One of VR’s Most Senior and Successful Studios is Laying Off 70% of Staff

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Cloudhead Games, the veteran VR studio behind hit rhythm shooter Pistol Whip (2019), announced that it’s laying off 70% of staff, making for at least 37 affected employees.

Cloudhead CEO Denny Unger released the news via a Bluesky post, explaining the decision was based a “downturn of the gaming industry, VR’s still nascent challenges, including a lack of platform funding.”

Unger, who co-founded the studio in 2012 alongside Tracey Unger, characterizes the decision as a “difficult choice,” noting the studio’s mission still includes the core belief in the power of VR and its coming mainstream relevance.

Unger maintains that mainstream relevance isn’t here yet though; when devices that “do everything” eventually arrive, it will “take studios like ours to be there.”

“Our ongoing priority is to find ‘the reason’ to use VR and we will continue on that road until we can no longer,” Unger says. He further notes that a future update will include more about the challenges and potential opportunities in the VR games industry.

Notably, Unger says interested studios looking to hire former staff can consult this contact form.

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Cloudhead Games is one of the most veteran studios in VR space, with releases including Pistol Whip, Aperture Hand Labs (2019)The Gallery – Episode 1: Call of the Starseed (2016) and its sequel Heart of the Emberstone (2017). The studio also announced in 2024 it was working on two new games.

Cloudhead is far from the only VR studio to see financial turmoil, much of which started in 2024. Notable shutdowns include Meta’s Ready at Dawn (Lone Echo, Echo VR), Sony’s London Studio (PlayStation Worlds, Blood & Truth) and indie studio Archiact (DOOM 3 Quest port).

More recently, a number of XR studios have tightened their belts with staff layoffs and reorganizations, including VRChat, nDreams (ReachFracked), Cyan (MYST, RIVEN), Fast Travel Games (Action Hero, Mannequin), Soul Assembly (Drop Dead series), and XR Games (Hitman 3 VR: Reloaded).

You can read Unger’s message in full below:

A MESSAGE FROM DENNY UNGER / CEO / CLOUDHEAD GAMES

I have some very difficult news to share. Due to industry forces beyond our control, Cloudhead must make the difficult choice to reduce our workforce effective January 7th 2026. 30% of us will remain to continue the mission.

The team leaving us are consummate professionals and wonderful people in general. We took great collective pride in creating a culture that was as caring about VR content as they were working to support each other. Each and every one of them shared a true sense of “give a damn” as we worked through still unseen projects, and they will all be deeply missed at our studio. And although we have done our best to pad the landing with supports, if you have room on your team please see the link below to our “Reverse Recruiting” spreadsheet and contact them directly.

The general downturn of the gaming industry, VR’s still nascent challenges, including a lack of platform funding have placed us in an impossible position. And while we’ve done all we can to reinvest in our people and VR’s future from prior successes, we can’t build “bigger swings” alone.

Cloudhead has weathered many storms in our 14 years in Virtual Reality. Our belief remains in the power of VR as a medium, as a shared dream machine that will one day transform humanity. We have no doubt VR’s mainstream relevance is predestined, with future devices that do “everything”, but it will take studios like ours to be there when that time comes. Our ongoing priority is to find “the reason” to use VR and we will continue on that road until we can no longer.

I will have much more to say about the challenges and potential opportunities of our industry in a future update. Until then, please help us support the talented people who leave us for other opportunities. You won’t regret it.

To them, to you, please take care.
Sincerely, Denny

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Well before the first modern XR products hit the market, Scott recognized the potential of the technology and set out to understand and document its growth. He has been professionally reporting on the space for nearly a decade as Editor at Road to VR, authoring more than 4,000 articles on the topic. Scott brings that seasoned insight to his reporting from major industry events across the globe.
  • Elite-Force Cinema

    Oh look! Another corporate layoffs just for some generative AI-focused restructuring shit! When will they learn?

    • dextrovix

      …you speculate. Where is the mention of AI, yes AI will affected all industries, but why can't the reason stated but the actual reason- VR is yet to be anywhere near mainstream to sell the volumes that would sustain a workforce over years of development?

    • eadVrim

      They will learn when they start looking for robots to buy their products

    • Denny Unger

      If you dig a bit into my socials you'll quickly see that AI has absolutely ZERO to do with this.

    • Christian Schildwaechter

      Companies labeling everything as AI to make it look more valuable (to shareholders) is stupid, but so is blaming everything you don't like on it. It has become an empty phrase like "fake news" or "national security" to denounce something you don't like, no matter if there is even a connection.

      We have known for years that VR developers have been struggling, with the unwillingness of AAA studios to release VR tiles even when not getting paid for it by either Meta or Sony a very clear sign that the market isn't all that great. And we have seen a shift away from paid titles towards free-to-play, with Gorilla Tag being one of the most lucrative VR games, but not exactly the type of experience that VR enthusiasts are looking for.

      This is partly due to Meta trying to grow VR by making it very affordable, with turned into a popular Christmas gift for teens that don't necessarily spend a lot of money on games, and care mostly about hanging out with their friends. Probably not what Meta aimed for, but they now reacted by themselves pushing the free-to-play Horizon Worlds, redirecting even more attention away from paid titles like Pistol Whip. They also pretty much gave up on subsidizing high profile titles to draw new users, and reduced financial help for smaller studios requiring it in a not really self sustaining market.

      This has all been going on for quite some time. Add that Meta merged App Lab into the Horizon Store, flooding it with more titles of sometimes questionable quality, Quest still having not so great retention, and Quest 3/3S as more evolutionary products not bringing in lots of new users, and even studios that actually managed to survive the first years and build a certain back catalogue are struggling because sales have been dropping for many for quite some time. You don't even need to blame AI for everything, as it can be explained just by how the VR market has unfortunately developed.

  • Oxi

    I feel like this industry is just hollower and hollower. More and more hardware, more and more units of hardware sold, developers more desperate than ever, design stalling out, retention and actual popular interest middling or declining. Personally I think facebook's heavy investments and acquisition moved the industry forward in very loud ways… but also doomed it to this fate in time.

  • Lucidfeuer

    Yeah I mean VR is not quite mainstream, and the video game/digital experience market has been rammed and destroyed by extreme greed and mediocrity. The bubble is coming, we all know it, why are some still acting surprised?

  • eadVrim

    Is this due to sales or to AI

  • Jonathan Winters III

    This studio stated years ago, that Pistol Whip was a game made to allow them make enough money to do what they REALLY want to do – make part 3 of The Gallery (part 1 and 2 are excellent, by the way). Denny, what happened to that goal?