Blizzard layoffs could mean many things
by Mathew McCurley 
Mar 2nd 2012 at 12:00PM
It was a shock to many on Wednesday when Blizzard announced that it would be cutting 600 positions from the company, including many support and customer service jobs and even some developer spots. Very sad news for a great group of people, absolutely. Maybe we can do a little digging and figure out why Blizzard cut these positions and make some sense of it.
You don't just cut workers "because." Activision Blizzard is a publicly traded company in the United States, where corporations are beholden to their shareholders, profits, and the bottom line. We still live in a world where the price of stock is paramount, so raising the price of stock combined with investor satisfaction is key. Every decision by Activision Blizzard must, at the end of the day, be made with the knowledge that the investors matter.
Let's start with what employee staff reductions do not mean. Blizzard is not going broke or bankrupt because of these 600 jobs. World of Warcraft, StarCraft, Diablo, and unannounced titles are still being developed and pored over. Mike Morhaime himself said that the active positions cut were mostly non-developmental, which leaves support, customer service, and potential redundancies in the company's structure. All in all, 600 jobs is a large enough number that there is a reason for all of this.
Why do companies fire people?
I know it sounds like a stupid question, but in its simplicity is the probable answer to everything. Employees are company expenses that cost money to maintain. A large workforce requires a large amount of infrastructure and support around it. You don't just pay your workers -- employees cost a lot of money to maintain, especially in the gaming industry. People need to be fed, kept happy, and given the incentive to stay in the position they are in since the company has invested so much into training and skills. Look at the pictures of Blizzard's campus and headquarters. That place is not an inexpensive place to run.
Companies don't always fire people lightly and I truly wish I had the insider information on what all went down, but sadly I don't, so we have to make some educated guesses.
There are a ton of reasons why Activision Blizzard could have made these personnel cuts, but I am under the firm belief that 2012 is a year of scaling back for Blizzard. 2011 brought World of Warcraft's subscriber numbers down to 10.2 million players, a marked difference from the booming Wrath of the Lich King player base that declined over the course of the Cataclysm expansion.
Support and customer service automation programs that work
One of the biggest roles of customer support and service people for Blizzard is fixing player accounts after they have been hacked or stolen, restoring characters to the best of their ability. Over the years, Blizzard has been developing ways to speed up the time between restorations as well as launching a campaign to inform players what to do if they've been hacked or their accounts have been stolen. The account recovery page has changed dramatically over time, potentially putting support personnel out of a job.
The other side of the same coin is that there might just be fewer hacking attempts and account compromises these days for the number of dedicated support personnel. If that was the case, it ties in very well with the second point I'll make about populations in a couple of sentences. Authenticators have done much to alleviate a lot of hacking fears as well as make safe many players who otherwise would have been hacker fodder in the open internet seas.
We are still on the assumption that a majority of the jobs cut at Blizzard are support and customer service, as Mike Morhaime himself said that developers were not the focus of the downsizing. Morhaime also said that World of Warcraft experienced a period of growth that, over time, became an overstaffing issue. This is plain to see: Over the course of Wrath of the Lich King and Cataclysm, the player population fluctuated by over 2 million players subscribed, not to mention the number of new players coming in and out.
Blizzard has had unprecedented success in MMO customer support, especially since its evolution of the support process and its staffing to accomodate the incredible number of players who need assistance. Well, reduce that projected support load by about 2 million potential tickets, and new estimates have to be made. Morhaime discussed the company's current organizational needs, which strikes me as a comment on the game's current population.
Is WoW development easier?
Some developers were laid off in the firings, but I have no idea which teams they were part of. If World of Warcraft has recently completed some sort of software tests of a new development platform of some kind or new tools developed concurrently with Mists of Pandaria, maybe they just don't need as many developers working on the WoW back end. It's kind of a long shot, but it crossed my mind. Better programs that do more of the work for you could be a big boon, especially in reducing development costs for WoW expansions and potentially reducing the time between releases.
After the setbacks to the subscriber base during the end of Wrath of the Lich King and the lack of accessible endgame content that Morhaime said plagued Cataclysm, Blizzard fought for over a year to stop the subscriber bleed. First, it staggered the release of Cataclysm patches to push out content that was ready immediately and continue development of almost-ready content for a couple of more months. Noble in spirit, the remade Zandalari heroics were fun at first but quickly grew tiresome for players. With Firelands months away and the relative difficulty of the new tier of raiding and even heroic dungeons, many players were turned off.
Second, Blizzard successfully wrapped a bandage on the wound with the WoW Annual Pass, announced at BlizzCon. Players could sign up for a yearly commitment to WoW to get a cool mount and Diablo III on release. A million accounts signed up for the annual pass, contributing to the much less dangerous drop of only 100,000 to 200,000 subscribers in the last quarter. With that drop comes a reduction in work force.
