Ark of the Lost Angels

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Do the ongoing tech-sector layoffs signal larger problems across multiple industries?

Last Monday’s article was a look into some of the similar histories of Google and IBM.  It’s recommended reading for today’s article, which takes some of the questions raised last week and reacts to recent events, posing more questions about the layoffs happening across the tech and media sectors today.

A brief recap of the IBM-Google comparisons is in order. Essentially, Google’s current actions: mass layoffs, refocusing of efforts, etc. could very well be the same kinds of drastic actions which IBM took in the 1990s to turn the company around and become a powerhouse again.

Perhaps Google isn’t such an isolated case and is the first of many companies facing similar problems. Google isn’t the only company laying off workers and closing divisions. Crunchbase has an excellent breakdown of the tech-sector layoffs in the last several years, including a grid with breakdowns for specific companies like Electronic Arts, Cisco, Buzzfeed, and PayPal, among others. The overall number for 2022, 2023, and the first two months of 2024 combined are staggering: 314,668 layoffs in US based tech companies. Many of the companies listed are recording record profits, which begs the question as to why?

There Are Reasons for Everything

Part of the reason is that the pandemic is “over.” The demand for digital services spiked tremendously when the COVID-19 Pandemic began dominating the world about four years ago. Many companies hired in excess to compensate, and now layoffs are occurring as the natural result of a hiring surge without long term sustainability. Economic uncertainty regarding projections for the next quarter being down due to the perception the economy is not doing well could also help explain why many companies are hacking and slashing their budgets. However, the trend of tech sector layoffs cannot solely be because of the pandemic employment surge becoming irrelevant and the need to show bigger profits next quarter.

NPR has a breakdown of some of the other reasons. Right now, there is safety in numbers. One company making necessary but drastic cuts would focus a lot more attention. All these other tech-sector companies making the same kinds of drastic cuts at the same time puts the focus on the industry as a whole and results in less negative press for one company in particular. As the NPR article goes on to discuss, cutting some of the excess and running leaner is impacting stock prices in a positive way.

The tech sector isn’t the only area making these layoffs. Media companies are also seeing a rise in layoffs, following last year’s disruptions in the entertainment industry. 20,000 lost jobs in media in 2023 is a significant number, and more cuts continuing into this year would seem there is a trouble in the American industry. However, by most metrics, the American economy is doing quite well.

Why is it that so many companies are closing divisions due to unprofitability? Why does the pattern seem to be occurring in so many areas across the board? Surely these companies don’t have all of these smaller divisions having bad luck at the same time, right? Any business needs to make money to stay competitive in the market, and competition breeds innovation, so it makes sense to cut losses and close down areas that don’t make the money. Just, why so many at once? Why so frequently?

It’s very possible that many of these companies don’t always understand the assets they own, and how to make those assets profitable.

The Fall of “New Media”

On Wednesday, March 6^th, Rooster Teeth Productions announced they were closing up shop. Rooster Teeth began in 2003 to create the popular web series Red vs. Blue and continued expanding their portfolio until being acquired by Fullscreen in 2015, which through a series of acquisitions, ended up being acquired by Warner Brothers. As part of the ongoing layoffs, closures, and downsizings, Warner Brothers dropped the ax on Rooster Teeth Productions. Theirs is one of the most recent examples of a web company being owned but not understood by a media giant, but not the only example. Joel Rubin, formerly of Rooster Teeth division Funhaus, wrote about this phenomenon on Medium.

One of Rubin’s core arguments is that traditional media companies brought in traditional media managers to oversee web companies. Those managers can make solid decisions on large scale productions like movies with multi-hundred-million dollar budgets, which will have theatrical releases where they have to try get people in to see the movie and find the profit in a “traditional” sense. A small division based on the web and maintaining a relationship with their audience more intimately is alien to those managers. 

Rubin also points out that the traditional media companies don’t like hiring people with just web experience because it’s not “traditional” production experience. Even though there are countless YouTube channels that started as garage projects and blossomed into production houses of their own where programming, editing, project development, etc. are all being practiced by serious people, there are still those who believe that the way the giants do so is always better.

As was explored last week with IBM, that isn’t necessarily the case.

Leadership Confidence

Continuing to speak on Warner Brothers, current CEO of Warner Brothers Discovery, David Zaslav, seems to be making decisions based on logic imperceptible to the outside world. Under his tenure, multiple movies that were completed were pulled from release and will never be seen by the outside world. Zaslav also claimed to have tried hard to end last year’s WGA and SAG-AFTRA strikes because people being out of work wasn’t a good thing. However, he sidestepped questions about his own compensation in this interview with Deadline, which is remarkably high even for a media company CEO. Zaslav also characterized many of his decisions as “courageous” in trying to right the ship.

