Embracer switches to cost-cutting mode: layoffs, studio closures, game shutdowns, and focus on first-party IP
Embracer Group has announced a business restructuring. The Swedish holding company plans a multi-phase program aimed at increasing its growth and long-term efficiency.
Warhammer 40,000: Space Marine 2
What are the goals of Embracer Group’s restructuring?
On June 13, Embracer CEO Lars Wingefors outlined the main points of the restructuring program in an open letter to employees. It will last until March 2024 and will transform the company from its “current heavy-investment-mode to a highly cash-flow generative business.”
According to Wingefors, business restructuring should help Embracer Group:
- Meet the worsening economy and market reality;
- Significantly lower its net debt;
- Shift the focus from raised capital to optimization and growth based on its own cashflows.
- Generate more profits with less risk and with higher margins in the PC/console market.
The announcement comes nearly a month after Embracer’s annual report where it significantly lowered its EBIT forecast for the new fiscal year. This was a result of the collapse of a “strategic partnership” with an unnamed company that was expected to include over $2 billion in contracted development revenue over the next six years.
Stages of the restructuring program
The restructuring program will include three phases, starting with cost savings and capital allocation. The last one will focus on efficiency and internal consolidation.
During this process, Embracer Group will:
- Close or divest some of its studios, as well as freeze or shut down some games currently in development;
- Focus on games from internal studios and reduce third-party publishing;
- Large-budget first-party games will receive more investment from external sources;
- Revise the review process for current and potential new titles in terms of investment required;
- Cut non-development costs, including overhead and other operating expenses.
Business restructuring will be overseen by two new executives. Matthew Karch will resign as CEO of Saber Interactive to become Embracer’s new interim chief operating officer. Crystal Dynamics CEO Phil Rogers will take one the role of the new interim chief strategy officer.
Together, they will also review Embracer Group’s structure, which currently includes 12 operative groups.
Wingefors noted that restructuring implies job cuts, but it is currently unclear how many of the roughly 17,000 people employed by Embracer will be affected. Although roles in some subsidiaries will be eliminated, the Group will continue to hire in others.
“We know, understand and respect that this is a challenging time for every person impacted. For me communication and transparency are key, but it’s also an increasingly difficult challenge in matters such as this program,” Wingefors said, adding that “the quicker we act, the sooner we emerge as a stronger company.”
It is worth noting that the restructuring program will mostly affect unannounced games, and all announced “signficiant releases” are still expected to come out as planned. During the current fiscal year, Embracer will release titles like Warhammer 40,000: Space Marine 2, Remnant 2, Payday 3, and Alone in the Dark. These projects, along with the success of Dead Island 2, should provide the company with a “solid year.”
