THQ Nordic's IP rights depreciation costs up 90% to $36 million

The Embracer Group (formerly THQ Nordic) is spending a lot more on game development and IP rights depreciation.

@DeekeTweak
Published Sun, May 24 2020 2:43 PM CDT   |   Updated Sat, Aug 8 2020 10:29 AM CDT

The Embracer Group (aka THQ Nordic) is ramping up expenses on games development and IP rights as it prepares a massive pipeline of games.

THQ Nordic's IP rights depreciation costs up 90% to  million 5 | TweakTown.com
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While scouting Embracer Group's latest financials, I noticed some interesting things on its spending habits. Expenses on intangible assets is up quite a bit, namely with game development and IP depreciation values.

Right now Embracer is working on 118 new games and 69 of them haven't been announced. So it makes sense the company is spending more to fund these projects across its 3,000-strong team of worldwide employees.

These main expenses are counted as depreciation and amortization. D&A is a very interesting top in the games industry, and in this case, is focused on intangible assets.

An example of amortization of an intangible asset is game development costs, which are split up over a multi-year timeline (games aren't tangible, or actually real, as they're being made). Studios don't pay for game development all at once, but over time in a sequenced and schedule process of spending, and the spending typically doesn't end until months after the game ships. Amortization typically refers to assets that have a defined end period.

Something like IP rights, which last multiple years, depreciate over time (and depreciate faster if there's no new releases) because of perceived lost value. Case in point: Dead Island 2, which has been in development hell for some time. When the value of an IP decreases, it's seen as a kind of cost because the company is potentially losing money. Right now Embracer has access to over 160 IPs.

So the longer a game is in dev, the more a company will spend on amortization and depreciation of intangible assets (game dev costs and IP rights, respectively).

THQ Nordic's IP rights depreciation costs up 90% to $36 million 20 | TweakTown.com
  • Expenses - $602.07 million (5.965 billion SEK), up 11% YoY
  • Game dev amortization - $59.250 million, up 34% YoY
  • IP rights depreciation - $36.27 million, up 90% YoY
  • Total intangible assets depreciation and amortization - $145.98 million, up 64.5% YoY

Read Also: THQ Nordic now owns 163 IPs and employs 92 dev teams across the globe

Embracer's game dev amortization jumped by 34% YoY to $59.25 million due to the extra games it tacked off after Saber Interactive's buyout. Before Saber, Embracer had 92 games in dev. Now it has 118 titles. THQ Nordic also delayed big games like Saints Row V and Dead Island 2 once again, which further raises these expenses.

Game dev expenses represent nearly 10% of total yearly expenses and 41% of DA expenses.

Depreciation costs on IP rights skyrocketed by 90% to $36.27 million, likely driven by Saber Interactive's acquisition which bumped up the total IPs to 163.

IP rights depreciation makes up 6% of total expenses and 25% of DA expenses.

As of FY2020, Embracer has $592.5 million worth of intangible assets.

What does this all mean? It's just a closer look at how a games publisher/developer spend its money, and the different types of investment and planning are involved. Embracer is one of the biggest games companies insofar as pipeline, IP ownership, and development teams, and it certainly spends big on making these projects come to life.

THQ Nordic's IP rights depreciation costs up 90% to $36 million 45 | TweakTown.com
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Derek is absorbed with the intersection of technology and gaming, and is always looking forward to new advancements. With over six years in games journalism under his belt, Derek aims to further engage the gaming sector while taking a peek under the tech that powers it. He hopes to one day explore the stars in No Man's Sky with the magic of VR.

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