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 3 of 4)
Healem Mar 2nd 2012 5:36PM
oh please cmon. i dont care that Blizz makes money (their free to make a s much as possible) but lets be realistic. Blizzcon does not lose money.
And the max number of ppl the convention center can hold is like 26-27k. And those action figures dont cost 5$, or else they need to find a better chinese supplier.
Mike Morhaime always mentions how many ppl are attending and how many ppl are on DirectTV (this year was 27k and 60k)(feel free to watch his intro speech).....BUT have you ever head him say 550k (for 2010) or 740k (2011) ppl are watching via the Blizz Stream (w RayV). No? i thought so.
Why would he mention 60k viewers but not 740k?????????? Because of simple math. 740k@40$ is a lot of money.
Feel free to think what you want...but if you seriously think BLizzcon cost anywhere close to 30 million $ to make....im just wasting my time.
angelwings017 Mar 2nd 2012 8:10PM
First of all, can you PLEASE for the sake of people's sanity spell your words out and use correct grammar if you're trying to make an intelligent point. Using abbreviations such as "ppl" doesn't immediately make you stupid, but it certainly doesn't help getting your point across either.
Now that I've expressed my own little pet peeve; I think you're severely underestimating the costs of running a convention as large and intricate as Blizzcon. Yes, exclusive figurines such as the Thrall one included in this year's goodie bag are definitely going to cost at LEAST $5, if not more. On top of that, your comment on Chinese suppliers makes you look like an idiot because it has little to do with anything. Something that is in limited supply and will not be reproduced is generally worth a lot more money than something that will be mass-produced at a later date. On top of that, I remember being amazed at the amount of cables and lights and God knows what else mentioned during the Blizzcon live stream. The amount of people needed to set up, run, and help in any other way with this convention is enormous. You need to pay all these people. Renting the building(s) for the convention? Not cheap either. Sure, it won't cost you 30 million to rent buildings and run lights, but as was mentioned before, Blizzard doesn't GET all the money you're assuming they're making.
Yes, I said assuming. You don't actually know anything, you're estimating. Now, consider this. Blizzard pays most, if not all the expenses associated with running this convention. But Blizzard does NOT gain all the money earned by this convention. Food vendor profits? Nope. Goody bags? Don't bring any money. Live streams? Most of that money most likely goes to the companies providing that service. Books/merchandise? Again, a significant cut of that goes towards authors/editors/companies creating the merchandise.
If you add it all up I think you'll be bitterly disappointed with the "profit" you assume this company makes from this. I don't even think they'd break even.
Kunikenwad! Mar 2nd 2012 1:13PM
Cutting 600 jobs (mostly in customer service) seems to be a natural move as player counts drop and the option of offshoring call centers still provides tangible benefits. They didn't say it in the press release, but most of these jobs were likely call center jobs; I had a former colleague that took a job at Blizzard two years ago in customer service who got cut this week. He stated that his group (who were all cut) had been performing non-voice customer interaction; emails, in-game contact, etc etc. They could be moving these non-voice positions overseas where you can realize up to 40% savings almost immediately. Offshore call centers have been steadily improving over the past three years in my business, with our Phillipines non-voice outfit being the best performing unit of any site in our company. This could theoretically explain the loss of jobs, as well as the potential savings in Q2 that Morhaime referenced on the quarterly earnings call.
Andras Mar 2nd 2012 1:43PM
I'm about to say something that a lot of you may not agree. I believe blizz suscribing numbers are going to decline big time come Mist of Pandaria. Why? Well its simple. Before Catalysm release people were leaving. Some came back because of the expansion, because of deathwing. I don't feel Pandas are really an eye catcher for people who are thinking about playing wow especially those who left the game. Zones continue to become smaller. No new professions. Talent trees are broken at best right now. And the ONE thing that really is missing is a 'big bad' character.
The task of 'selling' the game falls under blizz marketing department. If they put a PANDA in a box cover I doubt theres a lot of people that are going to buy it. It might appeal the younger generation of players(think 8-16 year old players) but it fails to appeal to the older gameplayer generation, the true loyal players.
The future of blizz is murky at best. I hope that they 'wow' me during the press tour or I will be canceling my subscription.
Lishalacey Mar 2nd 2012 4:34PM
I'm sorry, but... I am one of those who usually cancels at the end of an expansion. I don't raid and I'm not huge on alts; I just like to go slowly, enjoy the endgame content and complete achievements on my main. When I feel I'm not progressing my character and "getting my money's worth" out of an expansion, I cancel. It's that simple for me.
