The Embracer Group recently bought shares in Middle-earth Enterprise, now owning the company, and therefore the rights it holds regarding the Lord of the Rings. It may seem like corporate nonsense, but this could affect the games, films, and TV series currently in production in Tolkien’s universe.

We independently asked two experts, a gaming lawyer and entertainment lawyer, to break down the Embracer press release and help us all understand exactly what they own and what they mean. René Otto is a video game lawyer at Van Iersel Luchtman and is considered to be one of the leading European video game lawyers. René has founded and leads the only full-service legal team in the Netherlands which focuses on providing legal advice and (court) representation to video game companies. Stuart Smith is a leading corporate/commercial lawyer and partner at media and entertainment law firm Simkins.

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We asked them all the important questions about the changeover, and they told us what the deal is with matching rights, what the acquisition means for the Rings of Power, and why Embracer needs to be wary of creating its own Morbius.

Ben Sledge, TheGamer: 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?

René Otto: This company takeover normally should not affect current contracts with third parties, such as Electronic Arts. Middle-earth Enterprises still exists as a company and still is the contracting party for these third parties. The only thing that has changed, is that Middle-earth Enterprises has a different owner. That does not change the fact that Middle-earth Enterprises has to respect its current contracts. That being said, if the agreement between Middle-earth Enterprises and EA contains a termination option and Embracer Group desires to terminate their relationship, it could decide to make use of that possibility, of course. As the Embracer Group is entitled to the profits of Middle-earth Enterprises now, I do not see a direct reason to do that even if the possibility would be there. A termination of the relationship with EA also decreases the royalties and/or fees received. That is the financial interest mentioned.

Stuart Smith: 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.

Do you think the changeover could affect development of upcoming games?

RO: With the Embracer Group as the new shareholder, I do not expect to see any impact on currently announced games. However, one of the strong suits of the Embracer Group is that it owns a lot of video game developers, publishers and media companies. So it would not surprise me at all if these companies would develop new video games and other (trans)media products based on the Lord of the Rings & The Hobbit.

SS: 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.

What are "matching rights" for "Middle-earth-related literary works"?

RO: Middle-earth Enterprises does not own the rights to the books of Lord of the Rings & The Hobbit. Furthermore it does not own the rights to the Silmarillion and The Unfinished Tales of Númenor and Middle-earth. These rights are still owned by the Tolkien estate and HarperCollins.

However, the Embracer Group disclosed that it obtained the matching rights for Middle-earth-related literary work. This means that if the Tolkien estate and HarperCollins want to enter into an agreement with any third party regarding these literary works, they first have to disclose the terms and conditions of this agreement to the Embracer Group. Then they have to offer them the opportunity to match this offer. If Embracer Group does so, this essentially means that the Tolkien estate and HarperCollins will have to close the agreement with the Embracer Group under the same terms and conditions. This means that the Embracer Group takes the place of the initial party who negotiated with the Tolkien estate and HarperCollins, leaving that party empty handed.

SS: 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.

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?

RO: The only information I have on this subject is the publicly available information, as I do not have access to relevant agreement(s). What I understand from the publicly available information, the right to produce a TV series longer than eight episodes was always retained by the Tolkien estate. As a result, the Tolkien estate could independently enter into a deal with Amazon in 2017. If the Embracer Group actually does have a financial interest in the series, that could be due to various reasons. One of them could be that there has been a legal discussion regarding the rights to produce such TV series and a settlement was reached. Another one could be that Middle-earth Enterprises has bought these rights from the Tolkien estate somewhere after 2017 (and perhaps even in the context of the Embracer deal), so that it now is entitled to any future proceeds. This is merely speculation without seeing the actual agreements, though.

SS: 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.

Embracer mentioned its "IP-driven transmedia strategy". In your opinion, do you think we could see a 'Middle-earth Cinematic Universe' on the horizon?

RO: If that already was not the case, I believe there is certainly a chance that we will see that in the future. The Embracer Group owns a lot of strong media companies, so I believe there is a lot of potential to create a new and exciting chapter to this franchise.

SS: 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.

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