*This article is a user contribution and does not represent the views of campfire
Recently, an incident sparked a buzz in the industry, with Square Enix (SE) packaging and selling its European and American development studios (Eidos Montreal, SE Montreal and Crystal Power) to Embracer Group for $300 million, as well as many IPs such as Tomb Raider and Deus Ex.
Many players' first reaction after seeing it is: only 300 million? So cheap? Where is this Embracer Group sacred? Many people even call this a "bargain" than a transaction, and can't help but wonder what the future development of well-known IP such as Tomb Raider will be?
Is $300 million reasonable? This article will sort out the causes and consequences of this acquisition, try to interpret their respective needs and purposes from the perspective of all parties to this acquisition, and explore the possible impact of this event on the industry and players.
Why should Embracer Group buy it?
Many players may be unfamiliar with embracer Group, but the giant has acquired a large number of game companies in recent years, and the momentum is very strong, with a variety of independently operated publishers and studios, intertwined into a complex network, capable of making and selling all types of games you can imagine.
Founded in 2011 and led by Swedish businessman Lars Wingefors, embracer Group, who at first grew up selling video game tails, and after a while, they decided to sell their own things, first eating the assets of Australian publisher JoWooD (Gothic Dynasty, Spell Power) in 2011, and then winning THQ in 2013 ( Dark blood ) . , "Homeland Defense Line").
At the time, it seemed that these operations were a bit of a robbery, and buying these companies was not very profitable, but then they came up with "Darksiders 3", which shows that their ambitions are far from simply collecting empty shelves of several bankrupt companies. After that, they began to wave money to major game manufacturers and make a big acquisition.
Last year alone, Embracer Group launched 26 acquisitions in the game space for a total of $6.6 billion, the most notable of which was the $1.3 billion acquisition of Gearbox Entertainment, the developer of the Borderlands series.
The company went public in 2016 and changed its name to Embracer in 2019, and now has more than 100 studios and publishers, tens of thousands of employees, and has surpassed Activision Blizzard in terms of numbers. The market capitalization has also risen from $250 million in 2016 to $9 billion today, and even exceeded $12.6 billion at its peak, an increase of more than 50 times.
Speaking of the Embracer Group and SE, in fact, the reason why these overseas studios of SE are in line with Embracer's acquisition ideas in recent years is that they are either companies facing bankruptcy or small and medium-sized companies.
This is completely different from the big-budget acquisition ideas common in the game industry, in fact, it is a bit of a leak. Usually, big manufacturers such as Microsoft and Sony pay more attention to the huge growth of market value obtained from mergers and acquisitions to drive stock prices up and enhance their right to speak in the industry. Embracer Group may know that it can't compete with big manufacturers for those big goals, so it chooses to acquire a large number of small and medium-sized companies to form a scale effect.
The advantage of this is that you can put eggs in different baskets, so many studios, as long as half of the money can maintain a fairly good development trend, for example, Embracer Group's publisher Coffee Stain in the previous release of the independent game "Temple of Heroes" sales recently exceeded 10 million, which is a miracle, most of the other studios are also good momentum, so Embracer Group stocks have risen so much over the years.
▲ As an indie game, the tens of millions of sales of "Heroic Spirit Temple" are amazing
So from the perspective of embracer Group, the acquisition of SE studios is just a step in its huge acquisition plan, not to mention that it only spent $300 million, which is a fairly cost-effective deal, and also enhances its reputation and influence in the industry, and if it can revive IP such as "Kane's Legacy" and "Breaking Siege" in the future, it is also a good thing for players.
Why sell SE?
Fast forward to April 2009, SE announced the acquisition of Eidos and the company's Crystal Power Studios for $117 million. This matter was also hotly debated at that time, because it was relatively rare for Japanese games to acquire a medium-sized company with considerable size in Europe and the United States in such a large way.
The main reason why SE wanted to make this acquisition was the strong need to transform and internationalize. At that time, with the emergence of XBOX 360 and PS3 and the rise of European and American masterpieces, Japanese game companies were greatly impacted and sought internationalization, and direct mergers and acquisitions of European and American companies were one of the practices.
So why, more than a decade after SE acquired Eidos, did it sell Eidos and Crystal Power for just $300 million?
First, the games released after SE acquired Eidos were mostly not profitable.
Take Eidos' most famous IP, Tomb Raider, which launched three works after the reboot, namely Tomb Raider (2013), Tomb Raider: Rise, and Tomb Raider: Shadow. Recently, Crystal Power Studios revealed that the entire Tomb Raider series sold 88 million units, of which 38 million came from the reboot trilogy.
However, the sales volume of 38 million seems to be very high, and the actual profitability is actually not high.
In the case of Tomb Raider: Shadow, sales were sluggish in the first week after its release, so much so that it began to be discounted just a month after its release, often at the price of cabbage, and even in a Steam sale in early March this year, the original 552 yuan ultimate version was discounted to as long as 97 yuan.
However, the production of AAA is very expensive, and the producer once revealed in an interview that the development cost and marketing cost of Tomb Raider: Shadow are the highest in the series, exceeding $100 million. Therefore, although the final sales of the game have not been announced, in terms of this discount, even if it exceeds tens of millions of sales, the profits that SE can obtain are quite limited.
