Yahoo News ‘Lord of the Rings’ Owner Embracer Facing Restructure, Layoffs, Games Studio Closures; Appoints Interim COO
“Lord of the Rings” and “Tomb Raider” owner Embracer Group has unveiled a dramatic company restructure including the appointment of a new chief operating officer, a new chief strategy officer, studio closures, project cancelations and layoffs.
The company also plans to “exploit ‘Lord of the Rings’ in a very significant fashion,” particularly in the gaming market, according to its new COO, Matthew Karch, who will lead the restructure program alongside the new CSO Phil Rogers.
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Karch tendered his resignation from the Embracer board and as CEO of subsidiary Saber Interactive to take up the new post. Rogers will embark on the CSO role while remaining in his current position as CEO at Embracer subsidiary Crystal Dynamics – Eidos.
Last month, Embracer suffered its ever biggest drop in share price after revealing a $2 billion partnership had fallen through. Wingefors did not disclose the potential partner – or the nature of the planned partnership – but in comments accompanying the group’s interim Q4 reports in May, he said a “major strategic partnership” that had been in negotiation for seven months had fallen through at the last moment.
It is understood the fall-out from that episode is what has led to Tuesday’s restructure announcement. Wingefors said the company was aiming to reduce costs by at least 10% on a yearly basis and decrease debt to under SEK 10 billion ($928 million) by the end of the 23/23 financial year with the intention of transforming the company from its “current heavy-investment-mode to a highly cash-flow generative business.”
Among the measures planned are games studio closures, lay-offs, termination of projects, consolidation, a review of the group structure and divestment of “non-core assets.” The initial restructure program has been projected to last until March 2024.
Sweden-headquartered Embracer employs almost 17,000 employees across 40 countries. It also owns 138 internal game development studios. In a letter announcing the plans, group CEO and co-founder Lars Wingefors said it is “too early” to confirm how many jobs will be cut.
Going forward, Embracer plans to double down on its core business areas – PC, console, mobile and board games and other related media – as well as introducing a “greater focus” on IP. During an investor presentation on Tuesday morning hosted by Wingefors, Karch, Rogers and CFO John Ekstrom, Karch said: “I have a high degree of confidence that this entire process is going to easily translate into better product selection that’s more profitable, and that gives us a greater opportunity for growth in the future and that helps to leverage the IP that we own within our organization.”
“I mean, we own ‘Lord of the Rings,'” Karch continued. “And we know we need to be exploiting ‘Lord of the Rings’ in a very significant fashion and turning that into one of the biggest gaming franchises in the world. And that’s obviously something that we’re going to be doing. And so that’s a much better use of resources than some of the other projects that some of our teams have been working on.”
Wingefors also noted in his letter and during the presentation that the video and board games conglomerate had been on something of a spending spree over the last few years. Some of those acquisitions, he indicated, would be consolidated or divested as part of the restructure.
Karch agreed, saying during the presentation: “When you acquire [games] studios as rapidly as we have one of the downsides of that rapid acquisition is that you really can’t integrate in a meaningful fashion and so what you end up with are a lot of studios that have their own organizations and their own departments which do things which are also being done in parallel by other units. And when you have as many companies as we do, the duplication can be significant.”
Embracer acquired Middle Earth Enterprises – the holding company for “Lord of the Rings” – from the Saul Zaentz Co. last August for an undisclosed sum. Estimates put the value of the deal in the region of at least $2 billion.
The gaming group also snapped up comics publisher Dark Horse for an undisclosed amount in Dec. 2021, Anime Limited in Oct. 2022, a number of assets – including rights to the “Tomb Raider” franchise – from video games giant Square Enix last summer and dozens of smaller games entities over the past six years. Embracer says it now owns or controls at least 850 franchises.
“During the past years, Embracer invested significantly both in acquisitions and into a strategy of accelerated organic growth,” Wingefors said in his letter to investors. “We have acquired some of the world’s leading entertainment IP and we have invested into one of the largest pipelines of games across the industry.”
“Today we announce a comprehensive restructuring program that will enable us to realize untapped potential in Embracer Group and better optimize the use of our resources. Across the group, we are now initiating multiple actions to strengthen our cash flow generation and leverage our portfolio of IPs to become a stronger company and setting out on a stable future to build even greater games to the benefit of gamers and fans across the globe,” said Wingefors.
