Embracer Group's CEO Lars Wingefors discusses the harsh realities of the AAA gaming market

Embracer Group's recent financial report underscored the contrasting fortunes of its two major titles over the past fiscal year.

Deep Silver's Dead Island 2 emerged as the top performer, with three million units sold and seven million players since its April 2023 release. Conversely, THQ Nordic's Alone in the Dark, released in March, fell short of management's expectations.

"In today's market, it's crucial to stand out to capture consumer attention," Embracer CEO Lars Wingefors told GamesIndustry.biz.

These titles share some commonalities, such as well-known intellectual properties, horror themes, significant budgets, and springtime releases, avoiding the competitive holiday season. Despite these similarities, Wingefors notes that market realities affect both games equally.

"Creating the best game in a genre or offering a unique experience is critical," Wingefors continued. "Consumers have numerous options for their time and money."

Despite the effort put into Alone in the Dark, it struggled to attract sufficient consumer interest, ultimately representing a substantial investment that needs to pay off.

"I'm not saying you can't increase the price... If you create an enormous RPG, for example, with 100 or 150 hours of gameplay, very polished and unique, would the consumer be willing to pay more?"

Choice among gamers is a significant factor; a Newzoo report highlights that over 60% of gameplay in 2023 involved titles that were six years old or older. Given annual releases and other elements, new games compete for only 8% of overall playtime. For instance, Baldur's Gate 3 accounted for just 0.6% of the total playtime in 2023, whereas Starfield got 0.3%.

"Developing a game like Alone in the Dark means perfect execution is vital, given the narrow window of opportunity," Wingefors explained. "Ultimately, game creation is a commercial endeavor, and profitability is essential for future investments and operations."

In contrast, Dead Island 2's outlook is much brighter. Boasting three million sales, Wingefors declared the zombie shooter as the fastest-selling AAA title in Embracer's history. Its inclusion in Xbox Game Pass has helped broaden its audience and provided financial benefits.

Other successes within Embracer include Coffee Stain's indie hit Valheim, which achieved six million sales during the first six weeks of Early Access. However, Dead Island 2 is an indication of Embracer's potential in the AAA space.

"Although other AAA titles like Metro Exodus have generated more revenue over time, Dead Island 2's first-year sales lead the internal chart," he stated. "We have several upcoming titles that I believe will surpass this performance. Continued investment in content for Dead Island 2 will drive further revenues."

With Dead Island 2's success, Alone in the Dark's struggle, and THQ Nordic’s South Park: Snow Day meeting expectations, the diverse outcomes highlight the necessity for varied strategies in today's market. Rising development costs and inflation present additional challenges.

"There is more optimization coming through in the course of the year, but I think we saw the peak of [layoffs] this year"

"Like other industries, gaming faces inflation and development cost increases," Wingefors pointed out. "Despite static pricing for premium PC and console games, development expenses rise, reducing profit margins. Additionally, the heightened cost of capital emphasizes the need for strategic investments."

"Consumers now have more content choices than ever, and prefer to engage with familiar IPs. This makes it more difficult for new IPs to gain traction. We've adapted over the past year and will continue to do so," he added.

Discussing pricing trends, Wingefors pondered the feasibility of increasing the standard $70 game price introduced at the start of the current console generation. "While the industry hasn't explored raising prices beyond $70, there could be potential for highly polished, expansive RPGs to command higher prices. This approach remains untested, but it's under consideration."

"We are maintaining industry-standard pricing for now, but the possibility of price hikes in the future cannot be ruled out," he concluded.

Developers are turning to budget-efficient strategies rather than raising game prices to counter increased development costs. Industry insights on making games more affordable will be featured in an GamesIndustry.biz editorial special, which you can explore here. Additionally, releasing games at lower prices can broaden audience reach, as exemplified by the success of Helldivers 2's $40 pricing. This approach may also favor shorter game formats over those requiring extensive playtime.

"[Reducing costs] is a recurring discussion with my team," stated Wingefors. "It's an intriguing topic, albeit sensitive to explain in detail.

"I firmly believe there's a segment of consumers who appreciate high-quality RPGs and single-player experiences and are willing to pay for them. The question is whether to raise prices or shorten the games. There are solutions out there. It would be unfortunate if every title turned into large-scale multiplayer games with in-game purchases. There's still a significant audience for traditional games."

"If your game isn't the leading title in its genre or doesn't offer a unique player experience, it faces significant challenges," he added.

Our previous conversation with Wingefors, which can be found here, covered the year-long restructuring of his company. This included multiple studio closures, sales, and over 1,400 layoffs. Although Embracer's cuts were substantial, the CEO is optimistic that the industry is experiencing a recovery phase post-layoffs.

"Speaking for ourselves, I believe we've reached the peak of these actions," Wingefors said. "Further optimizations might occur within the industry over the year, but the major restructuring likely culminated by early this year."

The gaming sector has long experienced cycles of booms and busts, with periods of layoffs and consolidation following surges in investment and consumer spending. While there are arguments for breaking this cycle—such as those discussed in a recent industry report—Wingefors views it as part of the business landscape.

"This pattern has persisted for decades," he explained. "The industry’s global growth and high margins draw significant investment during profitable times, attracting major corporations. When capital markets and such corporations engage simultaneously, it creates a competitive environment. So, will this cycle repeat?

"I am confident in the future of gaming and its growth. Although the influx of capital and corporate investment hasn't re-emerged fully, I anticipate that more cycles of booms and busts lie ahead."