The Activision Blizzard layoffs and the ‘Tendency of the Rate of Profit to Fall’

Christian Patterson
2019-02-15
Underground Mall

Supplemental Introduction:

I posted this on reddit and got some pushback, so before the post, I wanted to clarify a few things, because the pushback was rooted in misunderstanding my approach:

1. This post is through the lens of the Tendency of the Rate of Profit to Fall (TRPF) in general. Although I’m approachimg it from a Marxist perspective, it is an idea that exists independent of Marx, and means different things for different theorists. I’m not trying to explain or summarize TRPF, as there are hundreds of places online that do that. Instead, I’m using TRPF as a frame to analyze current events, in my own way.


2. Adam Smith, the figurehead of classical economics had a theory that TRPF is caused by competition, nothing more. This is why I emphasize competition at the beginning of the piece, because it’s an everyday element of capitalist economic discourse. Marx also emphasized that competition is a contributing element to TRPF. The difference is, Marx’s analysis was on the production side, whereas focus on competition is more on the supply side. By no means am I suggesting that gamers rising up against Activision caused the layoffs, and in fact, at the end, I make it clear the capitalist class does what it does to please themselves and investors. The reason this post emphasizes competition at the beginning is because it’s a good jumping on point, and pertains to consumer electronics.

3. I do cite Derrida in this post. This is a blog about THEORY and ANALYSIS, and no theorist is off limits. I’m not dogmatic in Marxism, and this isn’t a Marxist propaganda blog. If that’s what you’re looking for, you won’t find it here. This is a blog about commodities and commodity culture. Marx is foundational in the analysis of that, but he’s not the end point.

4. And most important, this post is my ideas, that rely heavily on sources. I’m not attributing anything I write to Marx. I’m attributing them to myself, based on the lens of TRPF, to analyze current events. There’s a tendency amongst some people to assume all ideas are born in philosopher’s pens, and anyone who isn’t in the Western Canon can only come to conclusions based on the thought of others. This blog rejects that.

Orc Peon in World of Warcraft saying

The Activision Blizzard layoffs are a great example of the Tendency of the Rate of Profit to Fall (TRPF). In the most basic sense, TRPF is an economic hypothesis that over time, profits will decline. This idea is most associated with Marx, because he wrote the most thorough and foundational explanation of it in Das Kapital Vol. 3. However, it’s not a distinctly Marxist idea, as Adam Smith, David Ricardo, and other classical economists, all wrote about the idea. However, they mostly just acknowledged the existence of TRPF, but didn’t offer much theorizing about it.

Here’s the basic outline of the idea: there’s a visible tendency for the rate of profit to fall. If you started a social media company in the 2000s, the profit would likely have had the tendency to grow, then stabilize, and likely, decline over a longer and longer period of time. Meanwhile, other people realize that there’s profit to be made in social media, and start competing. This competition causes profits to have even more of tendency to decline, because Competition [remember this word!] contributes to profits to be more disseminated among different companies, and it contributes to lower prices, in order to be more competitive.

That is the surface level understanding of TRPF, but it has far-reaching implications. For example, what’s the impact of profit falling? This is the singular economic motivation of the capitalist class, after all. The obvious decision by the capitalist class is to reduce expenses to make up the difference in profit. This includes layoffs, lower wages, less benefits, cutting back on business expenses, spend less on supplies, whatever it may be.

Even without the layoffs from Activision Blizzard, the company shows the TRPF. Activision is notorious for striking gold with extremely popular games, then trying to aggressively capitalize on that game series, until it’s ran into the ground. Tony Hawk, Guitar Hero, Skylanders, and Call of Duty have all been popular, and Activision can’t help themselves but pushing popular things further and further, until people are completely over it.

