Blaming the Crunch

Of course, it's not just small firms with bad fiscal management that find the lack of credit problematic. Even much larger enterprises with far better management are now finding that it's difficult to find finance for new projects, for expansion or even for the continuation of speculative projects that had already been started. The rude health of the market's fundamentals makes no difference in this regard; we have built our economy on the availability of cheap credit and until the banks start lending again, even companies whose products are unaffected by recession will be under threat.

So there you have a reasonable and legitimate reason for blaming the credit crunch and/or recession for closures and layoffs. However, take a quick glance at the reality of those recent closures and layoffs - a thousand jobs on the way out at EA, the games division reportedly among those hit in a 5,000 job cull at Microsoft, not to mention smaller losses at places like SEGA, Nexon, Rockpool, Crystal Dynamics and so on. The list is extensive, and quite honestly, this is not a list of unfortunate victims of the credit crunch.

On the contrary, this is a list of job losses and closures which would almost certainly have happened even if the global economy was still booming at 2006 or 2007 levels. Jobs have been lost at publishers which are fighting to control spiralling costs, at developers whose games weren't as successful as they could have been, at experimental enterprises whose experiments didn't work out as hoped.

It's entirely possible that the way in which these cuts were approached would have been different without the credit crunch as a convenient whipping boy for every corporate woe on the face of the planet, of course. Microsoft regularly brags about the profitability of the Xbox 360 (without detracting too much from this achievement, it's worth noting that it's easy to be profitable on a quarter by quarter basis if you've written off most significant costs, such as a billion-dollar repair bill, back near the start of the system's lifespan), but the job losses in the games division show that the firm still wants to cut costs. That imperative would have existed regardless of economic conditions - it's just that now, it's wrapped up in a larger package of company-wide layoffs. Under the blanket label of "credit crunch", these will include major cost-cutting exercises at a large number of underperforming or excessively expensive projects.

That's exactly why you're going to be sick of hearing about the credit crunch or the recession by the end of 2009 - because it's a convenient label that will be used to obfuscate the business realities which are causing these layoffs and closures. A need to cut costs in the Xbox division would say something interesting and worthwhile about the performance of the console or Microsoft's future plans; instead, it's buried in an avalanche of "credit crunch" cuts. The same goes for EA's cutbacks, for possible cutbacks at Sony (16,000 jobs will go across the company - none have yet been confirmed in the games division) and for the majority of studio headcount reductions or closures in the past few months.

The reality for the games business is that we are now at the middle of the hardware cycle, and regardless of any macroeconomic conditions, that means that companies need to take stock of their situation - and in some cases, take tough decisions. Some projects and franchises which have underperformed in this cycle need to be knocked on the head, and new projects have to be critically evaluated with consideration to the fact that a new hardware refresh will be on the doorstep before any game whose development begins today is finished.

This is always a point when the industry consolidates - when those firms which have been hugely successful bulk up their numbers, while those which have met with difficulties are forced to downsize or disappear. This time around, however, the recession is being waved around like a doctor's note, an excuse for poor performance and a cover for decisions whose true reasons lie elsewhere. This is only the beginning. 2009 will be a growth year for game sales, but a consolidation year for game publishers and developers. Expect to hear the "credit crunch!" line unjustly rolled out many more times before the year is out.