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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.

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 (Reach, Fracked), 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