Read Wingefors’ full letter below:
Everyone,
This morning we announced a restructuring program across the Embracer Group that will make us a leaner, stronger and a more focused, self-sufficient company. I want to share some background and context to this decision – and what it means for us going forward.
During the past years, Embracer invested significantly both in acquisitions and into a strategy of accelerated organic growth. We have acquired some of the world’s leading entertainment IP and we have invested into one of the largest pipelines of games across the industry. The program presented today will transform us from our current heavy-investment-mode to a highly cash-flow generative business this year. It will enable us to meet the worsening economy and market reality as a strong company and it will fundamentally change our prioritization of growth with raised capital towards optimization and growth based on our own cashflows. The program will lower our net debt significantly. After completion of this program, we will generate growth in profitability with less business risk and with higher margins in the PC/console segment over the coming years. This, in turn, will give us the freedom to continue to grow and deliver the high-quality experiences our players really value.
The program is divided into different phases until March 2024 with focus on cost savings, capital allocation, efficiency and consolidation. The initial phase, which is initiated immediately, mainly targets cost savings across the group. The next phase, which also starts immediately, will require further analysis to determine specific actions. The last phase will focus on internal consolidation, further resource utilization and more synergies across the Group. The actions for each affected company will be implemented by the new interim COO and CSO in collaboration with each operative group CEO and management teams. Embracer currently engages close to 17,000 people and while that number will be lower by the end of the year, it is too early to give an exact forecast on this.
It is painful to see talented team members leave. Our people are what make up the very fabric of Embracer. I understand and respect that many of you will be worried about your own position and I don’t have all the answers to all questions. I want to be clear that the decisions about this program were not taken lightly.
I am asking all our managers to lead and act with compassion, respect, and integrity. Throughout each phase and wherever possible, we will work to ensure that affected team members receive information first. Where we can, we will try to provide opportunities for our colleagues to transition onto other projects. It’s important to note that while we are removing roles in some companies, we will continue to hire in others. We know, understand and respect that this is a challenging time for every person impacted. For me communication and transparency are key, but it’s also an increasingly difficult challenge in matters such as this program
The reality is that the quicker we act, the sooner we emerge as a stronger company.
The actions will include, but not be limited to, closing or divestments of some studios and the termination or pausing of some ongoing game development projects. It will also include decreased spending on non-development costs such as overhead and other operating expenses. We will reduce third party publishing and put greater focus on internal IP and increase external funding of large-budget games.
Our new executive management team members, Matthew Karch and Phil Rogers, will work to implement a revised, thorough review process for investments in our ongoing and potential new game development projects. They will also take the lead on further consolidation of operations, including review of the operative group structure. We will have an increased focus on accountability across the group, ensuring performance is in line with or exceeding current targets.
The potential impact from the program of future game releases will almost entirely be around unannounced projects. All announced significant releases will still be released as planned.
I want to thank all of our industry partners that reached out in the past weeks and expressed their respect for Embracer and their desire to do more business with us, whether big, small, or transformative, on our journey forward. As one of the largest content providers in the industry, this is the everyday business we should continue to increase. I see this as an acknowledgment of how important our people, games and IPs are for the wider gaming ecosystem.
There is significant untapped potential in Embracer which we will work together to unleash. We need to better leverage our scale, the quality of our portfolio and our capabilities. Our commitment to our transmedia strategy remains intact. That strategy alone has great potential to deliver substantial value across the group over the coming years. Ultimately, this will empower our entrepreneurs and creators to continue to deliver outstanding and memorable experiences to gamers and fans across the globe. I’m confident in our team’s ability to achieve results and maintain our position as a worldwide leader in the gaming industry.
I’m proud of what we have built over the past years, and we should acknowledge that we are heading into a solid year with many amazing releases such as “Remnant 2,” “Warhammer 40,000 Space Marine 2,” “Payday 3,” “Hot Wheels Unleashed 2: Turbocharged,” “Arizona Sunshine 2,” “Alone in the Dark,” “Homeworld 3,” and many many others. Our financial year started with one of our greatest successes so far, “Dead Island 2,” which exceeded our management’s already high expectations.
Embracer was founded on the values of trust, a long-term mindset, and a desire to embrace different perspectives. As difficult as some of the decisions we will take over the coming weeks and months will be, we are doing this because we are confident that we will emerge a stronger, more efficient company setting out on a stable future to build even greater value across our many studios and fantastic portfolio of IPs.
Thank you all,
Lars Wingefors
Group CEO Embracer Group
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