There was more bad news on the games industry jobs front from unexpected sources today, with the wildly successful Epic Games apparently now feeling the pinch, announcing over 800 lay-offs, or approximately 16% of its workforce and Sega also announcing it was shuttering several projects.

Epic CEO Tim Sweeney outlined the situation in a frank letter to staff, which leaked to Bloomberg, but was subsequently published on the Epic blog and is reprinted in full below. Rather than a cynical move to please shareholders (which has been alleged about other industry layoffs), it appears the move is a financial necessity for the privately owned business in line with changing business models and tougher market conditions. Sweeney stated directly, "For a while now, we’ve been spending way more money than we earn...I had long been optimistic that we could power through this transition without layoffs, but in retrospect I see this was unrealistic.”

The same memo also pointed out the challenges of lower margins in new areas (such as the new creator-led modes in Fortnite), outlined very favourable severance terms and made it clear no further layoffs were planned, although around another 250 staff would be departing as part of the sale of both music site Bandcamp and marketing company SuperAwesome (which appears subsequently to be the subject of a management buy out).

Notes accompanying the blog post stressed that core games would not be directly affected (including Fortnite first-party development, the Fortnite creator ecosystem and economy, Rocket League and Fall Guys) and also that services for developers including Unreal Engine for games and enterprise, Epic Games Store, Epic Games Publishing, Epic Online Services, Kids Web Services, MetaHuman, Twin Motion, Quixel Mega Scans, Capturing Reality, ArtStation, Sketchfab and Fab would continue to be supported and invested in. They also stressed that 'Project Liberty', the battle against Apple and Google distribution monopolies and taxes would also continue!

Whilst specific teams/roles have not been outlined, early social media chatter suggests that some of the largely UK-based Mediatonic team (behind breakout smash Fall Guys) would be affected.

Tim Sweeney's Letter to Epic Employees in full

"Hi everyone,
As we shared earlier, we are laying off around 16% of Epic employees. We're divesting Bandcamp and spinning off most of SuperAwesome.

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.

While Fortnite is starting to grow again, the growth is driven primarily by creator content with significant revenue sharing, and this is a lower margin business than we had when Fortnite Battle Royale took off and began funding our expansion. Success with the creator ecosystem is a great achievement, but it means a major structural change to our economics.

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. We concluded that layoffs are the only way, and that doing them now and on this scale will stabilize our finances.

We're also making some divestitures. Bandcamp is joining Songtradr, a music marketplace company supporting artists. SuperAwesome’s advertising business will become an independent company under the SuperAwesome brand, led by their current CEO Kate O’Loughlin. Kids Web Services (KWS), the parent verification and consent management toolset, will remain part of Epic.

Saying goodbye to people who have helped build Epic is a terrible experience for all. The consolation is that we're adequately funded to support laid off employees: we’re offering a severance package that includes six months base pay and in the US/Canada/Brazil six months of Epic-paid healthcare. We’re offering to accelerate people’s stock option vesting schedule through the end of 2024 and are giving two additional years from today to exercise the options. In the US we’re also offering to vest any unearned profit sharing from their 401k. And we’ll provide benefits including career transition services and visa support where we can.

For those still at Epic, you’ll hear more from senior leaders about the path forward for your team. Epic’s prospects for the future are strong. We have amazing game experiences across multiple platforms. We’ve built the best engine in the world, and will be hosting Unreal Fest next week to bring the community together and spotlight the things they are building with Unreal Engine and UEFN. Creators are making a living building for the Fortnite ecosystem, with time in third-party games now exceeding first-party.

We're cutting costs without breaking development or our core lines of businesses so we can continue to focus on our ambitious plans. About two-thirds of the layoffs were in teams outside of core development. Some of our products and initiatives will land on schedule, and some may not ship when planned because they are under-resourced for the time being. We’re ok with the schedule tradeoff if it means holding on to our ability to achieve our goals, get to the other side of profitability and become a leading metaverse company.

- Tim"

Sega making cuts to projects and teams at UK-based Creative Assembly

Sadly this wasn't the only news to break, with Sega revealing they would also be making cuts. As part of a profit warning to investors which outlined the company would be making a loss for the financial year, largely due to underperformance in Europe, they declared that the multiplayer shooter Hyenas along with some other unannounced titles in development at Creative Assembly would be cancelled and the relevant teams laid off.

Their official statement said, "We have made the difficult decision to cancel some titles under the development as well as to reduce the fixed expenses...In response to the lower profitability of the European region, we have reviewed the title portfolio of each development base in Europe and the resulting action will be to cancel Hyenas and some unannounced titles under development. Accordingly, we will implement a write-down of work-in-progress for titles under development..."

Whilst precise numbers have yet to be confirmed, given that CA is one of the UK's largest studios with around 900 staff then the departures could easily get into 3 figures, bringng the total for the day alone close to 1,000.

This news follows hot on the heels of sizeable cuts at Embracer and many other studios and companies in the ecosystem.