‘Lord of the Rings’ Licensing Revenue Drives Q1 Growth at Embracer
“Lord of the Rings” owner Embracer told shareholders and investors that the fantasy franchise, which they snapped up last summer for $395 million, has been a significant growth driver in Q1.
Embracer’s Entertainment & Services section has grown organically by 70% according to the group’s latest results, largely thanks to Middle-Earth Enterprises, the holding company for the J.R.R. Tolkien rights. “The high margin is primarily explained by a strong contribution from Middle-Earth Enterprises, driven by strong licensing revenue for ‘The Lord of the Rings,'” the company, headed by co-founded and CEO Lars Wingefors.
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According to Wingefors the acquisition is already ahead of “well ahead” of the business plan developed by the company at the time of the sale.
“It is encouraging to see many exciting external projects based on this incredible IP, including the recently successfully released ‘Magic the Gathering’ trading card game ‘The Lord of the Rings: Tales of Middle-Earth’, the upcoming PC/Console survival-crafting game ‘The Lord of the Rings: Return to Moria’ as well as many other exciting new products that will grow the IP further,” the CEO said of the Q1 report, which covers the period from April-June 2023.
The performance of Middle-Earth Enterprises will provide some comfort for Embracer, which announced earlier this summer it was facing a large restructuring program including lay-offs and games studio closures after a three year buying spree. As well as Middle-Earth Enterprises, the Sweden-headquartered gaming group has bought dozens of gaming and media companies over the past three years, including publisher Dark Horse Comics, Japanese animation distributor Anime Ltd and the rights to the “Tomb Raider” franchise from Square Enix.
Overall, however, the company’s Q1 results were deemed “weaker than expected” by business analysts. Operating profit for the quarter was 1.67 billion Swedish Krona ($152.75 million). Net sales for the quarter increased from 7.1 million Krona year on year to 10.5 million (an increase of 47%).
The group is still smarting from a “groundbreaking” $2 billion partnership which fell through earlier this year. While Wingefors has consistently declined to name the company, Axios reported earlier this week the strategic partner – that Embracer said withdrew from the deal, which had been months in the making, at the last minute – was Saudi-backed Savvy Games Group.
During an earnings call on Thursday morning, Wingefors was asked how he felt about the fall-out of the collapsed deal. “We are adapting, adjusting and we have left this behind us,” he said. “Personally I’ve done a lot of learning and it’s been, I have to say, painful, but as an entrepreneur you learn as you go.”
During the call Wingefors also admitted he had “made mistakes” but was looking forward to a brighter future. “I still feel people are very supportive of Embracer and are committed to the long term,” he said. “So be I. The model is getting adjusted and improved. But my long term vision is still unchanged. We shouldn’t lose the sight of the fact that Embracer remains leading group of successful entrepreneurs, creative talents and world class IPs.”
“As an entrepreneur, you are learning lessons as you go and one important belief is that you have to be open minded,” he said. “Listen and show respect of others. In the end, you have to stick to what you believe in. Stay true to your own values. In hindsight I have made mistakes, but we have also done a lot of things right. It is painful for all of us to have talent leaving the group but we are doing everything we can to avoid corporate stupidity, without changing the overreaching targets and goals.”
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