Sony's latest announcement reveals trouble in a billion-dollar industry

A Sony PlayStation is seen. l-ead

With the video game industry expected to rake in more than $212 billion by 2026, an outsider might think that the world ruled by Microsoft, Sony, and Nintendo is booming.

But in a new announcement issued on the morning on Feb. 27, Sony  (SNEJF)  PlayStation President and CEO Jim Ryan delivered unfortunate news indicating that not all is well.

“The PlayStation community means everything to us, so I felt it was important to update you on a difficult day at our company,” Ryan said in a post on the Sony Interactive blog. “We have made the extremely hard decision to announce our plan to commence a reduction of our overall headcount globally by about 8% or about 900 people, subject to local law and consultation processes. Employees across the globe, including our studios, are impacted.”

Ryan also included the email he sent to the company, explaining in it that “it has become clear changes need to be made to continue to grow the business and develop the company. We had to step back, look at our business holistically, and move forward focusing on the long-term sustainability of the company and delivering the best experiences possible for our community. The goal is to streamline our resources to ensure our continued success and ability to deliver experiences gamers and creators have come to expect from us.”

Head of PlayStation Studios Hermen Hulst also posted on the Sony Interactive Entertainment blog, saying, “PlayStation 5 is in its fourth year, and we are at a stage where we need to step back and look at what our business needs. At the same time, our industry has experienced continuing and fundamental change which affects how we all create, and play, games.”

The workforce reductions will affect game studios Sony owns, such as Insomniac Games (“Spider-Man”), Naughty Dog (“The Last of Us”), Guerilla, and Firespite. PlayStation Studios’ London Studio will close entirely.

Sony’s flagship gaming console, the PlayStation 5, has also seen waning sales as it enters the latter half of its lifecycle. Originally launched in late 2020, the aging console has sold 16.4 million units. But Sony’s operating income for its game and network service has plummeted from ¥86.1 billion ($574.5 million) to ¥30.1 billion ($200.8 million), putting pressure on the company to make new moves to compensate.

The announcement just shows the continuation of an upsetting trend. 2023 saw more than 9,000 layoffs in games as the pandemic boom of 2020 fell from great heights. In a bittersweet contrast, many game developers turned out record-breaking hits in the last few years, such as FromSoftware’s “Elden Ring,” which has sold 20.5 million copies globally since its Feb. 2022 launch.

In addition to the fallout post-pandemic, the rising costs of making AAA games is putting pressure on the industry like never before. “Hogwarts Legacy,” 2023’s best-selling game based on the “Harry Potter” novel series, is estimated to have cost $150 million to make. But that’s a budget title compared to 2020’s “Cyberpunk 2077,” which cost developers Projekt Red $400 million to create, market, and patch. That’s more than most of Hollywood’s biggest films cost to make in 2023.

In addition to production costs rising to new heights, Microsoft also shook up the industry playing field drastically in 2023 with its acquisition of Activision Blizzard, launching itself among the industry’s top players and hitting a $3 trillion market value in Jan. 2024.