The Canada-based development studio that describes itself as "VR's Creative Heart" laid off 70 percent of its staff.

CEO Denny Unger of Cloudhead Games released a statement announcing deep cuts at the studio behind Pistol Whip and The Gallery.

"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," a note from Unger reads. "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."

Unger promised further updates about the "challenges and potential opportunities of our industry" while posting a document titled "reverse recruitment" with contact details for more than 30 staffers departing Cloudhead in the layoffs. Most are based in Canada and list a preference for a remote job.

16 people remain at Cloudhead following the cuts, according to Unger, with 40 people in total affected by the layoffs. The studio had been hinting at work on additional projects back in 2022.

"We released a steady stream of new content for Pistol Whip over a 5 year period but more importantly we've been working on new projects in stealth for 3 years," Unger wrote in our comments below. "Games take a long time to fund and produce."

Cloudhead released Pistol Whip in 2019 to wide acclaim. I rated it "fantastic" at launch and, in the years after, the studio stacked on considerable updates including multiple campaigns and even a "growing library of explosive Scenes created by the Pistol Whip modding community directly in-game." At $29.99 today on Steam, Quest, and PlayStation VR2, the title remains a fantastic cinematic action experience delivered in one big package rather than metered out as paid DLCs.

Pistol Whip is also a member of Meta's Horizon+ subscription games program and the title is offered at a discount with new membership in Sony's program. A large number of other top tier VR developers have their games in those games programs, which have helped supplement income from sales in the past.

We'll be curious to hear more from Unger about his particular path at Cloudhead. In 2019, the studio was buoyed by the development of Aperture Hand Lab for Valve as a sampler experience for the Valve Index. With Steam Frame around the corner, Cloudhead will have a new surface for Pistol Whip sales in 2026, but the layoffs would suggest no partnership materialized for a project specific to the system.

The layoffs are unlikely to be the last major reduction in the VR space for an experienced development studio – Myst creator Cyan let half go last year among many others – as creative groups continue to be shocked by shifting platform priorities.

Please reach out to ian@uploadvr.com if you have anything to share regarding funding and recruitment in the VR and AR space.