This round of deep layoffs puts some big numbers in terms of cutting costs relative to profits for the next earnings call. A gangbusters quarter for Blizzard lets the investors stay happy while Blizzard postures itself for its future releases this year. In March, the press tour begins for Mists, and Morhaime has an announcement in the near future about a Diablo III release date. Combine all of these big news events with consumer hype, as well as the sales from the Heart of the Aspects and whichever games make release by the time investors have to pick up their phones again, and you have a lot of money to report.
A year to scale back and refocus
The infrastructure that surrounds the WoW machine took some hits on Wednesday to bring it in line with the other demands of the company. With Project Titan on the horizon and WoW sitting comfortably at its 10 million mark, Blizzard is in a position to trim costs, cut overstaffing, and show tangible results at the next investor call.
With both BlizzCon being cancelled and 600 layoffs, Blizzard is looking to have a huge year for profits to shore up against further WoW losses. Cancellation reasons aside, BlizzCon was a huge cost to the company, and not having to put that red mark in the spending column can go a long way in keeping the books tighter. StarCraft and Diablo are franchises that do perfectly well on their own, sure, but even Blizzard jokes about how much WoW contributes to the success of the company and its continued growth. I think you will also see the rise of some excellent Blizzard producers from this time, watching them reshape tasks for smaller, more dedicated teams.
Maybe we're at the time where Blizzard slows its growth and settles into WoW for the remainder of its life, while harvesting the new MMO until the time is just right. No more "four products at once after this cycle," I would think. Let WoW bring in a steady income and keep new products under a tighter development schedule with a less unwieldy support structure. Blizzard is curling into a little ball, and soon, that little ball will unfurl with Diablo III and Mists of Pandaria information. Until then, we're still open during remodeling.
At least that's what it looks like to me.
This column is for entertainment only; if you need legal advice, contact a lawyer. For comments or general questions about law or for The Lawbringer, contact Mat at mat@wowinsider.com.
Filed under: Analysis / Opinion, The Lawbringer
Reader Comments (Page 2 of 4)
Japith Mar 2nd 2012 12:37PM
It sounds like it was inevitable. Blizzard staffed accordingly to player demand in the Wrath heyday, but since the need no longer exists, there must be cuts. It is how business works; companies exist to make a product or service & earn a profit, not to employ people. Blizzard has to remain healthy if they are to keep making great products.
Graylo Mar 2nd 2012 12:44PM
Another thing that is often over looked by people who don't work in a corporate environment, is that lay-offs are often presented to managers as an opportunity to fire an employee without having to "fire" them.
It can be very difficult to fire an underperforming staff member both legally and emotionally. It's not something managers enjoy, but it's made even more difficult when it's done on an individual basis. When it's done as a part of a lay-off managers have an out and can say "I wish I didn't have to do this but Corporate is making me."
So, I wouldn't be surprised if some of the development lay offs didn't have something to do with the individuals not performing at a level they are expected to for their position and pay.
detailbear Mar 2nd 2012 9:14PM
You maybe be right. I would note that there are still 101 job postings for the Americas on the Blizzard website as of this moment. http://us.blizzard.com/en-us/company/careers/directory.html#region=Americas
ukwest Mar 2nd 2012 12:45PM
600 out of how many?
detailbear Mar 2nd 2012 9:39PM
Per Blizzard co-founder Frank Pearce, 4700 at Blizzard. I've seen 2000 listed for Activision. So 600/6700 would be about 9% of the combined work force.
http://www.joystiq.com/2012/02/13/blizzard-has-4-700-employees-across-11-cities
Tristan Phillips Mar 2nd 2012 12:56PM
Sorry. For a company that gets 10mx$15 a month and has a guaranteed blockbuster coming out in the second quarter of this year I'm not buying any of this rationalization.
What people leave out of the picture is this isn't Blizzard, it's ACTIVISION-Blizzard. Remember who owns who in this business "merger" and who ultimately calls the shots. And Activision has a LONG history of being exactly like Electronic Arts (EA): money grubbing pricks who will screw over their customers and game developers as long as products are produced that customers are willing to buy.
If Mike Morhaime and his masters want some credibility they can release their entire books. Not the ones prettied up for the SEC and the investors; the real books that their accounting department uses to keep track of Activision-Blizzard's money.
Mr. Crow Mar 2nd 2012 1:13PM
Thread over. Someone trotted out the "this is Activision's fault, Bobby Kotick is the antichrist" pony.
McCurley's arguments are sound, and unless we are all shareholders in the firm, we've got exactly zero right to any oversight on how Blizzard manages their infrastructure. We can either trust that laying off 600 people was a last resort taken by administrators who must act with fiscal responsibility in a time of financial crisis, or we can say "corporations are evil and firing people is wrong" and choose to be ignorant of how businesses must operate in order to stay alive.
