs.  And there’s a difference between layoffs and mass layoffs.  We’re talking about mass layoffs here, when a company lets go of large amounts of people all at once.  Most of the time, when you see mass layoffs in the news, it’s the result of a company losing money.  Hiring people is expensive, and personnel costs are usually the biggest expense on a company’s ledger.  So it makes sense that if a company is looking to cut costs, the first place they’d go is cutting people, right?  Not so much.  You see a lot of companies really jumping the gun on them, going for layoffs purely as a cost-savings measure after a short period in the red.  Mass layoffs are horrible.  And they’re not just horrible for the people being laid off.  It’s easy to lose track of the simple fundamental, but a company’s ability to make money is dependent on its people doing things that make money.  If you have less people, you’ll be able to do less things, and therefore make less money.  Layoffs can lead to a short-term increase in financial condition, but typically lead to reduced performance in the long term.  Mass layoffs cost a business capacity.

But what happens when you don’t need that capacity?  That’s the situation I believe Activision is in now.  Sure, they’ve made a lot of money last year.  But let’s take a look at the broader situation. Last year, following Destiny 2’s disappointing performance, the larger company has divested itself of developer Bungie.  They’ve been sunsetting their Guitar Hero properties.  Skylanders seems to no longer be on the radar.  Call of Duty Black Ops IV has failed to achieve quite the presence they expected.  Blizzard has no major new games coming in 2019.  Heroes of the Storm is being scaled back.  Hell, Blizzard was running an incentive for voluntary quits late last year, in a preliminary cost-cutting measure.  Sure, the company posted what was reportedly its biggest profit yet.  But it underwent a lot of trouble to get there, and by appearances, that trouble is going to lead to a very slow 2019 for the company.

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All up in Nintendo’s Business

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Among both the console manufacturers and video game developers in general, Nintendo stands apart. Not just in terms of their games or consoles themselves, although those are certainly a result of the way Nintendo stays askance. But rather Nintendo is just different in terms of the way the business is run; in its decisions and very culture. Sometimes, this sees them make some greatness, such as when they single-handedly pulled the entire video game industry out of the dark ages. Sometimes, this sees them make some really boneheaded decisions, such as when they decided that online gaming was just a passing fad. For like ten years.

But even with all the ups and downs this causes, it makes them a very interesting company. They intrigue the businessman part of me endlessly. Why do they do the things they do, even when it flies against all established knowledge? The fantasizing about that really appeals to the part of my brain that makes my heart skip a beat at the words “Six Sigma”. And you know, it’s been a while since I’ve done any business analysis. I think I might be jonesing.

So anyways, let’s take a look/wildly theorize at the things that make Nintendo the way they are. Now, as we’re doing this, I want to say that a lot of what I’m going to talk about next, particularly about the culture of Japanese companies, comes from things I learned from people who got their chops in the era where all the businessmen were scared Japan was soon going to dominate the world, so that might color my perspective a bit. Also, some of my classes were, like, really boring, so I may only be half-remembering some things. So, you know, don’t put any money on any of this. With that out of way, let’s dive into the business character of Nintendo.

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The first thing in understanding what makes Nintendo tick is understanding where they’re coming from. I know this is going to blow you minds here, so hold on to the back of your skulls, but, see, Nintendo is a Japanese Corporation. And I don’t know if you realize this, but Japan has a different culture than we do in the rest.

Sorry, I might be going a little fast there. Go ahead, read that paragraph a few times, until you can wrap your head around those bombs I dropped. When you catch up, we’ll be here for you.

Let’s take a look at what that means. No matter where you are, corporations are publicly owned companies. People buy and sell stock in that company outside the control of the company itself. Stocks represent a portion of the ownership of that company with all that entails, including a share of the highest level decision making and a share of the company’s profits, delivered by means of the stock value increasing or by dividends paid out to shareholders.

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AAA Games are Getting Too Fat

It’s hitting the point where companies are turning over their financial years, meaning that for those publicly traded we get a nice look at how healthy they actually are. For a lot of the big name companies, those finances aren’t looking too good. SquareEnix posted a massive loss for the year, EA’s finances were bad enough that their CEO resigned, companies are falling all over the place, and the picture’s only going to get darker as more and more companies report in. But what’s the problem, exactly? Their games do seem to be selling well. Where is all that money going?

Do you remember when it was considered a major milestone for a game to sell a million copies? I remember. Seems like it was a long time ago. I was a mere teenage heartthrob then, I wonder what I’d think of the market now. Just on Square Enix’s side, we have Tomb Raider selling an expected 3.4 million copies, Hitman Absolution 3.6 million, and Sleeping Dogs 1.75 million of physical copies alone, and they’re all considered failures, enough so to tank the company’s finances. AAA games are selling very well. Think of all the developers who would kill for 3.6 million sales. Yet they’re still losing money like a salaryman in Vegas.

Dead Space 3 famously had to sell 5 million copies to hit its break-even point, a mark it now seems certain it’s going to miss. It does highlight the source of the problem, though. AAA games, the games developers are throwing all their development and marketing dollars behind, are getting waaaaaaaay too expensive. Sales may be great, but the amount they need to sell to cover costs is just getting ridiculous.