Tony Hawk is one of my favorite game series, but with each iteration, there were diminishing returns, and more and more features that distracted from what made the games great to begin with. Guitar Hero became extremely overzealous, trying to turn novelty games into platforms with mass scale microtransactions and commodification. Call of Duty still exists, and from what I’ve heard, is still good if you like that type of game. But, people can only enjoy the same type of game for so long, and trends in games have changed a lot in the past ten years.

This goes to show that the TRPF isn’t just a distant economic effect, resulting from distant, cryptic economic effects that we can’t comprehend. TRPF is very much effected by basic market forces. It’s as simple as Blockbuster going out of business, being replaced by netflix, and then an increasing amount of streaming platforms, many of which will inevitably fail. We see the machinations of TRPF everyday.

The impact of this is TRPF is a consistent economic effect from profit-motivated capitalism, and it’s always tightening the tensions of capitalism. If it wasn’t for the fact that capitalist modes of production are always searching for new things to commodify, then this tension would be even more visible.

TRPF is the key idea to revolutionary Marxism. Let’s say you take everything else in Das Kapital on face value, and accept it. The rest of Marx definitely reifies the idea that capitalism is bad, and socialism is the next step in history. However, if you accept that TRPF is a constant effect of capitalism, then you also realize that no amount of regulation, counter-measures, and market control can absolutely clamp down the tendency of the rate of profit to fall. As long as profit has a tendency to fall, while also being the primary economic motivation in a capitalist economy, there will always be an increasing tension between capitalist profit seeking and worker interest. This can only be resolved through revolution, not reformism.

Tony Hawk Pro Skater 3 level Canada

Competition as the Pharmakon of Capitalism

Derrida wrote an essay called “Plato’s Pharmacy“, where he took the philosophical idea of Pharmakon that was common in Ancient Greece, and recontextualized it. We differentiate between pharmacology (medicine) and toxicology (toxins). In ancient Greece, the Pharmakon meant both the poison and the cure. Not only that, but it also meant “scapegoat”, used to describe human exiles from society.

The irony of competition is that it’s always praised by capitalists as the corrective mechanism of capitalism. This makes sense, because competition is one of the defining characteristics of capitalism compared to feudalism. However, they don’t complete that thought and realize that competition is also one of the mechanisms that foster the potential demise of capitalism, the TRPF.

Competition in a capitalist context is a Pharmakon, both the poison and the antidote (and for Marx, the scapegoat). Derrida writes:

If the pharmakon is ambivalent, it is because it constitutes the medium in which opposites are opposed, the movement and the play that links them among themselves, reverses them or makes one side cross over into the other (soul/body, good/evil, inside/outside, memory/forgetfulness, speech/writing, etc). (443)

Derrida, Jacques, and Barbara Johnson. Dissemination. Chicago: University Press, 1981. Print.

Competition is not a neutral element of capitalism, it is part of the process that both holds up capitalism, while tearing it down. This is mistaken as neutral, or by the most indoctrinated, as good.

Derrida argues that when people translate Pharmakon as pharmaceuticals, it’s not just a mistranslation, but it’s a desecration. It’s not just simplifying the meaning of the word, it decontextualizes the entire text. This is why Pharmakon is also a scapegoat: it adds an ironic tension that complicates a text, so it must be excised for meaning.

The impact of all of this is that Marx’s analysis of the TRFP is a Pharmakon. He understands competition as both the poison and the antidote. He understands that competition is the scapegoat because it embodies both the poison and the cure. It’s dialectical thinking that acknowledges the contradictions in capitalism. Marx gives us the full picture of Competition, whereas capitalists only see competitions as the pharmacy.

Activision Blizzard CEO Bobby Kotick
Activision Blizzard Porky Bobby Kotick

Activision Blizzard’s Pseudo-Falling Profits

The irony of the TRPF is the powers that be, the capitalist class, are wholly aware of the hypothesis, while the media class, which works in unison with the capitalist class, doesn’t want us to understand this aspect of the economy.

