(Bloomberg) -- In February, Nathan Gary, the longtime leader of the indie video-game publisher Annapurna Interactive, was in Las Vegas for the annual DICE convention, schmoozing with old colleagues and catching up on the latest developments in gaming. One evening at dinner, Geoff Keighley, a video-game industry personality, approached Gary with an unsettling bit of news.
According to people familiar with the conversation, Keighley related that he’d just seen Gary’s boss Megan Ellison — the 38-year-old owner of Annapurna and daughter of billionaire Oracle Corp. Co-Founder Larry Ellison — eating elsewhere in the same restaurant with one of Gary’s former colleagues, a rival executive who he’d helped push out of the studio years earlier under tense circumstances. At first, Gary and his group thought Keighley was joking. Then someone else confirmed it.
For the past eight years, since its inception, Gary had led Annapurna’s gaming division through a challenging era, surviving myriad technological upheavals, handling a pandemic and managing to scratch out a reasonable profit, year after year, even as Ellison’s broader foray into movies sputtered. Impressed by his team’s success, Ellison had promoted him in 2021 to run the entire company.
But the get-together between Ellison and Gary’s former workplace adversary didn’t bode well for his continued leadership at the firm. And sure enough, within weeks, the whole thing would blow up in dramatic fashion, culminating last month with the mass resignation of Gary and 24 of Ellison’s employees — the entire staff of Annapurna Interactive. Their last day was Sept. 6.
The stormy saga, which is the current talk of the gaming industry, is unfolding at a time of heightened interest in the Ellison family in Hollywood. At the moment, Megan’s older brother David Ellison is completing an $8 billion deal to take control of Paramount Global, the entertainment giant behind CBS, MTV and Nickelodeon. When the deal closes, their father, who recently leapfrogged Microsoft Corp. founder Bill Gates to become the world’s fifth-richest person, will own a controlling share. How the Ellisons navigate the rapidly changing entertainment world promises to impact a broad swath of employees, partners and competitors for years to come.
Megan Ellison declined to be interviewed for this story, which is informed by interviews with more than a dozen current and former Annapurna employees as well as other people familiar with the events, who asked not to be identified discussing internal conversations. Through a spokesperson, Ellison said she will continue to invest in gaming and that she is “doing everything possible to support our partners so they can continue to make the games that players love.”
Gary, who declined to be interviewed, said in a statement that he was proud of what his team built at Annapurna Interactive. “I know I speak for everyone when I say that we are all genuinely saddened by this outcome,” he added. “Our team is looking forward to building something new, and we wish our friends and former colleagues the best.”
The unrest at Annapurna adds yet another dispiriting chapter to an era of widespread uncertainty across the $188 billion industry, during which thousands of workers have lost their jobs. “Despite low unemployment, the jobs market in gaming is a bloodbath right now,” said Jamyn Edis, who teaches new media at New York University’s Stern School of Business.
Before video games, Ellison’s first love in the entertainment industry was film. In 2011, backed by her family’s sizable fortune, Ellison founded Annapurna Pictures, devoted to producing and distributing auteur-driven movies. The company burst out of the gate with a series of critically acclaimed films, including Her, American Hustle and Zero Dark Thirty.
In 2016, Ellison expanded, launching Annapurna Interactive, a division devoted to video games. “The artistry and diversity of interactive storytelling is exciting, and we look forward to exploring the limitless possibilities in gaming,” she told Variety, citing The Legend of Zelda: Ocarina of Time as a personal favorite.
To lead the new group, Ellison tapped Gary, who had started his career at Sony Group Corp.’s PlayStation. While most of PlayStation’s games were big-budget extravaganzas, Gary led a division that was responsible for smaller, independently developed projects such as Journey, a 2012 adventure game that received rave reviews and broke sales records, minting Gary’s growing reputation in the indie scene.
“He helps make great games even better,” said Chris Bell, a designer on Journey.
At Annapurna’s headquarters in Los Angeles, Gary began assembling a close-knit team, which included a handful of former colleagues from PlayStation. The video-game group would eventually account for roughly one-third of Annapurna’s employees. In the years that followed, the division put out several acclaimed titles, such as Outer Wilds, Kentucky Route Zero and Cocoon. Along the way, Annapurna Interactive became associated with high-end indie games while generating consistent profits and occasional home runs, such as Stray, a 2022 game starring a nimble, valorous cat that has sold millions of copies.
For the most part, the video-game team worked well together and avoided much interoffice discord — with one notable exception. Over time, according to people familiar with the matter, Gary clashed with Hector Sanchez, a former PlayStation executive who was a producer at Annapurna.
Part of the issue, according to the people familiar, was that Gary and other colleagues felt that Sanchez was cozying up to Ellison and taking credit for other people’s work. Worse yet, the people said, was his blurring of personal and professional boundaries. In separate interviews with Bloomberg News, two women who had worked with Sanchez said that he made unwanted romantic advances toward them. The incidents made them uncomfortable, they said. Eventually word got back to Gary, and when Sanchez tried to take a position as head of the division’s internship program, Gary blocked him, said the people familiar with the matter.
In 2019, Sanchez, who declined to be interviewed for this story, walked away from Annapurna and took a job at Epic Games Inc. A spokesperson for Annapurna said that Sanchez’s departure “had nothing to do with any alleged behavior toward women,” and that Gary never raised any concerns about it with Sanchez at the time. The spokesperson added that the executive left because Gary prevented him from promotion opportunities and alleged that Gary felt threatened by Sanchez’s close relationship with Ellison. As a result, said the spokesperson, Sanchez no longer saw a path for growth at the company.
