Japanese game publisher Square Enix has announced its plans to sell a handful of studios to Embracer Group, a Swedish holding company that has rapidly become larger than competitors like Activision-Blizzard and Electronic Arts. Embracer might not be a name many gamers are familiar with, but it’s rapidly becoming one of the largest game publishers in the world.
Square Enix plans to sell studios like Eidos Montreal, Crystal Dynamics, and the soon-to-be-renamed Square Enix Montreal. Those are the studios behind smash-hit franchises like Deus Ex and Tomb Raider. This purchase will also see Embracer gaining the rights to beloved cult-classics Thief and Legacy of Kain.
Square has invited ridicule in the past by decrying Deus Ex and Tomb Raider’s recent entries’ sales figures, saying the games performed under expectations. However, the franchises continued to turn modest profits for the company, leading many players to view Square as an unnecessarily harsh taskmaster.
Embracer plans to buy the studios and a back catalog of over 50 franchises for around $300 million. While that’s no small sum, it is comically tiny compared to some of the group’s other recent acquisitions. In February 2021, Embracer bought Borderlands creator Gearbox for an eye-opening $1.3 billion. The company even bought Aspyr Media, a dev studio known for remastering old Star Wars games, for $450 million in April 2021.
What the Studios are Saying
Embracer Group noted in a press release that this acquisition would help the company deepen its ability to deliver value for investors. “The acquisition brings a compelling pipeline of new installments from beloved franchises and original IPs, including a new Tomb Raider game,” the press release says.
“The acquisition builds on Embracer’s mission of creating a leading independent global gaming and entertainment ecosystem. Embracer has been particularly impressed by the studios’ rich portfolio of original IP, housing brands with proven global potential such as Tomb Raider and Deus Ex, as well as demonstrating the ability to create AAA games with large and growing fan bases. There are compelling opportunities to organically grow the studios to maximize their commercial opportunities.”
This highly clinical, investor-minded language is typical for Embracer Group. The company is less a video game publisher and more an investment collective. It has been aggressively scooping up mid-sized game developers since the early 2010s.
Square Enix, for its part, notes that it’s eager to offload the studios to focus on NFTs and other blockchain endeavors. “The Transaction will assist the Company in adapting to the changes underway in the global business environment by establishing a more efficient allocation of resources, which will enhance corporate value by accelerating growth in the Company’s core businesses in the digital entertainment domain,” Square’s equally dry press release reads.
“In addition, the Transaction enables the launch of new businesses by moving forward with investments in fields including blockchain, AI, and the cloud.”
Square Undervaues its Games
Gamers have blasted Square in the past for the company’s unbelievable expectations of its smaller-scale games. For instance, after Eidos Montreal released its excellent 2021 game Guardians of the Galaxy, Square lambasted the title for selling under its expectations. The company declined to share the exact sales numbers for the title, but wrote that “despite strong reviews, the game’s sales on launch undershot our initial expectations.” Square has discounted the game heavily online, intending to “make up for the game’s slow start.”
Fans aren’t convinced that the game sold that poorly, though. Square has a habit of calling strong sales “disappointing,” like when it characterized the 2013 Tomb Raider reboot as an underperforming title as it broke sales records for the franchise. Likewise, the studio dumped IO Interactive, the studio behind the popular Hitman series. Then, when IO released the third entry in the series independently, it managed to recoup development costs in roughly one week.
That’s not to say that Square’s Western studios haven’t encountered any rough patches. Crystal Dynamics’ Avengers title struggled to meet sales expectations amid middling reviews and reports of technical issues. Likewise, Outriders, a live-service looter-shooter like Destiny, briefly dominated the gaming landscape before fizzling out in late 2021. The game’s developer, People Can Fly, reportedly encountered difficulties in receiving its royalties from the publisher after the game shipped.
In 2017, Square’s president, Yosuke Matsuda, told reporters that the company had “extremely high” expectations for Tomb Raider. Indeed, the company seems to have expected unbelievable, and arguably unrealistic, performance from its mid-budget Western-developed projects throughout the 2010s and early 2020s. The studio caught the ire of Deus Ex fans when it announced that it had canceled the third installment in the rebooted franchise after it was disappointed by the sales of the 2016 entry, Mankind Divided.
