Why is it so expensive to make games in the United States?

In the midst of a layoff crisis impacting game developers across the globe, a disheartening trend has emerged: American studios are being crushed under the weight of the country's high cost of living.

This phenomenon is hitting companies of all shapes and sizes. Big players like EA, Microsoft, and Sony have cut workforces in the United States in the face of high operating costs. Startups like Something Wicked Games and Thought Pennies have laid off workers before even shipping a game. All of these cuts were accompanied by messages from leadership about the "tough economic situation" that caused operational costs to vastly exceed incoming revenue.

But while we've reported on each of these brutal layoffs, we've still filed stories about new studios coming online. Some, like Jake Solomon's Midsummer Studios, are still in the United States, but more and more are popping up in developing regions with lower costs of living like Poland, the Czech Republic, the Philippines, and beyond. As our peers at Gamesindustry.biz noted, these regions are going to be a key part of the future of game development.

In isolation, that's great. Game development should be a global community, and for too long such regions have only been able to participate by offering low-cost contracting or co-development work.

But the trend raises ominous questions: can American developers expect to find employment if they're told they're "too expensive" over and over again? Are these countries actually getting a fair deal if investors are expecting them to do the same amount of work as seasoned studios for a fraction of the cost? What can be done to ensure the art and business of game development can be sustainable for more and more workers?

These were questions we posed to industry leaders at companies of all sizes over the last few months. We got a number of conflicting answers.

Some industry veterans mused about how pandemic-era salary spikes drove up development costs as cash-rich companies competed for talent. Some offered conflicting opinions on whether or not remote work increased or decreased costs in that same period.

But the light of all these opinions cast a shadow on a deeper structural flaw: that the game industry at large has so few financial tools to support iteration and "failure"...and in America, where every dollar you don't earn through revenue has to go back to an investor, the risks studios face have gotten particularly grim.

What makes American game development so uniquely expensive?

Ask anyone "why is the game industry laying off so many workers?" and you'll get a variation on this answer: many game studios and investors overprojected sales and player growth in the wake of the COVID-19 pandemic and expanded way too quickly. They did this right as inflation ballooned around the globe, and central banks like the United States Federal Reserve increased interest rates, making the cost of borrowing money more expensive.

That increased debt hit game companies hard. "The game industry is a hit-driven business, but you can't predict hits," said independent director, adviser, and "fixer" Scott Hartsman, a veteran of Wargaming and Sony Interactive Entertainment. That means many game companies require "sales spikes" to keep revenue coming in, and must seek publisher or investing resources to help keep cash flow moving in between major releases.

That cash flow is essential because a studio's operational costs remain fixed (or even increase) while revenue fluctuates up and down. Like most software companies, game development operating costs are derived almost entirely from salaries. And in the United States, there are dozens of factors that drive salaries upward.

In countries like Poland, the cost of living means salaries are relatively lower and the cost of employing workers isn't as high. The many Polish studios popping up staffed with former CD Projekt and 11-bit Studios studios workers can make investor and publisher cash run longer while they work to release new games or updates to existing games.

In late 2023 the average monthly gross salary of Polish workers is almost 8,000 pln (about $2,000) or about $24,000 per year. In the United States the monthly average salary was about $4,941 per month, coming in at about $59,300 per year at the same time period. In other words, investors and employers can pay for more Polish workers than American ones with the same amount of cash.

That's before you calculate the "cost of employment"—how much each employee actually costs a company when you factor in benefits and payroll taxes. American companies have to pay for private healthcare and 401k plans to attract workers. Some research indicates those healthcare costs may be inflated, because private healthcare costs more in America than government-run healthcare in other countries.

The cost of employment can still run high in other countries, where public healthcare is subsidized through corporate taxes. But many of those nations spend far less on healthcare overall.

It's also worth considering what drags game development salaries upward in the first place. In the United States, employees in the field are often concentrated in especially high cost-of-living areas like Seattle, San Francisco, and Los Angeles. Even in lower-profile software development hubs like Austin, and Raleigh, increasing housing costs are shrinking how far a software development salary can go.

