Daedalic Entertainment was founded in Hamburg in 1990 and built a reputation as one of Germany's most respected game developers, known for story-driven adventure games like the Deponia series and The Whispered World. The studio was acquired by French publisher Nacon in 2022.
The company decided to pivot from its successful adventure game niche to develop The Lord of the Rings: Gollum, a AAA-scale action-adventure game. The team had only 85 employees — roughly half the size of a typical AAA development team. The game was released in May 2023 to overwhelmingly negative reviews, criticised for buggy gameplay, dated graphics, and poor performance. It became one of the lowest-rated games of the year on Metacritic.
The commercial failure was immediate. Nacon, which had acquired Daedalic specifically for the Gollum project, announced the closure of Daedalic's development division in June 2023, just weeks after the game's release. Twenty-five of the company's more than 90 employees were laid off. Daedalic survived as a publishing label only, ceasing all internal game development after more than three decades.
Bet the studio on a single Lord of the Rings game with 85 people, half a typical AAA team; Gollum's failure cost 25 jobs and closed the development division.
Daedalic attempted to build a AAA game with a team half the size of what the genre required — a strategic overreach from its adventure game roots into a completely different production scale.
The Lord of the Rings: Gollum was greenlit and developed without the technical expertise or quality assurance processes needed for a AAA title, resulting in a critically panned product.
Nacon's acquisition strategy bet on a single game — when Gollum failed, the acquirer had no reason to keep the studio running as a development house.
A 30-year track record in adventure games did not transfer to the AAA market. The studio's core competence was narrative design, not large-scale action-adventure production.
A studio's reputation in one genre does not prepare it for another. Going from adventure games to AAA action-adventure with half the team size is not ambition — it is a gamble with careers.
Daedalic Entertainment continues as a publishing label under Nacon. The company's internal development history, which began in 1990, ended in 2023. The Lord of the Rings: Gollum was delisted from digital storefronts shortly after the closure announcement.
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