Deus Ex is a particularly divisive case, as some fans felt that Mankind Divided was undercooked compared to its exemplary predecessor, Human Revolution. However, most fans agree that MK wasn’t bad enough for Square to pull the plug on its planned sequel. By canceling the project before it even got off the ground, Square condemned the series to languish in obscurity–and with a cliff-hanger ending lingering at the end of its most recent outing.
Now, with the franchise in the hands of a prolific publisher that plans to release more games from its recent acquisitions, fans are excited to return to the dystopian future of the Deus Ex franchise. Elias Toufexis, who voices Deus Ex protagonist Adam Jensen, said he “embraces” this news if it means he can reprise his role as the iconic character. It’s doubly ironic that the Embracer Group sounds like a shadowy organization that players would fight against in a cyberpunk-themed RPG like Deus Ex, and now the series’ diehard fans are cheering to see the acquisition go through.
What is Embracer Group?
This might be the first you’re hearing about the Embracer Group. So, what is this big, shadowy, European holding company? Swedish entrepreneur Lars Wingefors formed Nordic Games Holding in 2011 and essentially used it as a rescue organization for mid-sized, critically-adored game studios. It first bought up JoWooD’s assets, the Austrian developer behind games like SpellForce and Gothic.
The company scooped up THQ when it went bankrupt in 2013. This led to the group’s most well-known commercial release so far: the well-received 2018 game Darksiders III, the follow-up to the fan-favorite third-person action series. Since then, Nordic Games Holding rebranded itself as Embracer Group in 2019 and has gone on a spending spree to shore up one of the largest stables of talent in the gaming industry.
The company is notable for its investor-minded structure. It went public in 2016 and most of its press releases focus on adding value for shareholders. Despite this clinical outward persona, fans have largely, well, embraced the company’s presence. Medium-sized studios like THQ and Eidos Montreal can generate dedicated fan bases despite never pulling in the amount of money that a mainline Call of Duty franchise entry can manage. As such, publishers that want to put all their eggs in one basket have dumped “double A” studios as development costs have skyrocketed in the past decade.
What is Embracer Doing?
By grabbing every mid-sized publisher on the market, Embracer is positioning itself to rake in revenue through an avalanche of smaller games. Rather than rely on a few major tentpole releases like Blizzard or EA, the holding company can launch dozens of games each year and serve multiple niche markets.
The group also recently scooped up French board game company Asmodee for $3 billion. Asmodee is the company behind games like Star Wars: X-Wing, Star Wars: Armada, Marvel Crisis Protocol, and the mega-popular Star Wars: Legion. By dipping its toes into the tabletop gaming space, Embracer is showing that it’s eager to bring in revenue from all corners of nerd culture.
“I’m thrilled at the prospect of the project of pursuing our ambition with Lars Wingefors and the Embracer Group,” Asmodee Group CEO Stéphane Carville told reporters back in March. “Embracer and Asmodee share strong values centered on putting the best teams together to provide our players with the best experiences on the planet.”
Why Would Square Sell for So Little?
Many Tomb Raider and Deus Ex fans are astonished that Square Enix would sell the studios for so little. After all, Embracer paid $525 million for Saber Interactive, a studio known for making ports of existing games. Why would it part with massive IPs for just $300 million?
The company has released lackluster titles in its mainline Final Fantasy and Dragon Quest franchises before, as well as middling spin-off games. However, it didn’t tell shareholders that those games were underperforming nor try to offload its internal studios after these missteps. Some players have suggested that Square might have been eager to get out of the business of publishing games made by Western studios to focus on its Japanese development teams.
Others have pointed out that Square might just want the influx of cash to invest in its proposed cloud gaming and blockchain endeavors. President Matsuda has expressed enthusiasm about the future of user-created content in games that utilize NFTs to allow players to own in-game items. However, many critics have jokingly suggested that Deus Ex and Tomb Raider are likely worth a lot more than some half-baked cryptocurrency endeavors.
In any event, fans will just be happy to get new entries in beloved franchises like Thief and Legacy of Kain. If Square Enix wants to part with those IPs for comparative chump change, that’s its decision.