Swedish gaming conglomerate Embracer Group, which has rapidly acquired numerous game studios and popular intellectual properties in recent years, is set to undergo a significant restructuring. This restructuring will involve the closure of multiple studios and the cancellation of several games. The announcement comes after the unexpected failure of a $2 billion deal that would have brought substantial income to the company.
Embracer Group, under the leadership of CEO Lars Wingefors, outlined the restructuring plan in an open letter, an investor webcast, and a news release. The plan, divided into three phases, is expected to continue until March 2024. While the specific details of the phases remain unclear, the general objectives include cost savings, debt reduction below 10 billion Swedish Krona (approximately $930 million), and consolidation.
Matthew Karch, former CEO of Saber Interactive and current interim chief operating officer, mentioned that the initial phase of cost-cutting measures would be implemented promptly and have noticeable effects. This indicates that a portion of Embracer Group's workforce, which currently consists of around 17,000 employees, will be laid off. However, the company has not provided specific information regarding studio closures or the timing of layoffs.
Wingefors mentioned in the letter that although the number of employees would decrease by the end of the year, it is too early to provide an exact forecast. Karch added that the studios to be closed are underperforming or failing to meet the company's quality standards. Embracer Group stated that the affected projects, which have not yet been announced, are projected to have low returns on investment.
Embracer Group's portfolio includes the rights to renowned franchises such as Tomb Raider and Lord of the Rings. It acquired the Tomb Raider rights through the purchase of Eidos, Crystal Dynamics, and Square Enix Montreal from Square Enix in 2022. In the same year, the company obtained the licensing rights for The Lord of the Rings and The Hobbit by acquiring the rights holder, Middle-earth Enterprises. Embracer Group had previously announced the development of five undisclosed Lord of the Rings games in collaboration with external partners.
The news release suggests that any games already announced will be unaffected by the restructuring plan, or at least not canceled. However, Karch mentioned during the webcast that the canceled games were mostly unannounced projects.
Crystal Dynamics, responding to the announcement, confirmed on Twitter that their upcoming Tomb Raider game and Perfect Dark would not be affected by the restructuring.
Karch emphasized the need to capitalize on the Lord of the Rings franchise and transform it into one of the largest gaming franchises worldwide. He expressed a preference for allocating resources to that endeavor rather than continuing certain projects that have consumed team efforts.
Embracer Group's recent acquisitions include Deep Silver, the publisher of Saints Row, and over 50 game studios and offices since 2020. The company has also expanded into comics and tabletop games through the acquisitions of Dark Horse Comics and Asmodee, respectively.
However, the rapid pace of Embracer Group's acquisition spree appears to have resulted in challenges related to responsibilities and costs. The company had relied on a $2 billion partnership, along with a $1 billion investment from Saudi Arabia's investment fund, to alleviate financial pressures. Unfortunately, the planned partnership fell through at the last minute, leading Embracer Group to revise its earnings projection to a range of $655 million to $840 million.
In its recent earnings report in May, Embracer Group acknowledged the challenges faced during the previous financial year, citing lackluster reception of notable releases and game delays, despite a significant increase in net sales of approximately 121%, totaling around $3.5 billion.