Engines of Woe | This Week in Business

29.09.2023 - 14:55 / gamesindustry.biz / Tim Sweeney

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.

Unreal and Unity are the two biggest game development engines on the market, and the companies behind them have a lot more in common than that. For example, they've both had very bad weeks. Let's start with the fresher of the two.

Yesterday Epic laid off 830 people, or roughly 16% of the company.

It also got rid of two of its pandemic-era acquisitions, selling Bandcamp and spinning off SuperAwesome in moves that took another 250 off the payroll, about another 5%.

Epic CEO Tim Sweeney explained the necessity of the cuts in an email to staff.

QUOTE | "For a while now, we've been spending way more money than we earn, investing in the next evolution of Epic and growing Fortnite as a metaverse-inspired ecosystem for creators. I had long been optimistic that we could power through this transition without layoffs, but in retrospect I see that this was unrealistic." – Sweeney offers a bit of a mea culpa in his email early on.

What's weird is that the company's cash cow Fortnite is growing, as Sweeney is quick to point out in his email. But because the growth is driven by user-created content and Epic needs to share revenues with those creators, Sweeney laments that the profit margins aren't as high. But if the fundamentals of the business are improving, surely there are less drastic ways to address the problem than jettisoning 20% of the company through layoffs and divestitures?

QUOTE | "Epic folks around the world have been making ongoing efforts to reduce costs, including moving to net zero hiring and cutting operating spend on things like marketing and events. But we still ended up far short of financial sustainability." – Sweeney says the company's cost-cutting wasn't getting the job done.

Oh, I see. The problem isn't that the business is doing poorly. It's just that there was more money going out than coming in. But that's a little weird, because we know there was a lot of money coming in. In addition to the Fortnite and Unreal revenues, Epic had sold off bits and pieces of the company to vastly inflate that "money coming in" figure.

STAT | $4.78 billion – The amount of money Epic raised from selling chunks of the company in 2020, 2021, and 2022.

As for what that money was used for, a lot of it no doubt went to funding Epic's Embracer-esque years-long shopping spree (including Bandcamp, SuperAwesome, Harmonix, Sketchfab, ArtStation, Capturing Reality, Rad Game Tools, Hyprsense, Aquirius, Tonic Games Group and more just since 2020, plus an actual