#financial things

A lot of people have asked me about Unity and their strange new per-install charges policy that they rolled out on September 12th, 2023. I wanted to give them at least 24 hours before I posted my take on it - let the dust settle a bit so I could get a chance to read the new policy properly and all that. First, however, I think we need to take a step back and get a wider perspective. Unity Software Inc. is in some serious financial trouble. Here are their operating numbers from 2019 to 2023.

The blue line here is how much money they take in and the red line is the amount of money they are spending each year. You may notice that they are spending significantly more money year over year than they earn. In fact, over the past 12 months alone (August 2022 to August 2023), Unity Software Inc. has lost almost $1 billion.

In 2022, Unity spent four times as much money as they did in 2019. If they had managed to keep costs at double their spending in 2019, they still would have earned $243 million in profit. Instead, they lost $882 million in 2022.

Where does all of this cost come from? In any software company like Unity, the vast vast majority of costs comes from employee salaries. And we can directly see it in Unity's number of employees:

Unity Software Inc. more than tripled its headcount from 2019 to 2022, and it did all of this hiring during the pandemic while competing with many many other developers all trying to hire from the same pool. I don't work for Unity, but I was in the market and I had lots of recruiters trying to recruit me during that time.

In short, Unity is suffering from the same miscalculation that Embracer Group did, that EA did, that Activision-Blizzard did, that Square-Enix did, and just about everybody else in the tech industry - they misjudged the good times at the beginning of the pandemic, overspent hiring people thinking the good times would last, and are now scrambling to figure out how to survive. The difference is that Unity was getting all of their operating money from Venture Capitalists (VCs) hoping that they would eventually become profitable, but VC money has all but dried up because it's become much more expensive to borrow money over the past two years.

As a result, the Unity executives are likely grasping at straws in hopes of saving a sinking ship. This wild and decidedly senseless pricing plan is their (seemingly-desperate) attempt to juice their revenues. It really makes very little sense from the developer perspective, which is what makes the whole thing reek of desperation. That isn't greed talking, it's survival. My guess is that Unity is currently desperately looking for a buyer to save them and doing whatever they can to buy themselves some more runway. They already announced layoffs back in May, but I suspect they'll probably have to announce some really big layoffs (e.g. 40-50%) soon. Unity Software Inc. is living on borrowed time and they know it.

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So you’d think I’d be confident in my decision to buy the thing, right?

Wrong. I immediately feel physically ill--dizzy, nauseous, spiraling through “Why did I do that? How could I spend that money?” even though it’s a totally justifiable and necessary purchase.

i got a big promotion at work and im so excited (also terrified) but ill be working as a fucking museum manager at a historic site and that’s so fucking cool and i have a set weekly schedule, 9ish-5ish, tuesday through saturday (sunday monday off guaranteed!!) and a raise of nearly $3 per hour which like

i know youre not supposed to focus on the money as the Only Thing about something good but like with the increase in pay and hours I basically received a monthly raise of my entire monthly rent plus utilities AND THEN SOME and I get subsidized healthcare that i dont have to pay into and I just...

I officially make over 20k a year (almost even with taxes) and like thats

I make real adult money.  It’s enough where i can pay rent and for food and for student loans without help.  It’s enough where I can occasionally buy myself nice things without feeling guilty.  It’s enough where I could conceivably start a savings account.  It’s enough where I can afford to replace clothes when they need to be replaced.  It’s enough where I can order dinner when I feel like it, or uber to work if its raining.  It’s enough where I can buy  my friends drinks on their birthdays or nice gifts for my family on christmas (or even just because!)

i’m just.... i’m terrified of the new responsibilities i need to be aware of but I get to be a functional, independent adult doing something I actually care about and that’s...

this just seems like a very weird move to me, if not outright shitty. i want to believe in bioware, i love their games, no matter how flawed they are, but in the three years i've been familiar with them, things seem to be getting worse and worse. i know that DAD is in alpha so probably this layoff won't affect its quality too much, but again, that looks like a terrible move towards the employees themselves and the studio's more distant future.

Bioware is basically following the publisher mandate. In March of this year, EA declared that they were going to cut roughly 6% of their workforce (~800 layoffs) to lower costs, likely because they (like many tech companies) over-hired during the pandemic and need to correct the burn rate to appease their shareholders. These 50 devs being cut are Bioware's unfortunate sacrifice to the layoff declaration. As to whom and why, I suspect it is a combination of things.