On the other hand, Billy Pidgeon, an indie game industry analyst, once made a statement about the 3.4 million units sold in the month after the release of Tomb Raider (2013): If a game costs $100 million to develop, the game can only be considered a real success if it achieves media ratings above 8.5 and 5 million to 10 million copies. Fortunately, Tomb Raider (2013) eventually sold 11 million units in 2017, but this achievement took four years.
In addition to the problem of profitability, the reputation of the "Tomb Raider" reboot trilogy has also gone all the way down: the first two have received praise from the media, but the rating of the third "Tomb Raider: Shadow" is mixed, and many media have given low scores, such as Gamespot only gave 6 points.
▲ Tomb Raider: Shadow has plunged the series into a slump again
However, the collapse of Tomb Raider: Shadow is not the biggest setback that SE has encountered since acquiring Eidos and Crystal Power Studios, and the collapse performance of another product, Marvel Avengers, is the biggest Waterloo.
At that time, Marvel achieved considerable success with a number of movies, and wanted to get involved in the game field, so it chose to cooperate with SE to create an AAA masterpiece with the theme of "Avengers", that is, "Marvel's Avengers" released in September 2020.
Both SE and Crystal Power have high hopes for this service-oriented game (GaaS), hoping that it will provide a steady stream of profits, investing a lot of resources, and even putting aside the development of the Tomb Raider series for the time being, fully developing Marvel's Avengers.
However, the result was a double failure of word of mouth and sales, with an IGN score of only 6 points and the number of people online has not been able to go up. Later, SE CEO Yosuke Matsuda said that Crystal Power is not good at service games when summarizing the lessons learned, and lack of experience led to this result.
Other AAA masterpieces created by Eidos Montreal, such as "Out of the Siege: Human Revolution", "Out of the Siege: Human Division", "Thief" reboot, "Marvel Guardians of the Galaxy", etc., sales are also mediocre. All this will inevitably continue to affect SE's decision-making and judgment, and become the reason for SE to sell this part of the business.
As a result, SE gradually wants to sell this part of the overseas studio, and recently there are overseas rumors that SE has been seeking to sell these studios and IP for a long time, which has a certain credibility.
Secondly, the excessive investment in overseas AAA masterpieces has affected the development planning of SE's game masterpieces.
While Eidos and Crystal Power launched as many as 8 AAA masterpieces, the Japanese headquarters only launched a few 3A models such as Final Fantasy 15, Final Fantasy 7 Remake Chapter 1, Kingdom Hearts 3, and most of the rest are low-cost works, such as "Saga: Crimson Grace" and "Eight Travelers".
After the general underperformance of overseas blockbusters, SE seems to have decided to refocus on the development of its headquarters. On the one hand, some older series were launched, such as the orthodox sequel to The Legend of the Sacred Sword, the sequel to the Saga series; on the other hand, more blockbusters were developed, such as Dragon Quest 12, Final Fantasy 16, Final Fantasy 7 Remake Chapter 2, Kingdom Hearts 4, Forspoken, etc. that were already under development.
So so combing through, the department has so many big works on hand, Crystal Power also announced that it will use the Unreal Engine 5 engine to create a new Tomb Raider game, for SE, if Eidos and Crystal Power and these IPs are not sold, it is likely to put great pressure on the development of this department's masterpieces, and the company will be overwhelmed.
Again, SE has a new business direction.
In the official press release, SE specifically mentioned that the transaction will focus on investment in blockchain, artificial intelligence and cloud, which Matsuda has spoken about many times before, so it makes sense to sell some overseas businesses to better invest in new businesses.
What does the future hold for Eidos and Crystal Power?
On a post-acquisition conference call, David Anfossi, head of Eidos Montreal, said the studio was at its best in 15 years and mentioned that the studio was "home to the Thief and BreakOut 5 series" and that several projects are currently under development and will all use Unreal Engine 5.
From this remark, it is not difficult to see that it is likely that the "Thief" and "Breaking Bad" series that have been dormant for many years will be launched again in the future, and backed by the strong banknote strength of embracer Group, Eidos and Many new works of Crystal Power in the future may receive more development and publicity costs.
▲ "Out of the Siege: Human Revolution"
In fact, in the final analysis, the AAA masterpiece is still a battlefield dominated by European and American companies at present, and the $100 million development cost invested by SE in Tomb Raider: Shadow seems to be a lot, but compared to many European and American 3A is not nothing, and if embracer Group can give more support economically, there are more opportunities to make these acquired IPs shine again.
To sum up
In summary, this acquisition is actually a good thing for the three parties: SE sold a hot potato, and can focus more on the research and development of the main work in the future, and the new business can be better carried out; Embracer Group only got so much IP for 300 million US dollars, which is a good deal; Eidos and Crystal Power also have a stronger backing and can create new IP works.
For players, whether it is SE games or Eidos and Crystal Power games in the future, they may be of higher quality, more fun and more interesting, so this acquisition is actually benefiting players.