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Why is EA really the Worst Company in America?

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While you weren’t watching, history was quietly made today.  Video game company EA has achieved something no organization has ever done before.  Through dedication, hard work, and a complete and utter commitment to the cause, EA has become the first company to win the Consumerist’s Worst Company In America  award twice in a row.

But why are they the Worst Company In America?  After all, as EA itself has pointed out, it’s rated against companies that actively ruin lives and steal from their customers.  Some of the other companies that were in the running actually make the world a worse place in a very practical manner.  Can a company who limits its activities to the video game industry which, internet drama aside, can’t really affect the public in the way Bank of America can be truly deserving of the title “Worst Company in America?”

Hell yes.  And here’s why.

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Developers Say the Darndest Things: John Calhoun on the Dead Space 3 Microtransactions

So Dead Space 3 comes out in a couple days.  Sometime between February 5th through the 8th, depending on which country you call home.  For most of the lead-up to the game’s launch, I found it hard to care.  Nothing against the game itself, the series just never appealed to me.  Never seemed like it would push my particular buttons.  And this third game in the series seems like it would be no different.  I’m sure some people might like it, but it’s just so far outside my gaming sphere that nothing EA’s marketing does could get me interested in the game.

Instead, it seems to be something the developers did that got me interested, and not in a good way.  Dead Space 3 is going to have microtransactions, imported directly from all those free-to-play games you’ve probably never tried.  Essentially, these have you paying real world money for some sort of in-game resource.  Sometimes it’s time, where you don’t have to wait for something to happen.  Sometime it’s resources, as in this case, whether in-game money or crafting material, or something of that sort.  Either way, what I’m getting at is that microtransactions are essentially you just paying money to get the computer to change a number.  It’s not DLC, because you’re not paying for any new content, what you are paying for is something that you could get otherwise within the game, were you just to put in the time or energy.  Like I said, really common in free-to-play titles.  A lot less common in games that you have to shell out full price for.

I’m not going to say it’s a bad thing in these “hardcore” games, or that anyone’s in the wrong for buying into it.  Each individual player will have to make the choice as to whether it’s worth it or not.  It’s not like this is a new phenomenon either.  Mass Effect 3 had microtransactions for its multiplayer weapons.  Tales of Vesperia had microtransactions for levels and basic items.  This is a practice that disgusts the gamer in me, and I’d hate to see it take root, but the businessman in me understands it.  After all, Dead Space 3 has infamously had a massive development budget, and for whatever reason EA’s marketing isn’t pushing the game nearly as strongly as I thought they would.  They’ve got to make up for it somehow, and giving players the choice of paying money if they wish to get these resource packs wouldn’t be that big a deal, so long as the game didn’t actually require it.  Between the gamer and business perspectives I have, I’ve kind of found a bit of balance, that of just idly hoping the microtransactions flop.

Of course, it’s easy for me to have such a passive outlook on the issue, as I’m not actually invested in the game whatsoever.  I was mostly paying attention to these microtransactions because it’s created so much internet drama, and I do enjoy a good bit of butthurt. I was never going to bother saying anything about it though, until I saw this interview at GamePlanet with Visceral Producer John Calhoun.  Several of the things he says in the interview set off my bullhonky detector.  Normally, that’s the sort of thing I’d just quietly sit on and forget to care about after a couple of hours.  But now, I don’t have to! I’ve got a blog now!  If I don’t use it to share my random thoughts with the world, what am I doing with this thing?!  So we’re going to go over my perspective on a couple of the things Calhoun has said in that interview that just seem weird.

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Dissecting the THQ Bankruptcy

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THQ, maker of the Saint’s Row franchise and a bunch of other games I don’t care about BUT YOU MIGHT has fallen on some hard times lately, eh?  Well, “lately” is kind of a polite way of putting it.  Truth is, they’ve been circling the drain since 2008.  But last year was an exceptionally eventful one for them!  Layoff’s, a change in power, a desperate move to keep from being de-listed from the stock exchange, it’s been rough times.  And now, it’s coming to a head with this bankruptcy.  And bankruptcy is nothing anyone wishes on them.  Well, unless you still hold a grudge for 50 Cent: Blood on the Sand or something.  Anyways,  we’ve been getting all sorts of conflicting messages from them.  President Jason Rubin says everything’s going to be fine, thank you for asking, how are you?  If you take the statements he was making at the time the bankruptcy was announced, they’re just hitting a rough patch, and they’re going to come through it harder, better, faster, stronger than ever!  On the other hand, THQ’s creditor’s and the general games journalism sphere don’t seem so optimistic.  So what’s really going to happen?  If only there was some incredibly smart business/video games blogger around that could enlighten all of us.  Well, truth is, it’s really hard to say just yet.  I may be incredibly smart, and I might end up blogging about business and/or video games, too early to say just yet, but right now, THQ’s at too uncertain a place for true enlightenment.  I can attempt to help you understand the situation  better, though.  Would you like that?  No?  Well I’m gonna keep typing anyway!

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