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What the hell happened at Activision Blizzard?

12 months of record-setting financial performance + 800 people laid off = one terrible week

Artwork of three soldiers from Call of Duty: Black Ops 4 Treyarch/Activision

On Tuesday afternoon, Activision Blizzard told approximately 800 employees they were being laid off.

The company, which is comprised of Call of Duty publisher Activision Publishing, World of Warcraft and Overwatch developer Blizzard Entertainment, Candy Crush maker King Digital, Major League Gaming, and more did not have a bad year. In fact, it “achieved record results in 2018,” Activision Blizzard CEO Bobby Kotick said during an investor call.

Activision made $7.5 billion in sales and $1.8 billion in profit last year. But in the eyes of management, the success wasn’t enough to keep the entire company employed.

Record results. 800 employees out of work. Those facts are more than just a recipe for cognitive dissonance, they create cerebral friction that could spark a forest fire. (And it may have done just that, as the layoffs have fueled the conversation around game unionization and executive pay.)

As the call went on, it seemed that executives were largely remorseless, with the exception of Blizzard president J. Allen Brack, who expressed regret at the layoffs.

Social media became a hotbed of anger as Activision Blizzard employees came out of meetings that signaled the end of their work, steady pay, health insurance, and stability.

Where players and developers saw people, Activision referred to “costs” and “headcount” in relation to cutting 8 percent of its workforce. Even on an earnings call focused on the business, long-term financial health, and shareholder investments, there is room for compassion. Executives, instead, spoke about hundreds of now-jobless people in cold, dehumanizing terms.

So, how did Activision Blizzard get here, what went wrong, and what can other large publishers take away from the tragedy of this week’s massive layoffs?

Priorities at odds

Bobby Kotick has become the villain in this story. Kotick drew a $1.75 million salary plus another $26 million or so in stock and other equity awards in 2017. Dennis Durkin, who recently returned to the CFO role and was also put in charge of “emerging business” (figuring out where the company will make its money in the coming years), was given a $3.75 million cash bonus and another $11.3 million in as yet unearned, performance-based equity. The disparity between bottom line executive compensation and what the 800 people laid off were making is staggering.

A number of people have pointed to former Nintendo president Satoru Iwata taking a pay cut to preserve the jobs of developers after the company had massive shortfalls in 2014. The sentiment is understandable, but the situations at Nintendo and Activision Blizzard are drastically different.

As CEO, Kotick’s job is to deliver ever-increasing value to shareholders. He accomplished that task, and as far as investors are concerned, Kotick’s doing a good job.

Kotick could have cut his own salary (a small piece of his overall compensation package) or waved off some of the stock incentives he earned, but it would have been performative. It wouldn’t have saved jobs. The gesture would have been symbolic, as 800 people likely still would have found themselves out of work.

One of Activision Blizzard’s problems is that the company is terrible at handling rebuilding years without firing people. When Bungie and Activision divorced, employees that had been working in public relations, communications, customer care, and other support services for Destiny 2 suddenly lacked a game to support.

There is no Skylanders team to move them to. Once-hot Activision properties like Guitar Hero are now dormant franchises. The publisher’s licensed game business is a dusty creekbed. High Moon Studios, which made two great Transformers titles, has been supporting Destiny 2. Vicarious Visions, one of two studios on Skylanders, has been working on Destiny 2, also. Toys for Bob, the studio that created Skylanders, developed the Spyro the Dragon trilogy that came out in 2018.

From the outside, Activision’s pipeline is a trickle. The earnings call this week backed that up, as sales estimates are significantly lower for 2019.

The Blizzard side of the business is looking similarly stark this year. While we’re likely to see Warcraft 3: Reforged (a remake) and World of Warcraft Classic (a revival of the game’s “vanilla” state), the studio has no new major releases on the way in 2019. The company also canceled its Heroes of the Storm esports effort and has moved a number of developers away from the free-to-play MOBA and onto other projects.

All of this amounts to more people on hand than work to give them. Activision Blizzard has been building staff for years. The company suddenly finds itself without the product to back up that need.

According to a report on Kotaku, Blizzard had split its publishing into North America and Global arms. This has now been deemed a failed experiment and re-combining them means multiple people may be doing variations of the same job. Not enough work for too many people.

It’s a problem Activision Blizzard leadership created over years, and now rank-and-file employees have paid the price.

The best workers in the industry can hope for is that Kotick, Durkin, Brack, and the rest of Activision Blizzard’s executives internalize how the these layoffs are playing out in the public square. Activision executives failed to make smart investments that allowed for nimble adjustments along the way instead of the sweeping layoffs we’re now seeing. There is a place for humanity in business, especially when livelihoods are affected, and it starts with making smarter bets on product and people.

But what about unionization?

Over the past year, the movement to unionize game developers has been picking up steam. But unionization, which would no doubt create safety nets and give employees a louder voice, may need to extended beyond game developers to protect some of the roles impacted by the Activision layoffs.

It’s unlikely that a union, operating in the short term, would have stopped the layoffs at Activision Blizzard. It’s also unclear if a union for game developers would cover the entirety of the positions impacted by the layoffs.

The company offered a severance package, but a union would be able to make a counter offer, leveraging public opinion to improve the package. Contractors, on the other hand, are reportedly not receiving any kind of payout. This begins to raise question of who a potential game developer union would include and protect.

Activision Blizzard chief operating officer Coddy Johnson drew a line down the middle of the company’s staff, creating two pools. On the earnings call this week, he said that Activision is “reducing certain non-development and administrative-related costs across our business,” while the company would be “investing more in development.”

The message seems clear. Artists, programmers, animators, sound engineers, and level designers are “developers.” Those who help bring the game to market like public relations staff, community developers, and customer support staff are “non-developers.” It’s a convenient and calculating way to put people in boxes for investors, conveying a shift in resources toward the narrowest definition of “game developer” and away from what is otherwise considered “administrative.” It also ignores that the entire operation is necessary to bring games to market (and afterward, to get people to spend money on them over and over).

If a union is going to assist in situations like this, it would need protect as many roles and the people in them as possible. A holistic view of publishing and development is required to provide the safety net that many espouse as the goal of unionization.

The sad truth is that the die was cast at Activision Blizzard months, if not years, before these layoffs were first hinted. What makes this so exceptionally painful is that there is an understandable mental link between layoffs and poor financial performance. It’s nigh impossible to rationalize or justify 800 people being shown the door as a company reports record sales.

And yet, here we are. Poor planning, a failure to adapt to current market conditions and consumer desires, and too much investment in trends (like toys to life games) has left Activision Blizzard in a place where it needs to make drastic cuts. That’s a thin blanket against the cold reality that executive pay is broken and now hundreds of people are out of work.