I for one will trust that Morhaime and the gang didn't do this lightly.
Tristan Phillips Mar 2nd 2012 1:31PM
*Sigh*.
Is that the best you can do Mr. Crow? Do you deny that Activision, like EA, has done a number of things not only to developers under its wings but to consumers that enhanced their bottom line to the detriment of all else? Or is this you attempt of coming up with the gaming version of "Godwin"?
McCurley's arguments are based on...nothing more than a single person's statement and a pretty document filed with the SEC. You have to believe Activision's SEC filing and Morhaime's statements as 100% true. Ask the people of Enron, Solyndra, and most of the Wall Street broker and banker's filing if that's a good idea.
Without some way to verify Morhaime's statements, I'm going to base my opinions on the matter with verifiable facts (D3 release plus WoW subscription income) and the actions of Activision. My opinion has more basis in reality than almost any other one.
Drakkenfyre Mar 2nd 2012 2:12PM
It really pisses me off when someone uses the "$15 a month X (current subscriber numbers)" line.
Not everyone pays the same amount. In the US alone you can pay $15, $14 or $12, depending on your subscription plan. In other countries, such as China, they don't pay by the month AT ALL. They pay on an hourly basis which equals up to the month fee in average.
People in the UK and the rest of Europe not under the Euro pay varying amounts. And I saw one guy Brazil on Massively say that his annual subscription cost him the equivalent of US $88 per YEAR.
No matter what the rest of your comment says, when you trot out the "$15 a month x (current subscriber number)" line you look uninformed.
wow Mar 2nd 2012 2:34PM
Even though Blizzard is part of Activision-Blizzard, Blizzard is treated as a separate entity from Activision. In a sense Blizzard is a company within a company. Yes, they have to answer to Activision CEO, but they have their own infrastructure and have the power to make decisions independently. So, I don't think this is being forced by Activision-Blizzard.
Keep in mind that this happens all the time in the gaming industry. You work on a project and when you have completed that project, unless you've been reassigned to a new project, are usually let go. This goes on in all gaming companies (Square-Enix and Namco-Bandai come to mind).
Granted, no one knows for sure and everything said here in speculation on our part, but I thought I'd add my 2 copper to this conversation.
Shinanji
Tristan Phillips Mar 2nd 2012 2:41PM
Ok Drakkenfyre. So you're unhappy I assumed that every account is $15/mo. Let's stick with $10. What's $10x10m subscribers? Is that or is that not a healthy amount of revenue?
If you want to accept Mr. Mohraime's statement as fact without any verification be my guess. And if you want to accept that Activision would not reduce headcount to maximize profits at the expense of customers and developers (Such as Blizzard) you're more than welcome to.
I will do neither. SEC filings are carefully tailored to meet legal requirements and to make the company look as good as possible to investors (Again I point to Enron, Solyndra, GM, and a raft of other failing and failed companies as examples). And Mr. Mohraine's statements are nothing more than spin.
Where's the breakdown on who's getting laid off? From where? How does that compare to total staff? What's the savings in comparison to payroll prior to the layoffs? Without information like this you're just guessing on the reasons for the layoffs and spinning it in a way to make it palatable for yourself. That's your choice.
I'm sticking with more grounded and verifiable information.
DarkWalker Mar 2nd 2012 3:44PM
I believe that the correct average is closer to $8. I'm quite sure China and some other Asian markets pay much less than that per month on average, and places like Brazil and Russia have a much smaller subscription ($8 in Brazil, not sure the exact value in Russia).
Drakkenfyre Mar 2nd 2012 3:54PM
I am unhappy because using the "X fee per month equals revenue" is like saying "Endgame content was cleared a week after it's released. Blizzard's content sucks."
When you make that statement, you are showing yourself to be uninformed. And when you use uninformed facts, the rest of your assumptions may or may not be correct.
As I said, a guy in Brazil said he pays $88 a YEAR. Add all the players from Brazil, that's a hell of alot less than $15 a month combined from all of them. Players in the US and some other regions can select 3 or 6-month subscriptions, which knock the price down to as low as $12 a month. Some regions like China DON'T PAY MONTHLY AT ALL. They pay on an hourly basis which averages up to the monthly cost if the player keeps playing. And considering a vast majority of the subscribers come from Asia, you better believe that makes a difference in profits. When the subscribers were at 12 million, only 2 million were actually from the US. The rest were foreign subscriptions.
And you don't count in operating costs. Those servers the game runs on aren't free. The bandwidth the servers use isn't free. The support staff for the servers aren't free. Then add in the cost for developing the game and producing the content you use.
Going "Oh, look, $15 a month per 10 million accounts equals a ton of money and all they do is waste it" makes you look like a moron.