In the late 2010s, while the gaming business continued to grow, the film division suffered through a string of costly misses. In 2019, as it struggled to resolve more than $200 million in debt, the company narrowly staved off bankruptcy thanks to an influx of aid from Ellison’s father, according to Deadline. When the pandemic started in early 2020, Ellison decamped to her family’s island in Hawaii while her gaming division scrambled to steer through the global shutdowns.
The early days of the pandemic proved to be a boon for the video-game industry, as people stuck at home binged on titles and drove up sales. In 2021, Ellison announced that she was promoting Gary to president of Annapurna Pictures, charging him with overseeing the entire company. While other indie film and TV companies like A24 and Neon were thriving, Annapurna’s fortunes in Hollywood continued to languish. A report in Variety at the time raised questions about Ellison’s temper, alleging that she had once tossed a patio chair at one of her employees. In the story, a “source close to Ellison” said she “was not aiming for the executive.”
Over the years, there had always been friction between Annapurna’s film and video-game departments. Now, the disagreements grew worse. Gary pushed out a few executives and skirmished with others while trying to implement the kind of workplace culture that had worked well for the gaming division.
In 2022, Annapurna launched an animation division and found a rare success with Nimona, a critically admired sci-fi thriller that Ellison had shepherded. But the internal strife continued, in part, because workers in the video-game division felt like they were paying the bills for mistakes made by the rest of the company.
Eventually, Ellison grew unhappy with Gary’s performance. The spokesperson for Annapurna said that Ellison initially believed Gary’s successful stewardship of Annapurna Interactive would translate to the company at large but was ultimately disappointed with the results. The spokesperson said that Gary had pulled the company’s focus away from other divisions to prioritize gaming.
In early 2023, according to people familiar with the matter, Ellison told senior staff that she was exploring a sale of the company. A few weeks later, she said she had changed her mind. A spokesperson for Annapurna confirmed that Ellison was at one point considering a sale and noted that Ellison ultimately reversed course because she cared about continuing the company’s mission — telling stories that weren’t being told elsewhere.
Later that year, Ellison returned to Annapurna and took on a larger role in operations, instructing staff to start reporting simultaneously to her and Gary. Under the new set-up, some staff members found that it could take a long time to get ahold of Ellison. As a result, work that might have taken a few days in the past could now take weeks, said the people familiar with the matter. During one important contract negotiation, they said, a room full of lawyers and executives were waiting for Ellison to show up when her assistant walked in and apologetically informed everyone that Ellison would not be attending. They had to reschedule for the following day.
In March 2024, a few weeks after Ellison’s Las Vegas dinner with Sanchez, Ellison summoned Gary for a meeting. The conversation quickly turned hostile, and afterward Gary abruptly departed the company. (A representative for Ellison said that she demoted Gary, and he chose to resign; for his part, Gary told colleagues he was fired.) Ellison also fired one of Gary’s top executives.
Over the next few weeks, several members of the gaming staff resigned while others wrote notes to Ellison asking for more clarity on the situation. In response, Ellison held a series of video calls. At one point, with tears in her eyes, she said she didn’t want to break up the group. She proposed, instead, that they spin out the division and start a new, jointly owned company that would be entirely run by the former Annapurna Interactive team. As a gesture of goodwill, Ellison offered to bring back all of the staff who had resigned or were fired, including Gary, and said Annapurna would keep paying their salaries as they negotiated the terms of the spinout.
Before long, the gaming folks had come up with a name, Verset, started their own Slack group and informed external partners that they were breaking off from Annapurna.
But in the months that followed, the talks slowed down for reasons that the two parties now dispute. Ellison’s representative said the company sent out a detailed list of negotiating terms and the Verset crew never responded. People on the Verset side said they asked Annapurna to meet in person rather than going back and forth on email over minutiae, but the company refused. In August, Ellison terminated the deal.
Around the same time, several of the gaming staffers learned through an article in the Hollywood Reporter that Ellison had brought back Sanchez as “president of interactive and new media” to develop adaptations as well as big-budget games, rather than the indies that the company was currently publishing. Already, Sanchez had spearheaded a deal with the Finnish company Remedy to help finance a video game and partner on film and television adaptations, raising questions among Annapurna’s staff about the role he had been playing behind the scenes the whole time. The Annapurna spokesperson said that Ellison and Sanchez had remained friends since his departure in 2019 and that they had always wanted to work together again.
As the staff reeled from the sudden implosion of the Verset deal and the revelation that Sanchez was now in charge of Annapurna’s video-game division, the company suggested several scenarios for their next move. One was that the division of video-game employees, minus Gary, come back to work at Annapurna Interactive, reporting to Sanchez. The Verset team proposed other options, such as handling publishing services on contract, but were rebuffed.
So all of the employees resigned, despite having no outside investors or concrete plans lined up. The group has since put together a financial fund for those who need assistance and is aiming to start a new independent video-game publisher under Gary’s leadership.
Last week, a spokesperson for Annapurna sent a statement to the gaming website IGN saying the “whole situation is a baffler” — a specific word choice that many departed staff members seized upon, pointing out that it was one of Gary’s favorite expressions, a cooption of sorts that landed like a personal dig.
Meanwhile, Annapurna still has dozens of game projects in various stages of development, including some that have already faced consequences as a result of the exodus, such as missed contract deadlines and slowed negotiations, according to people familiar with the matter.
Currently, Annapurna executives are telling developers that the company plans to honor the contracts for several dozen upcoming projects and will backfill positions as it rebuilds. It has also brought in an external publishing company, Popagenda, to help bring the games to market.
In a statement, Popagenda Chief Executive Officer Genevieve St-Onge said that their top priority was “to put developers first” and that when they heard about the publishing team’s departure, “we jumped in without hesitation” to help the game makers who had been left without support.
(Updates the final paragraph with additional information from Popagenda.)
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