Embracer Must Prioritize Quality Over Quantity to Achieve Success

The Embracer Group, led by CEO Lars Wingefors, had ambitions to become the most successful European video game publisher, rivaling US giants. However, after a failed partnership deal and a significant decline in share price, questions arise about the company's long-term strategy. The model of acquiring studios and funding them through loans may not be secure if revenue growth cannot keep pace. The company is now facing the consequences of its borrowing, with a lower market capitalization, higher interest rates on loans, and rising production costs due to inflation. Embracer's restructuring program involves studio closures, debt reduction, and layoffs, indicating uncertain times ahead. Although the company has experienced revenue growth, its spending, particularly on acquisition loans, has outpaced income growth. The strategy to build an empire on cheap credit, shareholder goodwill, and forecasted growth was sound, but it relied on credit remaining cheap, share prices not declining, and forecasted growth continuing, none of which have occurred. The Embracer Group has accumulated significant debt, approximately $1.5 billion, and its cash position is in the red. However, the company owns a substantial portfolio of IP, including THQ Nordic, Plaion, and Lord of the Rings, which could be leveraged to secure its future. The company's non-current assets have increased by almost five times in three years, reaching around $9.4 billion. Embracer's latest public statements express optimism, and the group recognizes the need to capitalize on its franchises and produce high-quality games. CEO Lars Wingefors stated that the company must better leverage its scale, portfolio quality, and capabilities. The company's transmedia strategy remains intact, with potential to deliver substantial value across the group in the coming years. Embracer's upcoming game releases include Remnant 2, Warhammer 40,000 Space Marine 2, and Payday 3, among others. However, the company must avoid producing content for its own sake and focus on quality. The failure of the latest Saints Row game highlights the need for tighter control over game development and a focus on delivering high-quality gameplay, story, and production value. Embracer has two key advantages: diversification of content and the Lord of the Rings IP. The company's revenue diversification has resulted in a healthier balance, with console and PC games segment revenue constituting just 36% of net sales in fiscal 2023. Quality control is essential to ensure the company's long-term success, particularly when it comes to the Lord of the Rings franchise. Embracer must avoid rushing to release games solely based on brand recognition. Instead, the company should focus on producing high-quality games that meet gamers' expectations. By owning a significant amount of video game IP and implementing tight quality control, Embracer has the necessary ingredients for success. In conclusion, Embracer must prioritize quality over quantity to achieve success in the video game industry. With a wide portfolio of games and a focus on quality, the company can navigate its current challenges and secure a successful future.