A huge gaming company, Embracer Group, is showcasing the dangers of irresponsible consolidation

Image of Piranha Bytes games with a closed sign
Rumors are swirling of the closure of Piranha Bytes as another example of Embracer Groups financial mismanagement. (Image credit: Piranha Bytes)

Update January 22nd, 2024 - Today Piranha Bytes made a post on Twitter (X) talking about the state of the studio. They explain that the studio is going through a difficult time but they are doing everything in their power to stay open and keep making video games. Check out the post below. 

See more

Even with this new information from Piranha Bytes, the situation facing Embracer Group still remains the same, and the video game industry should still be wary of reckless consolidation. 

It seems like there isn't a month that goes by that we don't hear about another round of layoffs or studio closures from Embracer Group. One of the biggest ones was the closure of the Saints Row developer Volition. Last week we covered Embracer Group doing personnel cuts at Tiny Tina's Wonderlands support studio Lost Boys Interactive. There have also been reports of Embracer trying to sell off Gearbox. There have been dozens of other reports of layoffs that we haven't covered. Reports from people being let go from Eidos Montreal and Crystal Dynamics have also hit the news waves over the past 6 months. Timesplitters developer Free Radical Design was also closed down right before the holidays in 2023. 

This starkly contrasts with Xbox, which is continually trying to hire new talent and grow its longstanding and newly acquired studios. That being said, it would be naive to think that Xbox will always be this invested in its gaming arm, and if nothing else Embracer Group should be seen as a cautionary tale of the dangers of overzealous consolidation. 

Is Piranha Bytes studio closing?

The most I've been able to find on this topic so far comes from a Twitter(X) post summarizing a German podcast, gamespodcast.de. Check out the post from @oysterFAKE

See more

If the information coming out of the podcast is true, it seems like the studio is on its last legs. The tweet explains that there has already been a termination letter sent out and "all staff have been laid off." While the games that Piranha Bytes make are a bit outside of my wheelhouse, I've heard of them before, and they represent a huge part of gaming history. 

It's hard to know what the financial situation was for many of the studios that were picked up by Embracer Group during the COVID-19 Pandemic. It's possible that these studios were on the verge of shutting down due to the many difficulties during that time. It is disheartening to see so many long-standing and prolific studios being shuttered due to bad planning and management. 

Why is Embracer Group laying off employees and closing studios?

Embracer Group has been sharply cutting costs since the company missed out on a $2 billion deal with an undisclosed party.  (Image credit: Embracer Group)

Back in April 2023, Embracer Group was being discussed as one of the most deep and attractive gaming companies in the world. It had upwards of 100 studios and had purchased the rights to the Lord of the Rings and other huge IP and studios, and it seemed obvious that all of this mass acquisition was leading to something. Many speculated that the CEO of Embracer Group, Lars Wingefors, was planning to bundle this all up and sell it to an interested 3rd party. 

However, in May of 2023, everything changed. Lars Wingefors stood up and blatantly explained with emotion and frustration that the company had lost a $2 billion deal that they had bet the entire future of the company on. Stock shares plummeted 40% and the company has little chance of recovering. 

Is consolidation in the video game industry bad?

Activision Blizzard character heroes

Many have cheered as the acquisition of Activision Blizzard and King by Xbox was finally approved, but is consolidation really a good thing? (Image credit: @Klobrille on Twitter (X))

I'm not a Sith, and so I don't like dealing in absolutes. To say that all consolidation is bad would be just as erroneous as saying that the weather in Florida is always nice and sunny. We all know that from time to time there will be hurricanes. The issue at hand here is that a company taking on the livelihood of hundreds to thousands of employees better have a hurricane preparedness plan ready. I'm hopeful that Xbox does have such a plan, but it seems that the Embracer Group not only wasn't ready for the fallout of a disaster but should have had the foresight to see this $2 billion deal falling through as a possibility. 

Microsoft of course hasn't been immune from layoffs and restructuring of its many divisions. That being said, there have been global layoffs in the last 2 years as companies deal with the economic downturn and return to a pre-pandemic workforce. However, from an outside perspective, the downsizing at Embracer Group looks to be much more aggressive and impactful than the layoffs that have taken place at Microsoft. 

Diablo 4

Will ABK titles flourish under the new Microsoft ownership? (Image credit: Windows Central)

I believe that if Activision Blizzard and King were not purchased by Microsoft, those studios would have become a shell of what they are. They have already suffered immensely due to the horrible leadership of the upper management and Bobby Kotick which even led to an investigation by the state of California for sexist work practices. 