These areas have seen the cost-of-living go up thanks in part to increased housing costs, which have shot upwards through supply-and-demand driven by potent tech salaries and a shortage of new housing. Many leaders we spoke with, like Outerloop Games CEO Chandana Ekanayake, acknowledged the challenge of setting engineering salaries at rates that are competitive with giants like Microsoft and Amazon.

He explained that smaller studios like his have to offer additional unique benefits to encourage programmers to take a lower paycheck. Outerloop has one unique benefit—it's run by a close-knit team making creatively interesting games like the upcoming title Project Dosa, which is probably a better work environment than what's been reported at many Amazon offices.

Image via Outerloop Games/Outersloth.

But if your mid-sized game studio making a mainstream live service game doesn't have a great workplace—securing that general talent could be harder.

Those companies can command such high salaries thanks to their global reach and enormous war chests of cash and capital. But if you're looking at the bigger picture of the American economy, consider this: Microsoft isn't just competing with game developers when it's considering how much to pay its engineers, it's competing with every software company in every city it operates in. Software engineers with transferrable skills can hop to highly profitable jobs in other fields like aerospace, military contracting, financial software, credit checking companies, and beyond.

Engineers in developing regions have some transferrable opportunities—but not as lucrative as those in the United States.

There's another wrinkle raised by Execution Labs co-founder Jason Della Rocca: America's employment base for game developers is saturated with experienced employees—some who've been at it for over 40 years. These workers are more likely to demand (well-deserved!) higher salaries to pay for their mortgages and families.

In developing regions, the workforce is still younger as game development scenes have taken more time to get up and running.

Both parts of the world must grapple with the fact that for some fields like art and game design, the pool of available jobs is vastly smaller than the number of aspiring employees.

Remote work has a complex impact on game development costs

The role of remote work also played a fascinating dynamic in this conversation. Some, like Hartsman, said it's a factor that can drive down development costs. He complained about having to pay for office space in his days at Sony and said he'd gladly trade paying rent in Seattle for a handful of engineers.

Others, like Hi-Rez Studios CEO Stewart Chisam, noted that the COVID-19-driven remote work boom raised costs for their various subsidiary game studios. "It made the hiring market national," he said. "All these big companies being based in high-wage markets...that could have brought [salaries] down to a medium, but instead it brought it all the way back up."

He and Valued Cultures co-founder Daryl Ogden—a leadership coach at companies like Microsoft—expressed doubts that remote work, as many developers believe, improved their workplace efficiency. Chisam said Hi-Rez has studied the impact of remote work on the company, and that they found it led to some increased inefficiency. Ogden said he worries that an all-remote team can't collaborate as quickly as one that can quickly huddle together and speak in-person.

Image via Evil Mojo Games/Hi-Rez Studios.

In the end, American companies looking to keep staffs of anywhere from 20-50 people (or even more) struggle under the weight of salaries. Every solution requires managing costs and increasing revenue to keep people paid.

It's a depressing list of issues—if mostly because it feels so disconnected from the labor of game development. Talented people across the industry know how to make good games and know how to market games to players. But the people signing their paychecks are just as—if not more—concerned with the challenges above than making and selling good products.

Some executives like Saber Interactive CEO Matt Karch have observed that their peers stubbornly refuse to adapt and will double down on strategies that were more viable when costs and interest rates were far lower.

"I still hear from some major players...'oh, we don't want to development unless it's in California,' Karch said, adding that said comments came from "major executives and key publishers."

To change this dynamic, companies may need to begin thinking about radically new ways to operate—and in some cases, funding for "failure" as much as they do success.

Why studios, investors, and publishers need to "fund for failure"

Developers and business veterans we spoke with offered a variety of solutions, but it was Mobius Games producer Jackie Kreitzberg who spotlighted the most consistent pain point: developers need funds and resources to navigate the prototyping phase in game development—especially prototyping that "fails."

