Embracer Group

Opinion: Embracer Group Is A Grim Warning About Consolidation In Gaming

Acquisitions have been a big part of the discussion surrounding the gaming industry for the past few years. Big gaming publishing companies such as Epic Games, Netease, and Tencent have been investing and buying out many studios. Meanwhile, hardware manufacturers like Sony and Microsoft have been shoring up big acquisitions to fill in gaps in their portfolios. Microsoft shifted into purchasing publishers to bolster its first-party game lineup, and increase the value of its Game Pass subscription. PlayStation which is known for its single-player games, has made acquisitions to add multiplayer-focused service games to its first-party lineup. There was one publisher however, that appeared to be rapidly expanding with an unknown plan in mind. This was Embracer Group.

The Rise Of Embracer Group

Gearbox presented a lot of info at PAX East, here's a live blog of the annoucenments.

Embracer Group is a Swedish-owned holding company that was previously known as THQ Nordic. The company began expanding rapidly acquiring old IP and small developers. But before long, they began making acquisitions of large and established studios. 4A Games, Gearbox Games, and Saber Interactive were just some of the many studios acquired in rapid succession by Embracer Group. Then, in a massive deal by Embracer with Square Enix, they acquired Crystal Dynamics, Eidos-Montreal, and Square Enix Montreal. Alongside the studios, Embracer also gained many classic IP’s such as Tomb Raider, Thief, Deus Ex, and Legacy Of Kain. It seemed like nothing could stop Embracer Group from acquiring studios.

There was no doubt that they had picked up some noteworthy IP and talent in the company’s buying spree. But none was possibly bigger than the purchase of the rights to Lord Of The Rings. From films, games merchandising, and more. It was clear that Embracer was cemented in making acquisitions no matter the size. Many analysts were at a loss in what Embracer Group’s long-term goals were. Many of these buyouts felt sporadic and did not correlate into a set pattern.s. Perhaps they were looking to create the ultimate catalog to be purchased by a bigger player. To this very day, it remains a mystery. However, it’s clear that it is quickly falling apart around them.

Failure After Failure For Embracer Group

Embracer did have some small wins to start, but the failures began to stack up. The reboot of Saints Row was supposed to be a massive blockbuster for both Embracer Group and Volition the developer behind the reboot. However, with a ballooned $100 million budget combined with a lackluster launch. The writing was on the wall for Volition sadly, as earlier this month Embracer Group shuttered the studio. The closing of the studio came just 5 years after they were acquired, and the closure put a possible 200 employees out of work. While Embracer stated they would restructure as many employees as they could to other studios. It certainly was a hard blow to the employees at Volition.

Another massive blow was when an undisclosed partnership that was estimated to be worth $2 billion across 6 years fell through. On top of this unexpected failure, the company also adjusted its financial forecast for the year. From original projections that topped at around $1.3 billion. Embracer lowered them to maxing out at $840 million. All of these factors collided and have put Embracer Group in a precarious situation. So much so that they are canceling projects across many of their studios. Reportedly they are even considering selling off Gearbox just after acquiring the company 2 years ago for a whopping $1.3 billion. It is safe to say even with a booming industry, instability can happen very quickly no matter how big of a company you are.

There are no guarantees in any form of business. Publishers constantly have to evolve and adapt to an ever-changing market. However, now more than ever all it can take is one bad release to set a company on a downward spiral in the gaming industry. At the end of the day, publishers will always downsize, close, and lay off in order to preserve profits. While fans may cheer on the acquisition of their favorite developers, remember publishers are no strangers to shutting down studios no matter how much they paid for them.

No One Is Above Failure

As Embracer Group continues to plummet downwards with no sign of slowing down. We can turn our gaze to to other big players within the gaming industry such as PlayStation and Xbox. Quite often the mentality when it comes to PlayStation and Xbox is that they are both too big to fail. But both companies at different points in their history have indeed proven that they can indeed fail.

PlayStation has been in the console market for close to 30 years. Within that 30 years, they have found massive success across many different generations of consoles. The PlayStation 5 has been another blockbuster for the company, however, they did have a generation that pushed the company to its limit. During the era of the PlayStation 3, the company struggled immensely due to a variety of different challenges. The chipset for the PlayStation 3 made creating games challenging for 3rd party developers. The PlayStation 3 was also an expensive console launching at $499 and $599 depending on whether you wanted a 20GB or 60GB model. Then they famously deflected the criticism of pricepoint of the console by claiming “for consumers to think to themselves ‘I will work more hours to buy one’.” A quote famously pulled from Ken Kutaragi who was the CEO of SIE at the time. Then atop all of this, a massive hack of the PlayStation Network during its infancy did nothing to help Sony’s woes. Eventually, despite all the bumps in the road, PlayStation managed to turn things around with the PlayStation 3 still closing out as a successful console for the company. But it was nothing compared to the success they would go on to find with the PlayStation 4 and currently with the PlayStation 5.

