Opinion: Embracer's plan for The Lord of the Rings is bad for everyone

As the sun rose on the Western world of video games today, the minds behind Embracer's endless array of acquisitions stood up, stretched their arms, and announced that it was time to close studios, lay off employees and become a "highly cash-flow generative business."

This news didn't come with any context as to which studios would be closed or what employees would be laid off, so, if you're an employee at an Embracer-owned studio reading this, I can't imagine what you're going through. CEO Lars Wingefors has chosen the path of least accountability in a move that will reward the decision-makers who decided to make so many expensive investments and punish the people who make the games that bring in the money. What a familiar story.

Whenever investors decide to make employees pay for their poor decisions like this, it's inevitable that the corporation's business plan will turn toward the conservative. The business demands for surer bets and predictable revenue are part in parcel with such contractions, and the entire entertainment world lately seems to have decided that its enormous vaults of "content" and intellectual property are more valuable than nurturing talent or planting the seeds for new successful stories.

It's not a model for long-term success. But Embracer is going all-in on it by shifting studio priorities to make games based on J.R.R Tolkein's The Lord of the Rings.

This is a very bad plan for Embracer, its employees, and audiences alike. Here's why.

The Lord of the Rings has a mixed financial track record

In a call with investors held earlier today, interim executive Matthew Karch told investors that the company wants to go all in on "exploiting" The Lord of the Rings (which it now owns thanks to the acquisition of Middle-earth Enterprises).

"We own Lord of the Rings, and we know we need to be exploiting Lord of the Rings in a very significant fashion and turning that into one of the biggest gaming franchises in the world," Karch said. "That's a much better use of resources than some of the other projects that some of our teams have been working on. Working together we have those opportunities and we're super excited to see that working relatively quickly."

Again, if you, dear reader, are an Embracer employee who now has to hear that a Lord of the Rings game is a "better use of resources" than the project you were working on, then you have nothing but my greatest sympathies. Karch's comments would be cruel on the best of days, and these are not the best of days.

Anyone who loves Tolkein's books would be gutted to hear it referred to as something to be "exploited" but you don't need to be a carefree Hobbit to see the folly in such a plan. Corporations have been trying to adapt the venerated saga (which has sold over 600 million copies as of 2021) for nigh over 50 years and while there have been astronomic successes—they don't come as fast or frequently as comparable franchises.

Let's rattle them off. Ralph Bashki's 1978 animated film adapting the first half of the trilogy was a financial success at about $32 million in gross revenue on a budget ranging from $4 to 8 (maybe 12) million, but doomed to cult classic status by chaos around creative personalities and the rights to the project. Peter Jackson's live action trilogy grossed almost $3 billion at the box office on a budget of $281 million, and its massive success made the beloved book series a household name.

His follow-up adaptation of The Hobbit into a trilogy also grossed almost $3 billion across three films, but on a budget of $745 million (and a far less positive reception). I would love to offer some data on Amazon's live-action series The Lord of the Rings: The Rings of Power, but I can't because Amazon doesn't share those numbers. All I'll say is that a series that cost about $60 million an episode probably isn't a hit if less than half of audiences finish the show.

Warner Bros. Games set out on its own quest to "exploit" The Lord of the Rings with Monolith's "Middle-earth" series—and it's shockingly hard to dig up reliable sales data on the series. When Middle-earth: Shadow of Mordor released in 2014 to critical acclaim, it sold 2.45 million units over nine weeks. At $60 MSRP we can conservatively guess it grossed $147 million in that time period.

A LinkedIn posting from a former WB employee claimed Middle-Earth: Shadow of War sold over 3 million units in its first year—a comparable but not earth-shattering expansion over the first game. Napkin math tells us that's about $180 million in revenue over that time period, though Shadow of War debuted with controversial in-game microtransactions that probably brought in some extra revenue before eventually being removed from the game.

Elsewhere, the long-running MMORPG The Lord of the Rings Online "doubled" its revenue after shifting from a subscription to free-to-play model in 2010, and is still going strong. In fact in 2022, the game saw its highest number of peak concurrent players since the game was released on Steam in 2012. Standing Stone Games deserves nothing but praise for nurturing this niche MMORPG for such a long period of time.

So that's seven films, two triple-A video games, and one MMORPG as the most successful business ventures spun off from this book series. (I want to give a tip of the cap to Electronic Arts' games based off The Lord of the Rings movies, but they need to be lumped in with other licensed products based off the films).

Across fifty years of attempts to "exploit" this book series, that's not a strong track record. If I just pick a comparable property (ugh) like Batman, you're looking at 10 films, multiple animated series, a string of commercially successful comic book runs, and four triple-A video games. That's before you count the rest of the DC Comics library, which has expanded itself organically as artists and writers conjure new characters and storylines that are eventually adapted into bigger and bigger projects.