The capitalist knowledge of TRPF is demonstrated by the fact that Activision Blizzard had, in CEO Bobby Kotick’s words, “once again achieved record results in 2018”. However, Activision Blizzard had an even higher projected growth than they expected, which caused the layoffs. What this shows is that investors and the finance sector needs continual growth. They’re so aware, and afraid, of falling profits, that they can’t tolerate consistently growing profits, let alone profits that aren’t growing fast enough.

On top of this, video game investors are increasingly doubtful of the market, mostly due to Fortnite. They see the business model changing, with Fortnite as a free-to-play game with a robust microtransaction system that makes bank. This is why Call of Duty implemented a battle royale mode: whether people who play Call of Duty wanted or not is secondary, this was really implemented to assuage the fears of investors.

This signifies a further acceleration in games towards games-as-platforms. This isn’t a new phenomenon, as even Activision Blizzard’s World of Warcraft helped establish this model as early as 2004. However, the nature of platformization has accelerated over time. Nick Srnicek wrote a great book on this topic called Platform Capitalism (please buy the book, just linking PDF for reference!). He writes:

Capitalism, when a crisis hits, tends to be restructured. New technologies, new organisational forms, new modes of exploitation, new types of jobs, and new markets all emerge to create a new way of accumulating capital.

Srnicek, Nick. Platform Capitalism. Polity Press, 2017.

This is simple enough, we understand this as the process of the capitalist class trying to counteract and preempt the TRPF. Srnicek continues saying that one of the most ubiquitous developments in contemporary capitalism is in data. He then points out how easy it was to automate elements of data, and needed a new way to capitalize on that data. He continues:

A different business model was necessary if capitalist firms were to take full advantage of dwindling recording costs. […] The new business model that eventually emerged is a powerful new type of firm: the platform. […] At the most general level, platforms are digital infrastructures that enable two or more groups to interact. They therefore position themselves as intermediaries that bring together different users: customers, advertisers, service providers, producers, suppliers, and even physical objects. More often than not, these platforms also come with a series of tools that enable their users to build their own products, services, and marketplaces.

Srnicek, Nick. Platform Capitalism. Polity Press, 2017.
Call of Duty screenshot

Platform Capitalism commodifies a form of interaction that, in some form, used to be free, or at least doesn’t need to be commodified. For example, uber could easily exist without Uber. Uber offers nothing to this equation except leeching value from the transaction.

Uber, theoretically, has much lower overhead than a taxi company. They also have much fewer employees, as their equivalent of drivers are pseudo-freelancers, and the people they directly hire are either marketers, or people pushing data around, or some other administrative role that just keeps the money flowing.

After Fortnite, the game-as-platform par excellence, video game publishers want to accelerate closer to the platform model. It helps a lot that video games with online components already fit Srnicek’s definition of a Platform: “digital infrastructures that enable two or more groups to interact”. The more video games embrace the platform model, then in theory, the more the TRPF is deferred. Epic Games, the creators of Fortnite are growing as a company, because their rate of profit is skyrocketing. But for a company treading water like Activision Blizzard, they need to significantly cut back staff, until(/if) they strike gold with whatever catches on and embraces the Fortnite platform model (assuming they want to continue “growth”).

Fortnite screenshot

When we understand the Activision Blizzard layoffs in a mechanical way, through the lens of the TRPF, then we realize it isn’t an Activision Blizzard problem, but embedded in the nature of capitalism. Gamers often mention how, when the WiiU was tanking, Nintendo’s then-president Iwata took a pay cut, rather than the Activision model of laying people off. The issue is this is a non-solution. Most capitalists will never volunteer for less money. No capitalist government will force capitalists to take less profits, because capitalism is a profit-motivated economic system.

The simple truth is, this will happen to Epic Games eventually too. Rates of profits always have a tendency to fall. This is an inherent problem with capitalism, and I firmly believe the TRFP will accelerate due to automation and other factors of contemporary capitalism. The more it accelerates, the more class consciousness grows.

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