She explained that for the last year-and-a-half, Mobius has been prototyping its next game while shipping patches for Outer Wilds. Many of those prototypes were fun, but weren't ready for production, either because they didn't resonate with some parties or because the developers who engineered them realized they weren't the right one to lead the development process.

"Funding is great, it needs to be funding for failure," she said. "Because that is the problem that we faced, is that these prototypes were 'failures.'"

She said that Mobius' funding partners (including Annapurna Interactive, the publisher of Outer Wilds) were supportive in this period, but also explained they weren't interested in some prototypes. Mobius was lucky, because its partners were patient. But Krietzberg knows other developers aren't in that position. "Funding sources almost always want to see success come out of [the process]," she said.

Image via Mobius Digital/Annapurna Interactive.

Kreitzberg's analysis makes sense. Game development is a strange beast in terms of software design. It's more iterative and product-led than general commercial software—but the time needed for iteration can drastically drive up costs. With the hit-driven sales strategy many companies rely on, developers need time between releases to prototype and iterate for extended periods—but prototyping and iterating don't bring in revenue, creating the pressure to chase publisher or investor money.

Harebrained Schemes executive producer Mike McCain and creative director Chris Rodgers also zeroed in on this time period as they explained how the company is recovering from its exit from Paradox Interactive in 2023. McCain said the team is worried less about the length of their next game's development cycle, and more focused on how to validate ideas, get feedback, and ship solutions as early as possible.

All of the solutions the industry needs to become more sustainable orbit around this phase almost wholly unique to game development—though some of the ideas are automatically contradictory. Hartsman said some studios need to explore the idea of "elastic hiring"—being able to efficiently onboard and offboard contract workers at key phases in development. Meanwhile Ekanayake and Aggro Crab founder Nick Kaman frowned on the idea of increasing and then decreasing headcount with every project, noting that keeping closely-knit teams with experience working together is faster than having to train new hires.

"If you have to shut down operations in between every game, then I don't think that's a game studio. I think that's just a series of projects," Kaman said.

All studios, Ogden mused, could benefit from a "shipping culture" like the kind he observed in Obsidian Entertainment during his time consulting with Microsoft. The famed role playing game studio spent the last few years working on four games: Avowed, The Outer Worlds 2, Pentiment, and Grounded.

Because the company has prioritized regular updates for Grounded, and released Pentiment after a short development cycle, it's been bringing in revenue while its larger titles simmer in the pot. Triple-A and indie game studios, he said, need to "think about making smaller, better games, less expensive games, and increase the cadence of release."

"I think about how to lower risk by making thoughtful decisions about doing smaller-ambition games that are still incredibly fun and can still lead to franchises...not making essentially existential bets on a single game."

Of course, some will see the funding of developers in lower-cost-of-living regions as an opportunity to take advantage of. Execution Labs co-founder Jason Della Rocca said American developers seeking publisher or investor money should look for overseas partners who can be part of the game development team. Doing so would reduce the costs of studio operations.

But that strategy doesn't help workers here in the United States (especially those in our most expensive cities). So that raises the question: if the United States is struggling to compete with global markets where labor is cheaper, shouldn't the government help out in some form?

Can government funding help American developers?

Almost everyone we asked about government funding programs for game developers—like those in the EU, Australia, and beyond—sighed with exasperation at the topic. The answers were simple enough: yes, everyone would like better subsidies. No, they don't expect they'll come.

When it comes to American game developers and government incentives in the United States, developers' options are limited. Chisam praised the state of Georgia's tax credits for entertainment production, and Ekanayake noted that similar refunds had been established in states like Louisiana and Colorado for developers to take advantage of.

But those credits aren't large, and federal benefits like a research & development tax credit that Outerloop games benefitted from can change at the whim of legislators or regulators. Lobbying those organizations for benefits is also a tall order given the United States' general hostility to funding the arts, and skepticism that the games industry needs assistance when giants like Activision Blizzard, Take-Two, and Electronic Arts are all headquartered here.