Drakkenfyre Mar 2nd 2012 4:00PM
And for the record, I don't like Activision either, and I am not saying this is all 100% the truth, and isn't spurred from lost accounts. But using that same, old tired line when trying to back up your statements shows that you are uninformed. It's like people ranting about PVP and how easy raids are. Do you expect to take their comments seriously about PVE? Or people who rant about how easy the game is when the TOP guilds in the world, who played on the PTR's for months beforehand, clear a raid the first week it's out. Do you expect to listen to those people? Do you think they are right just because 1% of the world's highest guilds have cleared something?
evoxpisces Mar 2nd 2012 12:56PM
I think it's sad that so much of the focus of these firings was whether or not WoW will be okay. What about the 600 people who were fired? Six. Hundred. People. Now unemployed. Would you want to be a part of the 600? I know I wouldn't. In this day and age when unemployment is at its possible peak, it's always sad to hear lay-offs, regardless of which company is doing it. I do understand Blizzard, as awesome as they are, is still a company, and what is a company but a workforce of people who are trying to make money. That's what businesses do so I understand they had to make cuts, but my heart goes out to those 600 people that got laid off and their families and hope they are all able to land on their feet okay.
At the end of the day, I know Blizzard would not sacrifice their staff to affect development and that we as gamers would still be taken care of as long as we keep buying their products.
thebl4ckd0g Mar 2nd 2012 1:01PM
don't forget. these layoffs were *GLOBAL*. So it means not just Irvine. It means all throughout the world.
Healem Mar 2nd 2012 1:11PM
please....can we stop with the Blizzcon cost a lot of money.
Based on actual numbers from Blizz webcast supplier in 2010, Blizz avgeraged over 1 million paying customers for Blizzcon webcast/TV. At 40$ a pop, they easily made 40+ million dollar without taking into account ppl paying togo to the convention. Blizzcon does not cost more then 40million to do. (if it does they're getting screwed)
Also more facts wold be nice. Blizz has 4500 employess in 10 offices (basec on Sept. 2011 slide presentation). And the news release stated that the number of Wow dev was untouched. So the 'dev' cuts were most likely on D3, SC2:HoTS 9since D3 is widing down and Sc2 doesnt look like a 2012 release based on the 2 realease comment from shareolder meeting)
Drakkenfyre Mar 2nd 2012 2:32PM
You know that broadcast was done by DirecTV, right? You paid DirecTV for that PPV, not directly to Blizzard. They have some percentage split of the profits. DirecTV might also get a percentage of the ticket sales since they were involved in the convention to begin with.
Renting the building costs, so does the equipment they need. The demo stations require actual hardware to run, you know. Goody bags, while getting skimpy over the years, cost money, too. Staff beyond Blizzard costs money (unless, of course, you expect Blizzard employees to run the ticket login, security, cleaning staff, and other, assorted non-game related jobs.)
If I remember correctly they also do a tournament with money prizes.
Blizzard has explicity said they lose money on each BlizzCon.
Healem Mar 2nd 2012 4:08PM
@Drakkenfyre
oh please...blizz said they 'used to' lose money (back before 2008)...they havent for quite a while.
While Direct TV probably takes a large cut....most of the audience is directly streaming via Blizz,s stream (and their partner RAYV)
RayV said on their blog that for 2011 Blizzcon they stream 2.26 million hours for 740,000 unique pai subscriber.
AS pre financial records, renting is 100k $ per day (3 days with free setup day), 400k for musical guest, around 1million in wages, another 1M for hardware.
So Blizzcon made over 30m$ and cost under 4m$...so can we PLEASE stop with Blizz losing money on Blizzcon.
So in 2011 Blizzcon had 740k@40$ from RayV,h 26k attendees@175$ and 60k viewers on DirectTV. Add that all up and your over 30million $.
Drakkenfyre Mar 2nd 2012 5:11PM
I assume BlizzCon is on their financial statements. Statements which can viewed by investors. They have to legally provide the correct statements to investors.
A check of those statements would confirm the amount gained/lost on BlizzCon.
I am inclined to believe they lose money on it. If they admitted losing money in 2008, what keeps them from losing money when the event has gotten larger, required a larger building, more staff, and the talent involved (musicians, ect.) can now demand a bigger fee. DirecTV and RAYV can also demand more. You are also not counting services and products supplied on the floor. There are food and drink vendors which I am sure also get a chunk in addition to their profits from sales, and the goody bags are not all items provided free. As a ridiculous example let's say MegaBloks charges Blizzard $5 for each Thrall figure. That figure was an exclusive and won't be mass produced and sold at retail, so I can see them charging more for it. I don't remember offhand the exact number that attended BlizzCon last year, but let's assume 100,000. That's $500,000 for one item in the goody bag alone.
You provide me a link to where they said they USED TO lose money, and I would be more inclined to believe you. But since I have read them say repeatedly, each year, that they lose money, I believe them.