Epic Games, the company behind the famous Fortnite game, is making some significant changes. They’ve decided to let go of 870 employees, which is about 16% of their workforce. The reason behind this move, as explained by their CEO Tim Sweeney, is that they’ve been spending more money than they’ve been making for a while now.
Sweeney shared his thoughts with the company’s employees in a memo, expressing his initial optimism that they could weather this financial challenge without having to resort to layoffs. However, as time passed, he realized that this approach was not sustainable.
The layoffs primarily result from a shift in their business model. Epic Games had experienced substantial growth thanks to the Fortnite Creator program. This program allowed players to create and sell their own in-game content, with Epic sharing 40% of the revenue with these creators. While this was a fantastic way to involve the community, Sweeney described it as a “lower margin business” compared to their other revenue sources.
In the past, Epic had been thriving mainly due to revenue streams like selling character skins and personalization items in Fortnite. However, these revenue sources are no longer as profitable as they used to be, making it challenging for the company to maintain its current size.
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Sweeney emphasized that their success with the creator ecosystem was indeed an achievement, but it necessitated a significant shift in how their business operated.
Epic Games, headquartered in Cary, North Carolina, is known not only for Fortnite but also for producing the Unreal Engine, a widely used technology suite in the video game development industry.
The CEO assured employees that there are no further layoffs planned. However, an additional 250 individuals will be leaving the company due to two separate actions: the sale of Bandcamp, a music site acquired by Epic last year, and the spinoff of SuperAwesome, a marketing company that joined Epic in 2020.
It’s worth noting that the majority of the job cuts at Epic were in teams outside of “core development,” according to Sweeney. The gaming industry, like the broader tech sector, has seen its share of layoffs in recent times.
Other gaming companies, both large and small, have had to make tough decisions. For example, Embracer Group AB closed down Volition, the creator of the Saints Row games, and Niantic Inc., the maker of Pokémon Go, had to restructure, resulting in the closure of their Los Angeles studio and the cancellation of NBA and Marvel titles, along with the loss of 230 jobs, roughly 25% of their staff.
Epic Games is one of the largest privately held video game companies globally, with the majority of its shares owned by CEO Tim Sweeney, and a 40% stake held by the Chinese conglomerate Tencent Holdings Ltd.
To support the employees affected by the layoffs, Epic Games is providing six months of severance pay, continued health insurance coverage, and accelerated stock vesting.