Embracer Group Faces Restructuring: Layoffs and Studio Closures Loom

Leading video game holding company, Embracer Group, has announced a comprehensive restructuring plan, resulting in layoffs, studio closures, and the cancellation of unannounced projects. The company aims to reduce its debt to under SEK 10 billion (approximately 1 billion USD) by the end of FY 2023/24 (next March) and cut overhead expenses by at least 10% annually. Unfortunately, these overhead expenses primarily consist of employee salaries, resulting in inevitable job losses.

Embracer Group's announcement highlights the closing of numerous studios and the termination of unannounced projects displaying low projected returns. CEO Lars Wingefors' open letter to the company doesn't feature specific job loss numbers; however, he confirms the number of 17,000 employees will decrease by the end of the year. Acknowledging the difficulty in seeing talented team members go, Wingefors empathized with those worried about their positions but stated that the restructuring decisions were not made lightly.

The restructuring plan comprises operational and financial measures to improve efficiency, increase cash conversion, reduce capex (capital expenditure), and achieve a financial net debt below SEK 10 billion by FY 2023/24. Other critical aspects of the restructuring include reducing capex by at least SEK 2.9 billion by FY 2024/25, compared to the current run-rate of SEK 7.9 billion in Q4 FY 2022/23, and appointing Matthew Karch and Phil Rogers as interim Chief Operating Officer and Chief Strategy Officer, respectively, to co-lead program planning and implementation.

The company intends to reduce investments in external development to focus on internal development based on owned or controlled IP and seek external funding for its largest internal titles. Wingefors acknowledged Embracer Group's significant investments in acquisitions and a strategy of accelerated organic growth in recent years. These acquisitions include Crystal Dynamics, Eidos Montreal, Square Enix Montreal, and several IPs such as Tomb Raider for $300 million and the Lord of the Rings IP for just under $600 million.

While the restructuring may have been an expected outcome of these aggressive business moves, the recent collapse of a $2 billion deal in the final stages is likely a more immediate factor impacting the company's decision. Embracer Group has yet to provide specifics on the studio closures. Its upcoming game launches include Remnant 2, Warhammer 40,000 Space Marine 2, Payday 3, Alone in the Dark, Homeworld 3, and others. As the industry watches Embracer Group's restructuring unfold, it is crucial to remember the talented individuals whose livelihoods are impacted by these challenging business decisions.