While 1/6 of the company’s employees are leaving, development and core objectives are unaffected by the cuts.
Tim Sweeney, the head of Epic Games, has written a newsletter to the company’s employees and published it in a blog post with a Q&A. Here it is, slightly abridged: “As we shared earlier, we are laying off around 16% of Epic employees. 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 of 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 them 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 business 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 okay 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.
[…] We are still focused on shipping the must-succeed initiatives: the next Fortnite Season and Fortnite Chapter 5, Del Mar, Sparks, and Juno. Their schedules remain in place. We aren’t cutting any core businesses, and are continuing to invest in games with Fortnite first-party development, the Fortnite creator ecosystem and economy, Rocket League and Fall Guys; and 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.
[…] We are laying off around 830 employees, or 16% of jobs. About two-thirds of the layoffs were in teams outside of core development. Around 250 people are leaving Epic through our divestitures from Bandcamp and SuperAwesome. We’re cutting costs without sacrificing development or lines of business so that means business functions are disproportionately impacted compared to development functions. […] These changes financially stabilize the business. The entire goal of this process was to make our cost structure more sustainable and we believe that we have achieved this. What about Project Liberty? We’ve been taking steps to reduce our legal expenses, but are continuing the fight against Apple and Google distribution monopolies and taxes, so the metaverse can thrive and bring opportunity to Epic and all other developers,” Sweeney wrote.
The 40% payout to Fortnite’s external creators will therefore reduce the company’s revenues. Del Mar is rumored to be some kind of racing mode, and Juno is a collaboration with Lego. But it is not the first case of layoffs this week: SEGA has fired quite a few people at Creative Assembly…