HOWEVER- I ALWAYS COME BACK. After playing this game for 6 years, I trust the developers to put out something I will love to play, and I have! Every single expansion! Yes, I even loved Cataclysm, the casual killer.
I remember the April Fool's Joke about Pandas, and was so, SO sad it wasn't real. I am ECSTATIC to get to play Pandaren. This should be an exciting time for players who have been around for a while.
Instead, we get people like you who are whining that Blizzard isn't doing it "right." Your arguments are faulty and just plain wrong. Blizzard tried to be appealing to a new generation of hardcore raiders, that age bracket you seem so concerned about, and lost 2 million subscribers in the process. I am tired of people like you who scream that Pandas are just too dumb, too cuddly and too much of a cop-out. We've been over this. Go back and read comments from every queue since the announcement of the expansion.
TL;DR Pandaren are awesome, older players remember them and will be excited about it.
raingod Mar 2nd 2012 5:13PM
Do us all a favor and just quit now.
angelwings017 Mar 2nd 2012 7:57PM
1. People have been begging for pandaren since Chen's appearance in WC3. So yea, for a lot of people pandas ARE an eye catcher and something to look forward to a lot. I'd also like to add to this that just because pandas LOOK cute and fluffy, doesn't mean they have no teeth. There's a lot more to the pandaren than just their big bellies and cute faces. Gnomes don't look ridiculously threatening either overall, but a lot of people have fallen in love with that race as well.
2. Developers clearly stated at Blizzcon that the Mop zones were going to be HUGE. You have absolutely no other evidence to suggest that the Pandaria zones are going to be smaller than what we're used to. On top of that we will not be able to fly in Pandaria, so the zones will feel even bigger. There's also the Zandalari Isle that appeared on the map, which adds (gasp!) another place to explore. So yea, next...
3. I don't think we need new professions at all at this point. I personally think a lot of players would be much happier with the streamlining of some of the professions we currently have (archeology anyone?) than the addition of more. We already have a lot of profession grinding to do to come the new expansion.
4. Talent trees are in alpha phase currently. That alone should be enough of a point, but let's see... A lot of these talents need tweaking, for sure, but a lot of them have great potential and I know for a fact that I'm gonna have a hard time picking my talents in most cases. Again, they're FAR from finalized, and the fact we're even seeing them and contributing ideas to them at this stage of development is an amazing thing.
5. A story or game doesn't need a "big bad" in order to be successful. Cataclysm more than proved that in my opinion. Deathwing didn't make this expansion any better or worse. Actually, the biggest criticism I personally have about Cata is how little he was actually present in the story, but that's another argument. Vanilla WoW didn't have a big bad either, and a lot of people longingly refer to those days as "WoW's best time". Again, a story doesn't need to revolve around 1 person to make it interesting. I'll be just as happy slaughtering the opposite faction, while attempting fervently to defend my back from the Sha, Mogu, and other villains we'll be contending with in Pandaria. Rather than focusing on saving the world, MoP focuses on much more.. real and serious concepts to be very honest. War, destruction, the impact of both on innocent people and lands, the consequences both parties in a war need to face (in form of the Sha). I think MoP might prove to feature some of the most exciting story telling we've seen in a while! We've finally closed the WC3 chapter, and started building on WoW's own lore. I can't wait!
6. Oh.. wait, those were all your points? I think people are a lot more excited about MoP than you seem to believe them to be. If you can't see the good qualities this expansion will bring to WoW (and I have many more I could show you) then perhaps it's time to find another game to play. Meanwhile me and the other 10 million people worldwide will have a blast leveling our furry pandaren and exploring a new, rich set of environments and story threads!
prinbball Mar 2nd 2012 1:45PM
Sure Blizzcon is a big red mark, but it's advertising and promotion that gets people excited to buy in the future. I hope that the MoP later this month can make up for the lack of a Blizzcon.
Nitride Mar 2nd 2012 1:51PM
I heard 90% of the cuts were not to developers. That still means some talent making the game left unwillingly.
Many big companies lose people through attrition aka they quit for another job, have kiddos or whatever. To force a big cut including some devs it means bad things ahead, OR that a shiny new MMO is close enough that they can reduce headcount during this gap between big releases.