(Are those writers and artists fairly compensated for such efforts? Signs say no.)

And that track record looks worse when you consider the legal and production hellhole that doomed adaptation after adaptation until Jackson finally knocked it out of the park.

In theory, Embracer has finally stabilized the status quo around the adaptation rights by outright buying Middle-earth Enterprises—it really hasn't! Tolkien's estate still owns the rights to his own expansions of The Lord of the Rings story: The Silmarillion and The Unfinished Tales of Numenor and Middle-earth. All efforts to "expand" the world of Middle-earth are drawn from what's discussed in the books and the appendices at the end of The Return of the King.

I want to stress this point: the efforts to monetize The Lord of the Rings have grown so elaborate that Amazon dumped hundreds of millions of dollars into effectively adapting an appendix. Embracer does not have a living world on its hands: it has two stories beloved by audiences across the world, and a rich text of references that help make those stories feel alive.

That's great. Embracer would do well to go to the studios in its portfolio and work with them to make great games based off that story. It is not the foundation for "one of the biggest gaming franchises in the world."

Embracer risks losing sight of why Tolkien's work is so beloved

A part of me wanted to stop writing there. To just make the business case for why going all-in on Tolkien is a bad move with a bad track record, and hope that would make my case.

But it is not enough. You can't talk about The Lord of the Rings as just a business property. It is a story whose voice rang out for over fifty years without expansion or meaningful adaptation. Audiences picked up the books, fell in love, and passed them on to reader after reader. Led Zeppelin's Robert Plant cared little about rights when he wrote Ramble On, Over the Hills and Far Away, and Misty Mountain Hop. The series' influence on fantasy writ large was so strong that Dungeons & Dragons publisher TSR Inc. had to remove references to Hobbits, Balrogs, and Ents from the first printing of the book.

Still not enough! The Lord of the Rings is not just beloved because it's a template for adventuring parties out to save the world from the forces of evil. It's beloved because of the overwhelming emotions on display in Tolkein's prose and Jackson's filmography. It's a story that celebrates a love for the natural world and heroism from the unlikeliest of champions. And yes, Tolkien's love of worldbuilding and language fueled a rich tapestry of fictional history for his characters to reference.

You don't automatically acquire those traits in the exchange of property rights. You get the symbols of those traits, the proper nouns, and the revenue streams, but the traits are preserved in the work itself and the people who make them.

Somewhere in here I originally had a notion to write about how the qualities that make the Lord of the Rings special have already fled Embracer's grasp. The fantasy genre is so touched by this work that the company's competitors are effectively telling stories in the same world—they've just swapped those proper nouns around and let fans fall in love with new worlds like that of Dragon Age or The Elder Scrolls.

But The Lord of the Rings is still special! It's a shockingly direct way for readers to touch the consciousness of one John Ronald Reuel Tolkien, a British academic and soldier who survived World War I before going on to translate medieval texts like Beowulf and Sir Gawain and the Green Knight. In the adaptations of his works, we've been lucky enough to feel the influences of other creative minds like Bashki, Jackson, and the countless artisans and actors who worked under their direction.

Maybe that's why it feels gut-wrenching to read about Embracer executives talk of the power of The Lord of the Rings while promising to upend the lives of the people who make its games. You don't get fantastic Lord of the Rings experiences without people. And if you run around purchasing game studios filled with creative minds, then jettison their work and tell them to go all-in on making The Lord of the Rings, you run a very big risk of throwing away the spark that might get you a truly special video game.

I will call my shot now: Embracer's Lord of the Rings projects will stumble and trip about before they find commercial success. I don't think its planned MMORPG will hit the dizzying highs of World of Warcraft and it will be lucky to attract a community as loyal as The Lord of the Rings Online's.

There is one path where the company might find success. If it chooses to adapt the entire Lord of the Rings trilogy into a new game it has a shot of assembling a creative team that can make the story work in an interactive format. But that is a very big, very expensive, and very risky project. I have no doubt that management and investors will want more reliable returns from free-to-play games and in-game monetization.

They will do this claiming that the world of Middle-earth is a rich and vibrant space where players can make their own adventures. But players don't want that. They don't want to run up against a wall that says "this part of Middle-earth is still owned by the Tolkien estate." They don't want to make a character that has to play second fiddle to Aragorn, Frodo, Gandalf, and Eowyn.

They want the feeling they had when they first read the words "In a hole in the ground there lived a hobbit." You can absolutely recreate that feeling in an adaptation, but Embracer's business plan doesn't seem like it will.