Jun 22, 2023

'Lord of the Rings' Rights Holder Embracer Announces Restructuring, Layoffs, Studio Closures

What is the Embracer Group and what does it own- Embracer, based in Karlstad, Sweden, is a global video game and media holding company that controls 12 business groups: THQ Nordic, Plaion, Coffee Stain, Amplifier Game Invest, Saber Interactive, DECA Games, Gearbox Entertainment, Easybrain, Asmodee, Dark Horse, Freemode, Crystal Dynamics - and Eidos. Eidos oversees 12 groups. Within its framework, Embracer owns 138 in-house game development studios and employs more than 16,600 people in over 40 countries.

Embracer also owns worldwide rights to films, video games, board games, merchandising, theme parks, and stage productions related to J.R.R. Tolkien's "Lord of the Rings" trilogy and "The Hobbit," as well as the Tolkien Estate and publisher HarperCollins' The company also owns matching rights to other Middle-earth-related literary works.

Why the company is restructuring - In May, Embracer experienced its biggest share price drop ever following news that a $2 billion partnership announced in conjunction with last year's fourth quarter results would not move forward. The nature of that partnership and the parties involved have not been disclosed, but some reports indicate that it was a major factor leading to the restructuring announcement.

What are the main changes that will occur under the restructuring - according to Embracer's release, changes include, but are not limited to:

Embracer's release is full of corporate jargon, but in layman's terms, they will close several studios and cancel projects, laying off employees. Nothing concrete has been announced yet, but we will keep an eye on the situation and provide an update as soon as we know more.

More on Curtis and Rogers: Prior to this appointment, Curtis was a director of Embracer and CEO of its subsidiary, Sabre Interactive. He resigned from both posts to take on his new duties. Rogers is now CEO of Embracer's Crystal Dynamics - Eidos and will continue in that role alongside his new position as Embracer's interim CSO.

According to Embracer's press release and an open letter from CEO Lars Vingefors, Embracer aims to reduce costs by at least 10% annually and wants to bring its debt below SEK 10 billion ($928 million) by the end of fiscal year 2023/2024.

What the company is saying - in the letter, Vingefors explains:

With the program announced today, we will transform ourselves from our current heavy investment mode into a highly cash-flow generating business by the end of this year. It also fundamentally changes our funding growth priorities to cash flow-based optimization and growth.

In an investor presentation last week, Kirch reiterated the company's plan to double its massive IP library:

We need to leverage The Lord of the Rings in a very important way and turn it into one of the largest game franchises in the world We know that we have to do it. And that's obviously what we're going to do. And it's a much better use of resources than some of the other projects that some of our teams are working on.

More on LotR: Embracer acquired Middle Earth Enterprises, the holding company for the Lord of the Rings franchise, last August. Estimates at the time were that the property would fetch a price tag of about $2 billion. But in Embracer's annual report earlier this week, the company revealed that it paid only $395 million for the rights. While this figure looks like a bargain compared to industry expectations, Embracer admits that the acquisition of Middle Earth Enterprises had a cash flow impact of nearly SEK 2.9 billion ($267 million).