Bioware probably had some kind of incubation team working on a secret new project that wasn't a sequel to an existing current franchise. I know that they would often have one or two such teams going at any given time - Anthem was one such project, as was the short-lived Shadow Realms project. New projects like that are much riskier than franchise sequels, so it is likely that the publisher decided that the risk moving forward was too high and they cancelled the experimental projects in favor of focusing on their established brands (Mass Effect and Dragon Age).

It is also likely that some of the long-term veterans are quite expensive to keep - they have high salaries and have been around long enough to collect on many of the big benefits EA offers, like sabbatical leave and the like. There's also the real possibility that there could be some bad blood or major creative differences between the current studio leadership and some of those veterans that were let go.

My heart goes out to those affected and I really do hope they land on their feet. The unfortunate truth of the matter is that employers never deserve any more loyalty than they're willing to give their employees. The employer will never choose an employee over its own survival, so we as workers should expect to do the same for ourselves. I never consider long tenure at an employer to be worth much when it comes to the business decisions, because I know how little it is worth when all is said and done. Business gonna business.

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Getting tax breaks and incentives from various governments is actually very common. Government investment is often a lot like scholarships to university - they have bundles of money set aside for applicants that meet certain criteria. Most governments are interested in encouraging economic activity within their borders, especially tech industry growth. Tech pays pretty well, isn't large on space, and encourages secondary growth - tech workers that move to the area will buy usually houses and spend with local businesses, leading to a positive cycle of improved economic growth for the area.

As an example of this, in 2020 the Department of Community & Economic Development of Pennsylvania offered a [tax credit] of 25% of qualified expenses for the first four years of development and 10% for each subsequent year back in 2020 to game developers who spent at least 60% of their total production costs in Pennsylvania. The politicians were hoping to encourage game developers to move to Pennsylvania and they were offering tax credits as incentive.

Similarly, the Norwegian Film Institute offers funding to [audiovisual productions that meet their criteria]:

The screenplay, or the literary work on which the screenplay is based, has originally been written in the Norwegian or Sami language

The main theme is connected to Norwegian history, culture or social conditions

The action takes place in Norway, in another EEA country (countries of the European Union [EU] plus Iceland, Liechtenstein)

The work contains significant contributions from rights holders or artists resident in Norway or in another EEA country.

Dustborn ticked enough of these boxes that the NFI agreed to fund them. It wasn't a special thing, it was government money set aside to encourage the development of Norwegian-focused cultural audio visual works. That includes video games, movies, television, or any other kind of audio visual production. Lots of smaller works, games included, find funding through programs and grants like this.

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It varies with the studio. The most common ways I've seen for studios to stay running between releases are:

Take out loans. The studio borrows money, only pays the interest/minimum payment, and uses the rest to pay for development in hopes of paying the loans off when the game releases.

Sell a stake in the studio. Investors may wish to buy a piece of a studio in hopes that it will become more valuable once the game releases. The studio can then use that money to pay for development. The stake being sold can be anything from a minority share up to the entire studio.

Do a "day job" to pay the bills. Several studios will do contract work for other companies to pay the bills and fund the development of their own projects. As an example, Behaviour Interactive developed Dead by Daylight but also does a lot of freelance work for other publishers contracting jobs like porting games to other platforms.

Have an alternate source of revenue. Valve has Steam, CDPR has GOG, Epic has the EGS and Unreal Engine, and so on. Some places have additional sources of income beyond the game releases.

Crowdfund. Some studios turn to the public to get themselves over that hump.

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I suspect it is the same reason that Nintendo doesn't push $100+ million budgets for their flagship games even though they could - because what they are currently doing works for them. The Pokemon franchise is already the industry leader in the field. Usually, the big question the people with the money ask is "If we put more money into this project, how will it translate to even more money down the road?"

Businesses run on percentages. If they put in more money to a project, they need to get proportionately more money out of that project. Using some napkin math, roughly 100 devs working at GameFreak for four years on a mainline Pokemon game translates to roughly $48 million in budget. Let's say they doubled that budget. Would the resulting game generate double the sales or profits? Would it bring more users into other Pokemon franchise elements like merch? They need a reason to justify increased expenditure, "because we want to" doesn't count.

It's easy to want things because you would personally enjoy them more but, for the sake of evaluating feasibility, it helps to put yourself in the place of an executive who has to justify the decision financially. If you depended on those earnings to fund other game projects and keep the company healthy, spending more without sufficient return on investment doesn't make a whole lot of sense.

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