As reported by The Verge:
Embracer Group, the company attempting to forge one video game publisher to rule them all, has just presided over another round of layoffs. Eidos Montreal is letting go of 97 game developers and support staff, the company announced today on X, shortly after Bloomberg’s Jason Schreier scooped that the studio has canceled an unannounced Deus Ex video game.
This is just the latest in a round of increasingly desperate attempts by Embracer to reduce their burn rate to something they can afford. This is deeply misguided, for several reasons.
- Layoffs are expensive. A laid off employee still receives several months of pay in severance, and several months of benefits, which can't just be cut off cold because you decided they would be unemployed now, through no fault of their own.
- Layoffs are destructive. Contrary to the popular beliefs of CEOs, terrified employees don't work harder; they spend work time hunting for better jobs elsewhere, assuming they don't burn out from their suddenly increased stress. Expect turnover and absenteeism to increase, and remain high, even as productivity drops and remains low.
- Layoffs are short-sighted. Embracer Group does not makes games; they employ people who make games. Or at least, they did; every new round of layoffs mean fewer people to make the games which are their sole source of revenue. And good luck hiring new people to replace the ones you laid off -- nobody wants to get hired at a company that's as badly managed as Embracer.
This is a death spiral.
Embracer's aggressive M&A strategy was not one of organic growth; it was fueled by VC funding, which was fueled by debt. With interest rates at their highest level in decades, that VC funding has dried up, but the acquired studios haven't had time yet to finish any new projects (well... apart from Gollum), which means that Embracer must now destroy all the value of their acquired assets in an attempt to balance their books.
Prediction time:
- Embracer will not balance their books. There's only so much more that they can cut from the operation, and still have an operation.
- Embracer's next step will be divestment: selling off the assets that they bought, probably for a lot less than they paid for them, since it's a buyers' market right now.
- After that will come an attempt to restructure, which will also fail, since Embracer will have already gutted their own business by that point, leaving nothing to restructure.
- After that will come liquidation, as Embracer's remaining assets are sold off at fire sale prices to cover as much of their remaining debt as possible.
It's all highly ironic, too, given how Embracer became Embracer. You see, Embracer used to be Nordic; their campaign of growth through acquisition started when Nordic picked up THQ's entire portfolio of IP at fire sale prices, back when THQ went under after overextending themselves in exactly the same manner that Embracer have done now.
It took THQ-Nordic a few years to prove that they've learning nothing from their own company's history, by repeating that history, but they are going the same way that THQ did. Leaving me with only one question: who will buy what's left of Grimoire Games, and will they still make Titan Quest II?
Update: March 8th, 2024.
I'm two for two already, with two to go. Feeling good about my chances, here, although not about Embracer's.