Dont forget the no Blizzcon this year, so that was another cost-cutting move. Blizz is trying to spend less this year, knowing things are in a lull and/or big releases will start rolling out later in the calendar year and into next.
zEagleEye` Mar 2nd 2012 1:51PM
Very interesting and insightful article.
My personal experience with WoW customer support has been iffy.
The problem has never been the people I dealt with - it was the policies they had to comply with (and kicking people out will notr change policies ...).
I may be a bit picky, but here is an example:
Going for Loremaster I ran out of available quests for some Outland areas.
Using an addon I saw that some quest givers had "content" for me but the game did not let me get the quests.
Tried to ask Customer Support if there are quests that are available ONLY if you have rep with Aldor or Scryers. Not where to go, not what to do, just if some quests exist only through factions.
The answer I got was links to Scryers and Aldors available quests - a hint (in my mind) but not a yes or no answer.
When I asked for a yes / no answer I got the reply that answering the question would be considered a game playing hint (by then I gave up and selected a faction anyway).
Obviously I'm uneducated (or whatever) so please help me understand how a yes or no answer to a VERY specific question is more of a hint than the links I got.
CapnSkillet Mar 2nd 2012 2:42PM
Blizzard's new campaign: Buy an authenticator! Help us fire another customer service rep!
robsmith77 Mar 2nd 2012 2:10PM
At last! Some sensible, coherent analysis about Blizzard's announcement. Probably won't stop all the internet doom-mongering about Blizzard's (and WoW's) future, but then likely nothing will.
As to the people losing their jobs, I'd imagine that for many of them this announcement couldn't have come at a worse time. I feel bad for them, but at the same time I wonder how many of those jobs losses were part-time or temporary positions?
Nina Katarina Mar 2nd 2012 2:54PM
You probably reported it and I missed it, but how many employees does Blizzard have, overall?
They said that only 10% would come out of the development staff, that's 60 people. Is that 60 out of 200 people, or 60 out of 2000 people? It makes a huge difference in the impact on the team as a whole?
And if 10% of the cuts are coming out of development, but development makes up only 5% of the employees overall, that's a disproportionate cut and tells us a lot as well.
Tristan Phillips Mar 2nd 2012 2:54PM
Shinanji:
We have only the published statements of several Activision and Blizzard employees that Activision does not interfere in Blizzard's operation. We are not privy to internal meetings between Activision and Blizzard employees, so no-one can say with certainty that it's true.
I would argue that Activision has been increasing its influence since buying Blizzard and will increase its influence even faster. Losing 2 million subscribers and that revenue stream will sound the klaxons at Activision HQ and they will respond with a direct hand. They have to; Activision has shareholders it has to answer to. To not do so would put them at risk of a shareholder revolt and lawsuits.
Do I attribute this layoff to less than honorable reasons? Yup. Activision has a history of being jerks and taking the low road when it comes to increasing profits so a 600 person first round layoff is not above them. When it comes to business in general and Activision in particular I would always follow the money first and foremost. Anything else without verification is speculation at best, delusion/rationalization at worst.
raingod Mar 2nd 2012 5:17PM
You base this on nothing more than tin foil hat opinion. Show facts or stfu.
bwh000 Mar 2nd 2012 5:33PM
Sorry, but Activision didnt buy Blizzard.
Vivendi, the parent company of Blizzard, bought Activision creating Activision-Blizzard.
Tristan Phillips Mar 2nd 2012 6:33PM
raingod:
Google is a wonderful thing. Try using it with these terms: "activision poor treatment employee".
As for facts...I have Activision's prior history, a pretty good estimate of their monthly revenue from WoW subscriptions alone (I don't count any other source of revenue, such as the Blizzard store, Starcraft, etc) and the fact that Diablo 3 will be a blockbuster hit with the potential to break the records Halo set for sales revenue.
What facts do you have? One statement from one person, and.....?
angelwings017 Mar 2nd 2012 7:36PM
Sadly for you, these "facts" you keep relying on aren't very factual evidence of anything and are just as largely based on speculation as the examples in the actual article. First of all, if you consider Activision's history a fact you have to look at and include their ENTIRE history, not just a skewed perspective including all the bad things they've done or caused as a company. I'm by no means naive enough to think Activision wouldn't put profit as their number one priority, but if you're going to consider this company's history a "fact" then please consider all of it, not just the bits that fit your argument.
