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Embracer Q3 Results Lower Than Expected, Boosted by ‘Lord of the Rings’ Licensing Revenue

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Lord of the Rings” owner Embracer revealed its Q3 results were boosted by licensing revenue from the Tolkien IP despite being lower than expected overall.

Embracer, a Swedish gaming conglomerate who snapped up the rights to “Lord of the Rings” two years ago, has undergone a severe restructuring program over the past year, which has seen the company shut down or dispose of dozens of games studios and titles and lay off hundreds of staff, resulting in aftershocks that have reverberated throughout the games industry.

Its latest report, published Thursday, the company revealed it had cut 8% of its global workforce. That number likely does not include those working on a freelance basis.

Despite this, Wingefors admitted the company is unlikely to reach its target of lowering its net debt to SEK 8 billion ($761 million) by March 31. He warned that Embracer still has “a few larger structured divestment processes ongoing that could strengthen our balance sheet.”

Embracer, led by CEO Lars Wingfors, houses its stable of Tolkien IP, which also includes “The Hobbit,” in Middle-earth Enterprises, under its Entertainment and Services division. The latest report noted this division had delivered a year-on-year net sales growth of 12%.

According to Wingfors, this was largely due to the “stronger than expected” revenues from “Lords of the Rings” licensing, including the Magic the Gathering trading card game, continuing performance of two Warner Bros.’ Peter Jackson trilogies and a new PC/Console game, “Return to Moria.”

Wingefors also said the company is eyeing the upcoming theatrical release of animated prequel “The Lord of the Rings: The War of the Rohirrim,” which is set for Dec.

According to Reuters, Embracer’s overall adjusted operating profit for Q3 of SEK 2.15 billion ($204.40 million) fell marginally below forecasts despite representing a 7% rise year-on-year. Overall net sales at Embracer increased by 4% year-on-year to SEK 12 billion ($1.1 billion)

Prior to initiating its restructuring program, Embracer had been on a multi-year spending spree, buying up dozens of games studios and entertainment properties including comics publisher Dark House, distributor Anime Ltd, the “Tomb Raider” franchise and of course, Middle-earth Enterprises, which gave them “Lord of the Rings.”

The Q3 results showed that despite closing the deal for Middle-earth Enterprises with former owner The Saul Zaentz Company in Aug. 2022, Embracer was still making payments on it last winter. The latest report stated that SEK 1.9 billion ($185 million) left Embracer’s coffers in Q3 in respect of deferred consideration for both Middle-earth and Tripwire Interactive, which it acquired from Saber Interactive along with other subsidiaries in the same period.

Embracer paid $395 million for Middle-earth in 2022, a much lower sum than some had predicted for the beloved franchise.