The Lord of the Rings and Tomb Raider brands will be part of a new Stockholm-listed, “IP-led” entertainment business.

Fellowship Entertainment is being formed through a company split at Embracer Group, which owns the underlying IP rights to The Lord of the Rings, The Hobbit and Tomb Raider among other brands. Embracer will divide into two publicly-listed businesses trading out of Sweden: Fellowship and a new-look Embracer.

The Embracer Group chair and key shareholder, Lars Wingefors, described the Fellowship assets as “among the most undervalued in the industry” in a letter to shareholders explaining the split. The company has restructured several times in recent years, and made staff cuts as it seeks to find a way forwards.

Fellowship will oversee the Lord of the Rings IP and numerous games franchises. It will begin trading in Q1 of the full year 2026-2027, and will focus on game development, publishing and licensing. The latter element will encompass IP management across games, film, consumer products and other areas.

In total, the company will include 4A Games, Crystal Dynamics, Dambuster Studios, Dark Horse Media, Eidos-Montréal, Fishlabs, Flying Wild Hog Studios, Gunfire Games, Middle-earth Enterprises, Redoctane Games and Warhorse Studios. It will also launch a publishing arm, consolidating the assets from Plaion and other parts of the current Embracer Group. Current net sales for the new group are SEK4.39B ($467M), and headcount is currently 2,169.

The new-look Embracer will focus on supporting more entrepreneurial companies, including companies such as Vertigo Games, IP including Destroy All Humans! and Titan Quest, and licenses for brands including Hot Wheels Unleashed and SpongeBob SquarePants. The division will have net sales SEK11.54B ($1.23B) and headcount of 3,518.

Embracer Chair Lars Wingefors said: “This separation is about sharper management focus and clearer accountability, giving each business the structure and leadership to realize more of its full potential. I am truly excited about Fellowship Entertainment’s prospects to organically grow substantially over the coming years.”

Embracer CEO Phil Rogers and COO Lee Guinchard will move to become the CEO and COO of Fellowship, along with CFO Müge Bouillon, who also becomes deputy of the current Embracer from today. A recruitment process for a new CEO and CFO for Embracer has begun. 

“Our direction is clear: to build a more disciplined group with two distinct businesses, each with a mandate and a structure that supports transparency and execution,” said Rogers. “I am confident that this is the right path forward to deliver long-term value for our fans, our businesses and IPs, our people, and our shareholders.”

The news came as Embracer unveiled Q4 results that saw net sales fall 24% year-over-year to SEK3.91B, even though the entertainment services unit that currently houses Lord of the Rings and other major brands grew 23% to SEK1.7B. Adjusted EBIT fell a huge 64% to SEK360M.

Embracer has gone through a series of operational changes and cost-cutting measures over recent years, and Wingefors admitted today in a letter to shareholders that “it has been difficult to easily communicate the Embracer story” due to various different elements of the business. It has already spun off two businesses, Asmodee and Coffee, and formed Middle-earth Enterprises & Friends to house the likes of Lord of the Rings, which was acquired for almost $400M in 2022.

“The main rationale to spin-off Fellowship is to increase management focus to capture the full joint potential of the IPs, their respective communities and some of the best game developers in the world,” said Wingefors. “Just like Asmodee and Coffee Stain, we believe Fellowship Entertainment will thrive the most by becoming its own standalone business.

“I think the assets held by Fellowship Entertainment are among the most undervalued in the industry and I feel it’s my duty as the largest shareholder to change this and create a structure to realize their full potential. I’m convinced that Fellowship Entertainment could reach industry leading profitability and show healthy long-term organic growth above the industry average.”

Wingefors also claimed Embracer had tried to retain staff during its struggles. “Even if, for some, we have become closely associated with industry layoffs, the reality is that we have worked hard to retain as many people as possible through a very difficult period, while balancing the needs to drive a profitable business operation,” he added.