Secondly, as has already been pointed out to you, you're relying on your own personal ideas of Blizzard's income a month (because no, it's by FAR not as easy as $15/$10/$8 x 10 million subscribers). This is pure speculation and even if a few dollars per person give or take might not be a substantial number, once it gets multiplied by 10 million that number grows significantly larger. That aside, I do agree Blizzard has a very solid income to fund their company. HOWEVER, you aren't even considering the cost to run the company, all it's projects, and other assets on a daily basis. I'm not even talking about the development of new products, simply the maintenance of the existing buildings, games, staff wages, servers, etc, etc. Unless you're intimately familiar with the amount of money these things cost, basing your argument off numbers YOU yourself assumed makes your argument no more informed or "based in reality (as you keep calling it)" than the article above.
All in all it seems like your argument stems more from a total and utter distrust of companies, and Activision in particular, rather than any factual evidence. True, the article itself really doesn't rely on too much hard evidence either, because quite frankly there is very little available. However, if you distrust the company you pay on a monthly basis for their product and service so much you cannot base your arguments in trust, rather than distrust, perhaps it's time for you to re-evaluate whether you should be paying for their services in the first place.
Personally, as an aspiring concept artist and game designer, I've not ever seen or met people as passionate and honest about their love for the products they create than the employees and management at Blizzard. Sure, they make mistakes, they are after all only human. But so far nothing you have said has had any factual ground, so I see no reason to change my mind about it.
Tristan Phillips Mar 2nd 2012 8:57PM
angelwings017:
While Activision had had a long history I'm not interested in any of it prior to the current CEO and its current owners. It has no bearing on today's company considering who's in charge. Mr Kotich was CEO of Activision before Vivendi purchased it and he was kept in charge once Activision and Blizzard were bought by Vivendi. Mr Kotich as a particular management style and history throughout his entire tenure as CEO of Activision and Activision-Blizzard and to ignore it is stupid.
And again, you misrepresent what I have repeatedly stated, like Drakkenfyre. I never said the monthly money stream from WoW subscriptions is PROFIT; I stated repeatedly it is REVENUE. If you must misrepresent what I have posted then I'm not going to waste my time with you.
As an aside, if anyone is interested in discussing the latest SEC filing I'd be happy to. The latest annual report is from 2/29/2012 and is 75 pages. Respond here with citations and we'll go over it.
As for my mistrust of the released statement I stated why I don't trust it: Activision under Mr. Kotich's tenure has done a number of slimy things to developers and employees under its umbrella as well as its customers. I don't trust Mr. Kotich to do the ethical action, and that mistrust is supported by his actions over the years. Why you feel the need to read more into that is beyond me; maybe you should look more inward than outward for why you do so.
And as an aspiring artist and designer if you haven't worked with business men like Mr. Kotich you will. Any business who has shareholders to answer to will have the Mr. Kotich. They have to; he makes shareholders money, which is his job. That does not put him, his subordinates, and the shareholders who put him in charge above criticism. That so many are willing to overlook his actions over the years and the statements he's made confounds me.
angelwings017 Mar 4th 2012 3:50AM
Okay.. let me clarify this before I say anything else. I do not intend to spend my time discussing things I don't particularly worry over on the internet for long. With that said, I have absolutely no looking inward to do at this point. I never intended to change your opinion on the matter because I believe you're entitled to have it. What I was doing, however, is analyze the responses you had given prior to my comment to the best of my ability and point out the arguments I personally disagreed with. Again, all I said in the end is that I personally found your factual information to not be as factual as you may consider it to be. And perhaps, if you honestly distrust this company so much it's not the best place to spend your money.
Personally, I do trust Blizzard as a company separate from Activision and expect them to do all they reasonably can to make right and ethical decisions. If they do not have that power and are still forced to cut 600 people, Mr. Morhaime's statement of regretting it isn't any less true. Again, this is MY opinion, and you're free to have your own. Just realize that people might disagree, and point out why they do. I care very little if you disagree with my opinion, personally.
I'm sure that in the future I will have to deal with business men of the kind you mistrust. I'm sure at that point in time I will agree with you on the fact there is some terrible people in the world. However, I never overlooked the actions of Activision's CEO, considering I was expressing my opinion on Blizzard's team :) Now, if that's all clear then I hope for your sake you can leave this be ;) Let's just agree to disagree now that we've both had our say. I don't intend to change your opinion and I hope that you will have the decency to respect mine.