Employees were holding nearly weekly strikes asking for the CEO to resign his position, and gamers all over the world were boycotting Activision Blizzard and King games due to their geopolitical choices. 

To remind us all of just how bad the ABK situation was, here is an excerpt from our very own Jez Corden discussing Bobby Kotick back in 2021. 

Kotick is a guardian of the status quo, and is not the leader Activision Blizzard's talented and passionate developers and staff need, nor deserve. His position is tarnished to the point of irredeemability, and I have no idea how you can have someone wholly devoid of trustworthiness heading up one of the biggest gaming employers on Earth. The only way Activision Blizzard moves forward from this is an utter top-down cleanse of its money-first executive layer and board of directors, who are actively putting profits before the human beings they employ. Even before these most recent revelations, and as I wrote before, it's far past time for Kotick to resign. I am echoing Polygon, and in support of Blizzard staff who have already begun walking out: Bobby Kotick must resign.

Jez Corden - Nov 17th, 2021

All of that changed when the Xbox acquisition was announced. Employees had hope that they could finally have a positive work culture and maybe get back to making games they love instead of being forced to push forward the massive machine of Call of Duty.

Phil Spencer has kept his promise, and Bobby Kotick is no longer affiliated with ABK. While the risks of consolidation are still there, the benefits to this acquisition for Microsoft, Xbox gamers, and especially the employees of ABK far outweigh those risks.

Should we expect more Xbox acquisitions in the future?

Will Microsoft keep acquiring studios to add to its portfolio, or is ABK the last big spend?  (Image credit: Jennifer Young - Windows Central)

Before the horror show that was the FTC and CMA's attempt to upend the ABK acquisition, Phil Spencer made it clear that Xbox was not done growing. 

If it turns into acquisitive M&A work, we are active there too,” Spencer said. “So the work for us never ends. It is a competitive market and I want to make sure Xbox is at the forefront of innovation and competition.”

Phil Spencer via CNBC

I do believe Xbox is looking to find new and exciting opportunities to bolster its first-party offering. Game Pass is a machine that needs content to succeed, and there are so many studios that are struggling and could use a lifeline from Xbox. Eidos Montreal and Crystal Dynamics come to mind as perfect candidates, as does Stalker 2's GSC Game World. 

I don't think Microsoft will look to purchase another publisher until there is a significant change in the FTC and CMA leadership, but that will ultimately be a decision for Xbox lawyers and experts to make. The FTC is still fighting Xbox on the ABK merger even though it has been finalized. 

I think there is still room in Microsoft and Xbox's house for a few more studios and maybe one more publisher, but at the same time I want to prove that they have the resources and management ability to handle Bethesda, ABK, and the other handful of studios they have acquired in the last 6 years. 

Should consolidation in the video game industry continue?

Marvel's Avengers developer, Crystal Dynamics, was scooped up by Embracer, but has since been affected by layoffs.  (Image credit: Square Enix)

I think Xbox should be careful with future acquisitions. Xbox fans would love for Xbox to bring more and more games to Game Pass, but there is always a chance that the gaming sector could face a downturn, especially if the global economic conditions continue to worsen. A way to protect the gaming industry as a whole would be clauses in these studios' buyout contracts that make it impossible to close down entire studios.

We saw Blizzard kill a legendary studio in Vicarious Visions a few years ago and moved all of those developers into other studios. This kind of move should never be an option. Even if the IP still belongs with Blizzard the culture and respect that a studio like Vicarious Visions has disappeared from the world.

The old adage 'don't bite off more than you can chew' seems to apply to this situation. PlayStation recently purchased Bungie and within just a year of the acquisition laid off roughly 100 people or 8% of the studio.

I think acquisitions are likely to start to slow down in the video game sector due to lowering sales and the economy as a whole slowing down. The only issue with that is independent studios will still shut down as they aren't able to stay afloat. The truth of consolidation is that there will always be risks and downsides, but if we see another rising star like Embracer Group come around purchasing dozens of studios without as much as a road map for the company's future, hopefully, we will raise concerns before it is too late. 

What do you think about industry consolidation? Do you think it is a net positive or a net negative? Let us know in the comments. 

Colton Stradling
Contributor

Colton is a seasoned cybersecurity professional that wants to share his love of technology with the Windows Central audience. When he isn’t assisting in defending companies from the newest zero-days or sharing his thoughts through his articles, he loves to spend time with his family and play video games on PC and Xbox. Colton focuses on buying guides, PCs, and devices and is always happy to have a conversation about emerging tech and gaming news.