Embracer announces layoffs and game cancellations after a $2 billion deal falls through

It's focusing on big-budget projects and plans to make The Lord of the Rings a major gaming franchise.

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Embracer Group has announced a major restructuring of its business — which includes game cancellations, layoffs and selling or closing studios — in an attempt to reduce costs and make the business more efficient. The news comes in the wake of the company revealing that a deal that would have been worth $2 billion in revenue over six years fell apart, despite Embracer having a verbal agreement from its unnamed proposed partner.

It will take until March next year to complete the restructuring process. It's "too early to give an exact forecast" on how many of Embracer's nearly 17,000 workers will be impacted, CEO Lars Wingefors wrote in an open letter.

"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," Wingefors wrote. "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 [intellectual property] and increase external funding of large-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 projects that haven't been announced and for which it projects low returns. "All announced significant releases will still be released as planned," Wingefors said. For instance, Crystal Dynamics, which is working on a new Tomb Raider game and helping The Initiative with Perfect Dark, says those projects won't be impacted by the changes.

Over the last several years, Embracer has vacuumed up a wide array of notable 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 that Embracer renamed shortly before closing it) in a $300 million deal that included the rights to the likes of Tomb Raider, Deus Ex, Thief and Legacy of Kain.

Embracer last year secured the rights to The Lord of the Rings, which it plans to turn into “one of the biggest gaming franchises in the world.” According to IGN, the company's interim chief operations officer Matthew Karch told investors on Tuesday that "we know we need to be exploiting Lord of the Rings in a very significant fashion." Multiple LOTR games are in the works, including another attempt by Amazon at an MMO based in JRR Tolkien's universe.

Going forward, Embracer plans to establish a more comprehensive review process for investments in ongoing projects as well as potential new ones. Wingefors noted there will also be more accountability across the company to make sure "performance is in line with or exceeding current targets."

Wingefors ended the letter by noting some of the decisions Embracer makes as part of the restructuring will be "difficult" ones. However, he wrote, "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."