So with the news of Visceral getting closed, i thought it's time to talk about the question why AAA Publishers who have a lot of money close down studios. What the various reasons could be etc, because i see the usual "EA is evil therefore studioclosure" reasoning.
The story of studio closure usually begins months in advance of the bad news finally dropping. We’ll go over one possible scenario that could lead to an unfortunate studio closure, and hopefully you’ll start to see how it could happen under other circumstances.
Part of the day to day job of publishing executives is to regularly go over the numbers from the studios they are managing, look at the latest round of market research, and make sure things are on track. Imagine that you’re one of these executives. Your primary goal is to make sure that the studios under your purview are able to keep running profitably, because you have to keep the shareholders happy. If the shareholders aren’t happy, it will mean the company will need to cut costs, and that means mass layoffs at all of the studios that report to you - people who depend on you to make good decisions.
Let’s continue with this thought experiment. Let’s say that you green light a project that seemed like a good idea. It was on the expensive side in terms of budget and the profit margin was thinner due to the license required. It was also from a studio that had a strong history, but had struggled some with their latest few offerings. Still, it’s got an industry rock star who is leading the team. It’s one of the biggest intellectual properties in the world. The market looks primed for the game to sell well - the analysts are all saying 5 million sales easily, and 10 million sales is within striking distance. The numbers work out that you’ll need at least 4 million in sales along with a DLC attach rate of around 10% to break even due to the revenue sharing with the license owner, but with the 5 million sales and 10% attach rate the analysts swear on, it’ll be fine. If you can deliver something halfway decent, you should be able to make a decent profit off of it, right? No brainer.
Weeks, then months pass. Development is going less smoothly than expected. Your studio team is having some trouble with the license holder - the license holder is making a lot of demands of the development team that they are entitled to, as per the license contract, requiring the team to redo a lot of work. Large chunks of the game’s planned design had to be thrown out because the license holder felt they were too close to a different project of theirs in the works. That’s ok, though. Every project has its rough patches. The cost goes up some due to the wasted work, but the sales target is still totally reachable. You still believe in the project.
Another few months pass. Bad news. The analysts have noted a shift in market behavior. A bunch of big budget games in a similar genre released by competitors have underperformed in their earnings. You’ve checked it over, and the games themselves are solid. Several have been critically acclaimed, very well received by players who played them, but there just aren’t enough sales to meet expectations. Rather than being on-target for profitability, they might only become profitable months after release. That’s not a good sign - it means that there is probably some amount of market saturation going on. Maybe players are getting tired of that kind of game. It looks like your original revenue estimates were too optimistic and get adjusted down. That 5 million guarantee doesn’t look so safe anymore. You resolve to keep watching.
A few more months pass and you get more bad news. The license holder is still being a butt, but now the team is having internal development problems that resulted from the extensive rework they had to do. The demo they showed you is a bit of a mess. It’s not very nice to look at, they’re missing a quarter of the features they promised to have by this milestone, but the worst part is that game just isn’t very fun. If you squint, you can tell that there’s potential here, but it isn’t there yet. They’ve fallen behind schedule because one of the major features ended up taking way more effort than expected. The team has ramped up hiring to try to shore it up, but the costs are rising even more. You’re still on board, but you’re starting to worry. The game will probably need additional development time to iron these kinks out which means more cost. You go back to the books to try to figure out if you can make the math work.
You talk to the license holders and try to smooth things out - maybe even get an extension to give the team more time, but the license holders are intractable. They have a very specific release date they want for their next blockbuster movie and they are going to spend hundreds of millions marketing it. Your game is not going to derail that movie, no matter how good it is. If you move the game’s release date at all, you’re looking at months, maybe even six to nine months, before you can release it on a week that both gets the license holder’s blessing and also dodges other major competitor releases. You’re also almost certainly going to miss the holiday season and the extra sales that it would bring with it. You check the studio’s burn rate (how much money is needed to keep the studio running each month) and the sales estimates and you realize the math isn’t going to work out. A delay that long would still result in a net loss. The game is going to tank if you release it on time as-is. The license holder would certainly be disappointed if the game doesn’t sell well. And, if the publisher takes that big a loss, the shareholders will almost certainly lose their confidence and drop the stock which will result in massive layoffs as “cost cutting measures”. The situation is looking really bad.
You’ve got a large number of very expensive developers working on a project that you know is doomed. You don’t have a new project that you can suddenly shove them all onto - it takes time for a new project to spin up, get approved, go through preproduction, etc. The only real choice here, in order to save as many jobs as you can, is to staunch the bleeding as much as you can. So you give the order - the game is cancelled. You have to break up the team and send the devs to your other studios in various stages of development that do need people. You can probably keep a handful of the team together to work on a new pitch if they want to stick around, but there’s no budget allocated for a full production team to waste on a project that won’t ever get released.
You talk with the leadership there. They’re old hands at this. They’ve seen the writing on the wall, they were at all of the same meetings and milestone updates as you. They know what’s going to happen. Most aren’t staying. Several of them have already found jobs elsewhere. Some are probably (and justifiably) mad… at you, at the license holder, at the publisher, at the world. Even if you keep the studio open, you won’t have enough senior leadership there to lead it or a project for them to work on. You can’t really fault them for taking care of themselves - you’d probably do the same in their position. So you do what you can. You wish them luck. You apologize for how things went down. You try to save as many jobs as you can, but the circumstances have unfortunately conspired to close the studio. It sucks.
Notice how it isn’t necessarily any one party’s fault here. The game concepts might even be salvageable… just not at the time being, with the same set of features, under the current set of circumstances. The dev studio did its best, but mistakes happen. The license owner might have been picky, but it’s their intellectual property and their loyalty is ultimately to the property. The gamers out there want what they want and are voting with their wallets. And you, as executive in charge of all of this, made the only rational decision you could given the situation you had to deal with. Circumstances change and sometimes they become untenable (especially when dealing with greater forces like license holders and schedule alignment). Maybe the executives were fed bad information. Maybe it was the one dude who messed up real bad. Maybe it was because the developer studio bit off more than they could chew. Maybe it was because players got burned out on a particular kind of game before the project was completed. Maybe some executive left the company and her replacement didn’t like the project and wanted it shut down. Maybe the original estimates were off, and nobody noticed until it was too late. Maybe it was a little of column A and a little of column B. It’s unfortunate, but shit happens sometimes. It isn’t necessarily malicious, but it is a harsh reality of business. Big games are expensive, and most publishers (behemoths like EA and Activision included) can’t afford to flush millions down the drain each month on a doomed project.
Got a burning question you want answered?