One of the Walt Disney Company’s major players and strategic partners, Epic Games, has announced that it’s eliminating more than 1,000 employees due to a drop in engagement for Fortnite, along with more than $500 million in cost-cutting. Here’s the latest, along with a bit of our commentary.
The layoffs of over 1,000 employees are aimed at putting Epic Games in a “more stable place,” according to a memo sent to employees (see below) by CEO Tim Sweeney. The downturn in Fortnite engagement that started in 2025 means the company is spending significantly more than it’s making, and has to make major cuts to keep the company funded.
This layoff, together with over $500 million of identified cost savings in contracting, marketing, and closing open roles is the means to that goal. It also comes amidst industry-wide challenges that include slower growth, weaker spending, and tougher cost economics; current consoles are selling less than last generation’s, development costs and timelines have exploded, there’s been a slowdown coming out of COVID, and games are competing for time against other increasingly-engaging forms of entertainment.
The move marks Epic’s second major round of layoffs in three years. In September 2023, the company cut about 830 jobs, or roughly 16% of its workforce. It’s not clear what percentage of staff will be impacted by the March 24, 2026 layoffs announcement.
The video games industry has faced growing pressures as it competes with not just other video game companies, but everything from TikTok to Netflix to other assorted brain rot. In September, Electronic Arts laid off hundreds of workers and canceled a game that was in development.
Ubisoft has undertaken rounds of layoffs and restructuring amid faltering sales. Amazon’s broader job cuts late last year also affected its gaming division. And just today, Bloomberg reported a rumor that Nintendo was planning to cut production fo the Switch 2 by 30%, from 6 million to 4 million units after slower than expected holiday season sales.
Live services games like Fortnite face a unique challenge in needing to feed the beast via a steady stream of new content to keep players engaged. This announcement comes just one week after the launch of the new season of Fortnite, and two weeks after the controversial increase in the price of V-Bucks, the game’s virtual currency, led to player backlash.
Separately, Epic Games also announced that its Rocket Racing mode will be permanently removed from the game later this year after having been previously put on hold. Two other modes will disappear next month: Festival Battle Stage and Fortnite Ballistic.
Here’s the full memo Epic Games Chief Executive Office Tim Sweeney sent to employees:
The downturn in Fortnite engagement that started in 2025 means we’re spending significantly more than we’re making, and we have to make major cuts to keep the company funded. This layoff, together with over $500 million of identified cost savings in contracting, marketing, and closing some open roles puts us in a more stable place.
Some of the challenges we’re facing are industry-wide challenges: slower growth, weaker spending, and tougher cost economics; current consoles selling less than last generation’s; and games competing for time against other increasingly-engaging forms of entertainment.
And some of our challenges are unique to Epic. Despite Fortnite remaining one of the most successful games in the world, we’ve had challenges delivering consistent Fortnite magic with every season; we’re only in the early stages of returning to mobile and optimizing Fortnite for the world’s billions of smartphones; and in being the industry’s vanguard we have taken a lot of bullets in a battle which is only in the early days of paying off for ourselves and all developers.
Since it’s a thing now, I should note that the layoffs aren’t related to AI. To the extent it improves productivity, we want to have as many awesome developers developing great content and tech as we can.
What we now need to do is clear: build awesome Fortnite experiences with fresh seasonal content, gameplay, story, and live events; accelerate developer tools with greater stability and capability as we evolve from Unreal Engine 5 and UEFN to Unreal Engine 6. And we’ll be kicking off the next generation of Epic with huge launch plans towards the end of the year.
This isn’t our first time being here. Epic survived upheavals in 1990’s with the move from 2D to 3D with Unreal 1; in the 2000’s building console games with Gears of War; and in 2012 moving to online gaming with Paragon and Fortnite. Each time, we rebuilt our foundations and earned a renewed leadership position.
Market conditions today are the most extreme we’ve seen since those early days, with massive upheaval in the industry accompanied by massive opportunity for the companies that come out as winners on the other side. That’s what we’re aiming to do for our players, and we aim to bring other like-minded developers in the industry along on the journey to build an increasingly open and vibrant future of entertainment together.
At Epic, we pride ourselves in only hiring the industry’s best, so it is very painful to part with so many talented people. The folks impacted by the layoffs will receive a severance package that includes at least four months of base pay, with more based on tenure. We’re also extending Epic-paid healthcare coverage.
For example, in the U.S., they’ll receive paid coverage for 6 months. We’ll also accelerate their stock options vesting through January 2027 and extend equity exercise options for up to two years.
We’ll have a company meeting Thursday to talk about the roadmap in more detail.
Disney x Epic Games
Ahead of its Q1 fiscal year 2024 earnings call, Disney announced that it had bought a stake in Epic Games, maker of Fortnite, to team up and develop a new expansive video game universe with their favorite characters and stories from Pixar, Marvel, Star Wars, Avatar, and more.
Disney and Epic Games are collaborating on an all-new games and entertainment universe that will further expand the reach of beloved Disney stories and experiences. As part of that, Disney is investing $1.5 billion to acquire an equity stake in Epic Games alongside the multi-year project.
In addition to interoperating with Fortnite, the new persistent universe will offer opportunities for gamers to play, watch, shop and engage with content. Players will be able to create their own stories and experiences, express their fandom in a distinctly Disney way, and share content with each other. This will all be powered by Unreal Engine.
“Our exciting new relationship with Epic Games will bring together Disney’s beloved brands and franchises with the hugely popular Fortnite in a transformational new games and entertainment universe,” said Disney CEO Bob Iger back in 2024 when making the announcement. “This marks Disney’s biggest entry ever into the world of games and offers significant opportunities for growth and expansion. We can’t wait for fans to experience the Disney stories and worlds they love in groundbreaking new ways.”
