Embracer's CEO States Layoffs Are "Something That Everyone Needs To Get Through" As Company Misses Q3 Targets

2023 was not a kind year for anyone working in a studio connected to Embracer Group and 2024 has not been any better. They extent of the group's layoffs have been astounding and this week the company issued a "Q3, OCTOBER-DECEMBER 2023" update that details the extent of some of their cuts. In it, the company's leaders concede to shareholders that they have laid off 8 of their global workforce and reduced the number of Embracer studio game projects from 224 to 179. The authors of the report indicated that its scaling back efforts, which resulted in over 1,000 people losing their jobs in 2023 alone, was reaching "the final stretch of the program, which is focused on both possible divestments, and consolidation." The company saw near universal sales gains, but admitted that they had missed their Q3 operating profit estimate, which many are saying indicate that even more layoffs are coming.

Now, the company's current CEO, Lars Wingefors, has been making statements to try and ally concerns from shareholders. First, he stated that everything Embracer would do in 2024 would value the interest of shareholders and that "Our overruling principle is to always maximize shareholder value in any given situation." He also noted "As part of the restructuring program, Embracer still has a few larger structured divestment processes ongoing that could strengthen our balance sheet and further reduce [capital expenditure]."

Finally, during a Q&A session with Embracer shareholders Wingefors made the following statements about what he thinks led to Embracer's current debt problem as well as how the company should view layoffs in general:

I think looking at the 8% reduction in workforce [at Embracer], there is obviously – I don't know the number for the whole industry, but I think it's something that everyone needs to get through. I mean, as I said, it's more driven by the overinvestment in the previous years because everyone just put all capital into gaming and perhaps a bit too much capital in a few instances.

I think everyone has been delivering according to those plans. The thing is, in the capital allocation, we put organic first, meaning the first investment came to organic growth, which we now see the outcome of. And then secondly, we made M&A.

So it's kind of, okay, we had that strategy back then. Now, we need to adjust that, because the cost of capital has increased. So it's just the overinvestment into content that is not supported by the cash flow from the operations or external capital. You can debate. You can debate the speed we went to build organic growth, but the ambition was obviously to aggressively organically grow the company. Now, we need to adjust for that and that's basically the core of the issue that we are addressing here.

Also, here are a few graphs and screencaps that @sgtsphynx shared with me on Discord to keep things in a very important context.

Crazy how so many issues in the industry stem from "overinvestment". Now, time to take a big sip of water and see what all those people who made such a strategic blunder, clearly in other jobs, are doing now...

the ambition was obviously to aggressively organically grow the company.

This whole statement is full of lies and bullshit but I wanted to pull this one out. That does not, in fact, seem to have been the ambition. The ambition was to more or less sell the company to the Saudis.

I understand that the worst part of the statement is his acting like layoffs are just a thing that happen and that happen to everyone in the company while his job and the jobs of his cronies are safe (and they've extracted enough cash they don't even need those jobs) but other people's lives are upended because they're just figures on a computer screen to him.

But to me almost is bad is all the lying. A lot of people were questioning the long term planning of Embracer Group while all this was happening. We were confused as to how they expected to make money off all these AA games (which is mostly what they make) while everyone else was exiting this business. We wondered if they had some secret sauce of keeping costs down or finding an underserved marketing niche or whatever. And they (meaning the talented people getting laid off, not the worthless executives) did put out some pretty good products, including remakes like the Destroy all Humans games and Battle for Bikini Bottom. I was actually excited to see that someone had cracked the AA formula again (to be fair companies like Annapurna and Focus Entertainment actually seem to have done so.)

And they hadn't. It was a house of cards designed to appeal to the House of Saud. And here's this guy just spouting a bunch of lies about how they were focused on organic growth blah blah blah and overinvestment happened and it's all so passive and...

If all this stuff just happened then what were you doing as CEO, my guy, and why do you deserve to remain in that position?

evergreen:

Somebody gotta at least throw a tomato at this motherfucker.

This is the eternal question none of these executives will answer. They all act as if they are victims to their gambles going wrong but they were the ones in charge when these decisions were made in the first place so ultimately it should be on them if things don't go well.

For our whole lives, we've been told that CEOs and other corporate executives get the exorbitant pay they receive because they have extremely high pressure jobs where they are accountable for decisions that could cause the company problems and potentially harm workers. Yet for the last 15-20 years, we seldom have seen any executives in American companies truly suffer consequences when they make massive mistakes or mismanage their company. In the tech and games industry layoffs of the last two years, we've only seen a small handful of executives face consequences for what was clearly an extremely dangerous and stupid gamble (Nadella and Pichai are still CEOs of Microsoft and Google respectively despite both companies laying off tens of thousands of workers over the last two years, for example. Both were running those companies in 2020 when they did the stupid bet that 2020-style growth would continue perpetually). The executive class has essentially transferred all accountability onto the workers of companies while those workers had no say in what the company did at all in the first place. When things go wrong, the workers suffer while the executives still get paid excessively for what was supposed to be the extra personal risk and pressure associated with the job.

@ben_h: The claim I have seen most often is that CEO is a really hard job that requires incredible skill to do well so you have to pay them a lot of money to get or retain good talent. It makes more sense than the "it's just so emotionally tough to be a CEO" argument because there are lots of jobs where you have much higher stakes but get paid less. Think Fauci or other public health officials during the pandemic, knowing that their decisions could save or kill tens of thousands.

Of course it raises the question of why you should keep or continue to pay a CEO who performs poorly. It makes sense to pay Patrick Mahomes a lot of money because very few people can do what Patrick Mahomes can, but if your QB sucks you aren't going to re-sign him, at least not for a huge amount. Yet CEOs stay on even when they absolutely suck.

The reason for this is that CEOs have been enabled in stacking the board with cronies and other CEOs who have an interest in high CEO job security and pay.

It's worth noting this is not a US company we're talking about here. It's not just a US problem, though arguably it's the worst here.

I really hope that company settles the fuck down at some point. They gorged themselves over the pandemic and now here's the purge. It is wild how uncomfortably large that group looks.