However, many of David Zaslav’s decisions seem to make little sense. The rebranding of “HBO Max” to just “Max” throws away decades of HBO being a respected name synonymous with quality. From a business sense, shelving movies as tax write-offs and not spending money to market them may be an effective solution in the short term, but what major creatives would want to work with Warner Brothers Discovery if there’s a not-insignificant chance their project may be completed and never released? Could these be indicators of more serious issues with the rest of Zaslav’s tenure? How would other companies respond?

Perhaps the only thing more dangerous than a media CEO that doesn’t understand web media is one who doesn’t understand media at all. Which then begs the question, are some of these mass layoffs at these large companies caused by leadership who do not know how to navigate the challenges of the modern age?

In an Isolated System, Entropy Can Only Increase

Muse’s song from their 2012 album The 2^nd Law, “Unsustainable” quotes the second law of thermodynamics which gave the album its name as such:

“All natural and technological processes proceed in such a way that the availability of the remaining energy decreases. In all energy exchanges, if no energy enters or leaves an isolated system, the entropy of that system increases. Energy continuously flows from being concentrated, to becoming dispersed, spread out, wasted, and useless. New energy cannot be created, and high-grade energy is being destroyed. An economy based on endless growth is unsustainable…The fundamental laws of thermodynamics will place fixed limits on technological innovation and human advancement. In an isolated system, the entropy can only increase. A species set on endless growth is unsustainable.”

One of the issues of major corporations is that after a certain size, they create their own ecosystem. These are giant ships moving around each other, and while each ship has their own captain, those captains cannot personally oversee every aspect of operations. Some captains are mercurial, some captains are beloved by their crews, some captains are well-meaning but incompetent. Often, however, a captain that departs one ship will often be asked to captain a different one. As discussed last week with IBM, going too long without fresh ideas, or looking outside can easily permit rot and incrementally create larger problems. For example, traditional media companies not understanding how the internet production houses work results in many of them shutting down. Ideas bouncing around the same large room will never evolve past a certain point.

It doesn’t take a massive stretch of the imagination to question whether many of the major companies laying off large numbers of employees within the last few years are suffering from the giant-killers of poor leadership and a lack of vision for the company. So often does a company become solely focused on profit at the expense of what built the company that the company eventually hits the wall of growth and starts decaying. As discussed last week, IBM fell victim to that phenomenon. Google may very well be going through it right now, and other companies in other areas like Warner Brothers may be following quickly along.

Perhaps some of the giants are better off letting certain endeavors fall to smaller companies.

Sometimes, Smaller is Better

Innovation isn’t something that can be facilitated entirely with management consultants from high dollar firms and an overemphasis on spreadsheets, metrics, and slide deck presentations to c-level executives. Some of the best innovations in technology today come from small companies that work lean and take risks. Yes, for every company that makes even a moderately large splash in its respective pool, there are a hundred that fail to even get near the water. There is a benefit to large corporations with steady revenue streams to fund potential innovations which may turn out to be duds. However, trying to do everything at once without a clear direction on anything is a surefire way to end up stagnating. Competition, focus, and vision have compelled the best innovations and built the world we live in. If the tech giants run by the same principles, they can avoid slipping into the lulls which IBM fought its way out of.

Right now, small companies are poised to pose major threats to many of the larger tech companies for a couple of factors. One, large companies have to violently pivot, hence the repeated rounds of layoffs for thousands of people. Large ships do not turn quickly, so while these large companies are trying to figure out where to go next and orient themselves properly, countless small companies can take the “undesirable” talent in abundance and looking for work and get off running on a focused version of the next new idea. Furthermore, many teams laid off from projects have the experience and desire to create one of the projects they were working on when they were laid off. Who wouldn’t want to keep doing what they’re good at and make rock the world while they’re at it?

In a similar vein, cinemas are falling out of favor as they become more expensive. Trust in cable and network news is at an all time low. A well-researched YouTuber with a solid delivery, a quality webcam, and some luck could easily sell themselves as a more trustworthy news source than CNN or CBS. In fact, whether founded or not, many podcasters and internet personalities already have. In the same vein, animation software is easier to access than ever. It is not difficult to find amateur effects that look more realistic than top-dollar CGI in blockbuster movies these days. A similarly ambitious YouTuber with a good camera, a solid sound rig, and a friend who knows some animation software can easily put out quality passion projects that would captivate audiences just as well as the movies in cinemas.

These layoffs are currently unfolding. There are still so many questions without answers as to what comes next in all of this. What is a fact is that there are a lot of driven, talented people across many different industries with a lot more time on their hands, and something to prove.

Remains to be seen whether or not they can give the titans a run for their money.