Embracer Group suffers losses following failed $2 Billion deal

Embracer Group has revealed plans for a significant overhaul of its operations, involving the cancellation of games, staff layoffs, and the closure or sale of studios. The aim of the restructuring is to streamline the business and cut costs. The announcement follows the collapse of a potential deal that would have generated $2 billion in revenue over six years, despite Embracer having received a verbal agreement from the unnamed partner.

It will take until March next year to complete the restructuring process. It is “too early to give an accurate prediction” of how many of Embracer’s nearly 17,000 employees will be affected, CEO Lars Wingefors wrote in the open letter.

“Actions include, but are not limited to, the closing or sale of some studios and the termination or suspension of some ongoing game development projects,” Wingefors wrote. “It also includes reduced spending on non-development costs such as overhead and other operating costs. We will reduce third-party publishing and focus more on internal [intellectual property] and increase external funding for big-budget games.”

It is not yet clear which studios the company plans to close or sell. Embracer says the game cancellations are “almost entirely” for unannounced projects with low returns. “All announced major releases will continue to be released as planned,” Wingefors said. For example, Crystal Dynamics, which is working on the new Tomb Raider game and helping The Initiative with Perfect Dark, says those projects will not be affected by the changes.

Over the past few years, Embracer has scooped up a wide range of prominent gaming companies and intellectual property rights. It bought Gearbox for $1.3 billion in 2021. Last year, Embracer acquired Crystal Dynamics, Eidos-Montreal, and Square Enix Montreal (a studio Embracer renamed shortly before it closed) in a $300 million deal that included the rights to the likes of Tomb Raider. , Deus Ex, Thief and Legacy of Kain.

Last year, Embracer acquired the rights to The Lord of the Rings, which it plans to turn into “one of the biggest game franchises in the world.” According to IGN, the company’s interim chief operating officer, Matthew Karch, told investors on Tuesday that “we know we have to capitalize on The Lord of the Rings in a very significant way.” Several LOTR games are in the works, including Amazon’s second attempt at an MMO based on JRR Tolkien’s universe.

In the future, Embracer plans to create a more comprehensive evaluation process for investments made in ongoing and potential new projects. Wingefors noted that the company also has more accountability to ensure that “performance meets or exceeds current targets.”

Wingefors concluded the letter by stating that some of the decisions Embracer has made in connection with the restructuring are “difficult”. However, he wrote: “We are doing this because we are confident that we will become a stronger and more efficient company, heading into a stable future to build even greater value for our many studios and our fantastic IP portfolio.”