But game developers shouldn't just throw their arms up and go home. There are strong reasons to lobby local and state legislators to do more for game development.

Chisam and Della Rocca both have experience speaking to governments about the benefits of boosting game development. Della Rocca said he's spent a lot of time in recent months consulting with various international government representatives about the advantages of funding game development communities. He said while tax credits are generally the solution he's asked about, they're not the first option states should reach for.

In regions where game development hubs aren't established, tax credits won't do much, said Della Rocca. "Governments are usually disappointed, because they thought all they had to do was, write some legislation for taxes, and instead I go 'no, you have to have the talent pipeline.'"

"You have to work at the schools to [educate] programmers and artists. You have to have a prototype fund, so new projects get started, and success starts to come in," he continued. After time passes and local indie devs and small companies are successful, larger companies like Ubisoft will be more attracted by a tax incentive.

That could still be a tough sell to any government. But Della Rocca says he's won representatives over with this argument: game development salaries are really good for local economies.

Think about it like this: because game development budgets are tied to the cost of labor, little is spent on equipment and manufacturing. That means money flows into the company and into the pockets of employees, driving taxes on wages. Then employees spend that money locally on bars, restaurants, concert halls, housing, etc. "Wages recycle into the economy very quickly, right?," Della Rocca said. "You get paid every two weeks every month. You pay your mortgage, you buy your groceries, you pay your gas. Your kids go to school. It's not like the revenue comes in and sits in a vault."

This argument plays well in other nations where game development is a "net export" business, like Brazil, Poland, or Malaysia. Selling to countries like the United States brings higher-value foreign currencies into the local economy for a relatively low ecological footprint. Nothing needs to be built, no forests need to be cleared—developers just need resources to prototype and get games out the door.

Supporting local game initiatives also helps combat "brain drain," the phenomenon of college-educated workers decamping for regions where they can earn higher wages. And when studios become successful—and particularly if their intellectual property becomes successful—they attract fresh talent to the region.

Chisam echoed some of these sentiments based on his conversations with the Georgia state legislature and its ongoing tax credits for entertainment production. He said he's told legislators that backing game development is a better bet for the state than film and television production, because film and TV production is inherently a stop-and-start business, with talent entering and exiting the state when projects are shooting.

"I think putting that money into the gaming industry really makes sense, because that tends to be more permanent jobs in the city versus a lot of the television and movie type businesses," he said. "Here we're creating permanent jobs, high quality jobs, and that has a pretty good impact on the economy."

He said he's surprised more studios haven't set up offices in Georgia, especially with plenty of local talent coming out of universities like the Savannah College of Art and Design. But that lack of interest may speak to what Della Rocca described—tax credits benefit companies already established in the areas, and don't automatically convince companies to pick up shop and move.

The American game industry can be more sustainable

The game industry crisis has left plenty of industry leaders we've spoken with pessimistic about how things can recover. To hear some talk about it, the glory days are done, large development is unsustainable, it's either tiny teams or enormous companies paving the way forward.

That may be true. But it doesn't have to be. Inside studios and in the halls of state governments, there are tools to build better safety nets that can help studios make it from project to project.

Investors only seeking to maximize gains are going to stick with the higher returns they can get out of lower-cost-of-living areas. But if developers do their best to build studios without them—they'll have far more bargaining power when they come back wanting their own slice of the pie. That's part of the attitude driving McCain and Rodgers' efforts at Harebrained Schemes.

"We want to be there, these people with money say 'oh, we do need fresh content,'" he said. "We have to be adaptive, always reassess how we're making things and look for ways that we can stay active with the way things are now. But, yeah, I don't think it's over."

There's no doubt that game development in the United States is a risky and particularly expensive business. But for the sake of the talented folks who built careers in this industry, it's more important than ever to fight against the doom and gloom.

Update 8/1: A previous version of this story indicated that layoffs at two startup game studios were due to "funding drying up." We have updated this piece to more accurately represent circumstances impacting both companies.