Xbox’s biggest challenge was the Xbox One. From the marketing of the console, the forced Kinect at launch, and a lack of enthralling software. The good faith Xbox had built up during the Xbox 360 generation rapidly disappeared with similar complacency that snuck up on Sony during the PlayStation 3. The infamous always online requirement being downplayed by Don Mattrick at the time stating “we have a console that does play games offline, and that is the Xbox 360” felt like twisting a knife they drove into themselves.

During this generation, we saw the closure of Lionhead Studio the creators of Fable, as well as 4 other internal teams. Which at the time felt like it was hit after hit of mismanagement and missed opportunities. The Xbox One was such a disaster that it almost caused Microsoft to pull out of the video game space completely. Now fast forward to 2023 and Xbox has massively expanded its first-party offerings, with investments in a large variety of different studios. They have created an engaging game service with Xbox Game Pass and finally appear to be on the right track. They still have a long road ahead to prove consistency in comparison to PlayStation and Nintendo but they are well on their way.

Too often we see certain companies as “safe” bets, and we assume that businesses like Microsoft, Samsung, Apple, and Sony are beyond falter. However, the bigger they are the harder they fall. Apple almost ceased to be a company in the late 90’s due to stagnation in their business strategy. It was only because Steve Jobs returned as CEO and brought with him a wealth of new ideas that the company adapted and survived. Leadership is what can make or break a company, especially in the tech industry. What if PlayStation and Xbox buy up all these studios with the current leadership they have? It’s well documented that both Phil Spencer and Jim Ryan are focused on expanding their teams and focusing on a “content first” approach. Fast forward a few years and someone new takes over the division and decides to downsize a bunch of studios to optimize profits. This will upset fans, but likely enthrall stockholders who are only focused on the bottom line. This means studios that could very well be making marginally good profits might get shut down simply because they aren’t making big enough margins on releases. It is a scary idea to think of PlayStation or Xbox folding a handful of good studios because they weren’t making enough money. But they have both done it in the past, so why would they stop now? It is food for thought if nothing else for those who cheer on corporate acquisitions at every turn.

Acquisitions Are A Necessary Evil

Embracer Group

I may come across as heavily against publishers and hardware companies purchasing studios, but I actually am not. I think there is a time and a place when it makes a lot of sense for it to happen. Acquisitions can be healthy depending on the circumstances in which they are completed. I think one of the best examples of a studio where an acquisition has helped the studio grow and thrive is Obsidian. A company known for being the masters of developing RPGs was always just on the edge of falling apart. The studio is known to have a great culture but began having to rely on Kickstarter in order to fund its Pillars Of Eternity series. All it would take is one game to not meet expectations and we might lose a studio that has made some of the best RPGs. Now under Microsoft, the company has been not only been able to develop its ambitious RPG titles such as Outer Worlds 2 and Avowed. It has also been able to pursue spin-off projects such as Grounded and Pentiment. Since being acquired Obsidian has consistently put out great games that have quickly become fan favorites.

PlayStation has wanted to breach into the PC market, and we have seen them make acquisitions in order to make this a more realistic goal. PlayStation Studios are beloved for their single-player cinematic experiences, however, those types of games are not getting any easier, cheaper, or quicker to develop. This has led to PlayStation investing in support studios to help their premier studios be able to efficiently work and complete projects. This also has reportedly led to healthier work cultures within its first-party studio. Insomniac Games has become absolutely prolific since joining PlayStation, and their team has had nothing but praise for the support they have received.

Balanced As All Things Should Be

Embracer Group

Acquisitions are a perfectly normal part of business and as previously shown can bring great benefits to both creators and consumers. However, it is important that some form of balance is maintained within the industry. These massive buying sprees can have consequences as we have seen with the fall of Embracer Group. With every layoff and studio shutdown, it drives talented developers and storytellers out of this industry. A stable and competitive gaming industry benefits not only consumers but offers stability to developers. Hopefully, Embracer Group will offer a grim warning to publishers and platform holders that rapidly expanding for the sake of expansion can be disastrous. Maybe, we will see fewer fans calling for ridiculous acquisitions as well but I doubt that will actually happen.

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