Did Embracer Group get too big, too soon? We chart the rise and financial turmoil of one of the videogames industry’s giants.
In the spring of 2022, Embracer Group was a games industry colossus, with its market valuation sitting at almost $10bn. By this point, the Swedish company owned some of the biggest properties and studios around, having recently purchased the rights to the likes of Tomb Raider, Deus Ex and Thief from Japan’s Square Enix, as well as several studios involved in making them, including Crystal Dynamics and Eidos Montreal.
The firm also had a wealth of other major names crowded under its banner, including rights to The Lord Of The Rings, comic book publisher Dark Horse Media, Gearbox Software, creators of the Borderlands series, and Asmodee, a publisher of card and tabletop games.
In a company profile published by the Financial Times, one industry analyst criticised Embracer for its magpie-like approach to acquisition, arguing that its founder and CEO Laws Wingefors was “bizarrely relaxed” about the challenges of managing an empire that was “a kind of fund of studios bundled together.”
Others put their criticisms more sharply, with one anonymous hedge fund manager also telling the FT the following year, “They’ve been acquiring all these companies, so you can’t get to their organic growth at any time. The reality is that when the music stops, they’ll start to struggle to pay down debt.”
Wingefors countered that overseeing the company’s portfolio of over 100 studios was “not that difficult,” and argued that other huge firms “struggled when they put too many layers of directors and management.”
“That’s when they start falling apart,” he said.
Wingefors, with his private jet, personal chefs and fancy lakeside holiday home, certainly had a good reason to feel confident. A natural entrepreneur, he’d set up his first business – which sold second-hand comics by mail – while he was still in school in 1990. Clearly of a geeky persuasion, Wingefors branched out into selling second-hand games, and set up a chain of shops – Nordic Games – later in the 1990s. Wingefors was almost certainly a multi-millionaire before he’d even hit his 20th birthday.
Some financial wobbles followed, not least due to the dot-com crash in the early 2000s, but Wingefors persisted, setting up a new iteration of Nordic Games in 2008, this time specialising in publishing. Five years later, Nordic Games purchased the bankrupt Californian publisher THQ, a move which would prove transformative in more ways than one. Nordic Games was rebranded THQ Nordic, and an IPO in 2016 saw the company valued at 1.9bn Swedish krona, or about $182m.
The acquisition of Koch Media in 2018 marked the beginning of THQ Nordic’s stock market ascent, with its valuation rising each time it expanded its portfolio of studios. By 2019, the holding company arm of THQ Nordic’s business was renamed Embracer Group, while its publishing arm retained the THQ Nordic name. Embracer’s aggressive expansion continued through the pandemic-struck year of 2020 and beyond, with its major acquisitions including Saber Interactive, which itself was a Matryoshka doll of subsidiaries, including 3D Realms, 4A Games and Tripwire Interactive.
Up to this point, Embracer’s strategy appeared to be to dominate the middle ground of the games industry – the area that lay between the triple-A output of rivals like Ubisoft and EA, and smaller indie studios. Although Embracer later acquired some big names – the aforementioned Tomb Raider and The Lord Of The Rings properties are surely the biggest it owns – the broader span of its business takes in medium-sized developers like Poland’s Flying Wild Hog (makers of Shadow Warrior and Evil West) and Dambuster Studios, which released Dead Island 2 last year.
Speaking to the Financial Times, Wingefors summed up his company’s approach as a means of spreading risk. “If you can make one game,” he said, “you have a big business risk, but if you make 200 games, like we do, the business risk is less.”
Wingefors also talked a lot about ‘synergies’ – a fancy word to describe the process of adapting big-name properties into different media, such as a board game based on a videogame – hence the purchase of everything from Dark Horse to Asmodee to the Lord Of The Rings rights.
One analyst, quoted by the FT, pointed out a problem with Embracer’s increasingly ungainly expanse, however. The company was, according to one Toby Clothier, becoming “increasingly impossible to understand.”
“With the best will in the world,” he said, “Lars can’t know what’s going on. It’s impossible to keep track of the thing.”
By March 2023, Embracer’s valuation had fallen somewhat from its $9.9bn peak, but still remained an order of magnitude higher than some of the games industry’s biggest publishers, including Electronic Arts, Ubisoft and Activision Blizzard. Only a few weeks later, though, a warning sign began to blink.
In a quarterly earnings report, it emerged that a major deal – worth more than $2bn – had fallen through at the last minute. The report didn’t mention who the deal was with, but its collapse evidently caught Embracer off guard; “Late last night,” Wingefors wrote, “we were informed that one major strategic partnership that has been negotiated for seven months will not materialise.”
There was much speculation about who that collapsed deal might have been with; evidently, the anonymous entity had deep pockets. A report a few months later, published by Axios, suggested that the other party was Savvy Games Group, a Saudi-backed company that had already invested $1bn in Embracer in June 2022.
Whoever the deal was with, its collapse spooked investors, with Embracer shares tumbling by 40 percent as the news spread.
From the summer of 2023 onwards, Embracer then began making cuts to the huge portfolio of studios it owned. Volition, the 30 year-old studio behind the Saints Row series, was shut down. So too was Free Radical, the developer behind the TimeSplitters franchise; the sequel it was working on at the time was also cancelled.
There were layoffs at Tomb Raider developer Crystal Dynamics; reports circulated that Embracer was thinking about selling Gearbox Software; most recently, a Deus Ex sequel in the works at Eidos Montreal was scrapped, and 97 members of staff were made redundant. All told, job losses at Embracer and the studios it owns are likely to have crossed the 1,000 mark as of 30th January 2024.
At the time of writing, it isn’t clear how much more cutting will have to occur before Embracer balances its books. With recent warnings that the wider games industry is in the middle of a downturn that could last well into 2025, however, it’s possible we’ll see more closures and losses at one of the industry’s biggest companies.
The Embracer story highlights what happens when a creative industry butts up against the economic realities of big business. Awash with investors’ cash, Embracer brought up some of the industry’s oldest and best-known studios, only to close several of them a matter of months later. As a result, years of work have been lost, experienced teams have been ripped apart, and studios with decades of history behind them have closed their doors for good.
With holdings worth hundreds of millions, Embracer and its CEO are likely to weather the storm predicted to batter the industry over the coming months; the hundreds of people who’ve already lost their jobs so far haven’t been so lucky.