“Disney was one of the first companies to believe in the potential of bringing their worlds together with ours in Fortnite, and they use Unreal Engine across their portfolio,” added Tim Sweeney. “Now we’re collaborating on something entirely new to build a persistent, open and interoperable ecosystem that will bring together the Disney and Fortnite communities.”
“This will enable us to bring together our incredible collection of stories and experiences from across the company for a broad audience in ways we have only dreamed of before,” said Josh D’Amaro at the time. “Epic Games’ industry-leading technology and Fortnite’s open ecosystem will help us reach consumers where they are so they can engage with Disney in the ways that are most relevant to them.”
Here’s a trailer for the Disney x Epic Games partnership:
Unreal Engine is used to produce assets and content across the Disney portfolio including in the development of video games like Kingdom Hearts 3 and Star Wars Jedi: Survivor; in cinematic editing and animation for film and streaming; and in the creation Disney Parks attractions like Millennium Falcon: Smugglers Run at Star Wars: Galaxy’s Edge.
This all builds on Epic Games’ participation in the 2017 Disney Accelerator program, which seeks to impact the future of technology and entertainment. The digital world is growing and evolving with more than 3 billion video game players worldwide who want to move safely and seamlessly between the worlds they love, unleash their own creativity, and experience great gameplay.
According to the company, Disney’s games business has delivered strong results since it shuttered Disney Interactive and shifted to a licensing business model back in 2016. Disney is a leading games licensor working with best-in-class developers and publishers, including on the best-selling superhero game of all-time, Marvel’s Spider-Man.
Licensed games from Disney garnered more than 150 award nominations, wins and other accolades in 2023, including multiple Game of the Year nominations for Marvel’s Spider-Man 2. Disney mobile games have 1.5 billion global installs, and to date, nine Disney games franchises have each grossed more than $1 billion in sales. Licensed titles from Disney regularly hit the annual top 10 best-sellers list in the United States.
Our Commentary
We’ve been advocating for Disney to acquire a video games studio since our list of 5 Businesses Bob Iger Should Sell & Buy back in 2022. An acquisition would be ideal, since Disney has demonstrated it can’t build its own video game studio. Assuming Disney couldn’t have afforded Capcom, my ‘wish list’ at the time was Square Enix or Capcom (assuming they were for sale, which they probably were not).
The world’s biggest current franchises aren’t Avatar, Star Wars, Marvel, Cars, Toy Story, and Frozen. They’re Grand Theft Auto, Fortnite, Call of Duty, Pokemon, Minecraft and Mario. With each passing year, new video game franchises are born or strengthened by crossovers into legacy media. Assuming it’s actually released this year, there’s a near-certainty that Grand Theft Auto 6 will be the biggest piece of media of the year–by far.
For all of his dealmaking prowess and success in fostering the growth of Disney’s business units, Bob Iger failed at establishing the company as a major player in video games. After losing nearly $1.5 billion, Iger shut down the company’s in-house gaming division, Disney Interactive, back in 2016. Iger also conceded during a 2019 earnings call that Disney is “not particularly good” at self-publishing games, and was satisfied with licensing its IP to third parties, like Electronic Arts.
My concern at this point, however, is that Fortnite’s time in the spotlight is coming to an end. This isn’t a reaction I’m suddenly having in response to the layoffs, it’s been a concern for a while as live service games strike me as more of a fad and something that cannot be sustained indefinitely as its core audience ages out of the product or the next hot new thing comes along.
I touched on this briefly in last week’s article about the Josh D’Amaro Era Beginning, but haven’t really discussed it at length. That’s because, admittedly, I am a ‘dangerous’ mix of biased and underinformed. I strongly dislike live service games, and haven’t endeavored to fully educate myself about their business model or long-term viability. I’ve simply seen some of the struggles and loss of mindshare, and made (negative) assumptions that reinforce my priors.
Suffice to say, I will underscore once again that I’m glad the Epic Games partnership is no longer part of Disney Experiences (Parks & Resorts). Moreover, I really wish Disney would’ve partnered with Nintendo. That was a huge win for Universal, and another blunder by Disney (after Harry Potter). That was the one video game company that aligns closely with the Walt Disney Company, and they missed out.
Beyond that, I don’t have much more to add that we didn’t cover in Disney’s Biggest Weakness: Why Mickey Mouse Should Be More Like Mario. That was an article advocating for something exactly like this, and discussed how time spent with video games and mindshare is a really big deal. The average kid is consuming more video game content, and actively engaging with it. It’s occupying their minds and imaginations in a way that passive entertainment like movies and streaming simply are not.
It was surprising to me that this hasn’t been more important to Disney, a company that has historically recognized the significance of its theme parks as integral to brand affinity. I’m not going to play revisionist history and pretend that I thought the Epic Games partnership was a bad idea at the time. I didn’t. But with each passing quarter since without much to show for it, I am starting to wonder if this is American Idol Experience 2.0 (IYKYK). It sure seems like Disney is once again moving way too slowly and late to the game in capitalizing on what’s ultimately a trend. Here’s hoping I’m wrong, because Disney needs success in the gaming realm.
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Your Thoughts
What do you think about Epic Games laying off 1,000 employees and cutting $500 million in costs? Is this the beginning of the end for the flagship game? Or is it simply a recalibration for the hugely successful and highly popular Fortnite? Thoughts on Disney partnering with Epic Games? Should Disney develop its own video games studio from the ground up, or just stick to licensing? Is the company investing resources into video games, or is it just another money pit or distraction for Disney? Any questions? We love hearing from readers, so please share any other thoughts or questions you have in the comments below!
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