Partner Stuart Smith examines Embracer’s acquisition of Middle-earth Enterprises and its implications for future Lord of the Rings and The Hobbit projects
1. How will the acquisition affect games? For instance, EA has some kind of rights to make LotR games, and Embracer mentions Heroes of Middle-earth as a "financial interest." Is the difference for EA just that it is licensing the LotR rights from a different company?
In the short-term, the deal shouldn’t affect any LotR games that are already available or in production. In order to develop Heroes of Middle-Earth, EA licensed the LotR rights from Middle-earth Enterprises, and so that license most likely remains in place as it is now, with the only difference being that the licensor is now owned by Embracer rather than Saul Zaentz Co. Going forwards, however, Embracer will presumably not further license the rights to third parties, in favour of having its own development subsidiaries create new LotR games.
2. Do you think the changeover could affect development of upcoming games?
As above, it shouldn’t do, provided the licence terms in relation to games already in development are being complied with. If any licensees are not complying in a material way, Embracer may be more inclined to consider termination than Saul Zaentz Co. might have been, but unless any rights were licensed to third parties exclusively for a certain of period of time, trying to an end an existing deal earlier is likely to be more trouble than it's worth.
3.What are "matching rights" for "Middle-earth-related literary works"? Is that the right to adapt future books etc. or something else entirely?
Middle-earth Enterprises only owns rights in relation to The Lord of the Rings and The Hobbit, and does not currently own rights to Tolkien’s other works set in Middle-earth: The Silmarillion and The Unfinished Tales of Numenor and Middle-Earth. The matching right seemingly already existed, and means that Middle-earth Enterprises has the right to match an offer that the Tolkien estate receives from a third party for the rights to adapt those other Middle-earth works. There seemingly hasn’t been much interest in licensing these rights up to now, but this could be particularly important if Amazon’s The Rings of Power increases people’s awareness of these other tomes. How this plays out will depend on exactly what the matching right says, but in principle, it means that, if anyone else wants to acquire rights in those works, they will have to be confident in being able to out-bid Embracer.
4. How will the acquisition affect the Rings of Power? Embracer says that it has that "financial interest" in the TV show, but I believed Amazon negotiated directly with the Tolkien estate because of an infamous loophole where Saul Zaentz Co. didn't own the rights to TV shows of more than 8 episodes? Are you able to shed any light on that situation from a legal perspective?
As you note, my understanding is that Middle-earth Enterprises never owned the rights to adapt LotR or The Hobbit into a TV series of more than 8 episodes, and that Amazon’s licence comes directly from the Tolkien estate. I suspect that this is just clever wording on Embracer’s part in their press release, and that they mean that they now have financial interests in Middle-earth as a setting, and so will benefit passively through increased interest related to The Rings of Power.
5. Embracer mentioned its "IP-driven transmedia strategy". In your opinion, do you think we could see a 'Middle-earth Cinematic Universe' on the horizon?
It certainly sounds like this is Embracer’s ambition, given the prominence of the reference to movies based on LotR characters in the press release. It remains to be seen how successful this will be, however. This deal leaves the rights in an even more fragmented place, as the LotR and The Hobbit adaptation rights are now owned by a business that can, and likely wants to, use them directly itself, but which doesn’t have the rights to the most famous visual interpretations of those stories. If Embracer wants to connect its games and other products to the Peter Jackson movies or The Rings of Power series, it will need to do deals with New Line Cinema or Amazon, and even if that happens, the devil will be in the details. A deal along those lines would be similar to the one between Sony and Marvel in relation to Spider-Man characters, and while that has produced big hits with the movies featuring the web-slinger himself and Venom, Embracer should pay close attention to what didn’t work so well for Morbius.
Stuart's comments were published in TheGamer, 24 August2022, and can be found here.