Heads certainly turned when, on May 2, Square Enix and Embracer Group announced a $300 deal that would see the Japanese publisher relinquish several of its key studios based outside of Japan, in addition to the IP rights to series like Tomb Raider and Deus Ex, for what many interpreted to be below market value.
Just a few months after the games industry had seemed to enter a golden age of megalodon-sized companies expanding their reach by scooping up other big fish, with Microsoft and Sony acquiring Activision Blizzard and Bungie respectively, Square Enix looked to be doing the opposite. As many social media users openly asked, why would you give up several studios and their relatively successful franchises, only to jump headfirst into volatile and controversial fields like NFTs and the blockchain just as those sectors hit hard times?
In isolation, pending another huge deal to make the streamlining worthwhile, Square Enix’s move looks a little like lunacy. However, if you put it into the context of the publisher’s tumultuous decade-plus battle to successfully expand beyond its native land, things might begin to make a little more sense.
The Aftermath of the Eidos Purchase
The year is 2009. Lady Gaga’s ‘Poker Face’ is dominating the UK charts and Square Enix is doing some gambling of its own, forking out roughly £84.3 million to acquire Eidos Interactive. With several decently successful studios as subsidiaries, including Crystal Dynamics, Eidos-Montreal, and IO Interactive, Eidos Interactive had been identified by Square as a prime candidate to help the Japanese publisher expand onto the global stage.
Following a July 2009 merger, Eidos became part of Square Enix Europe, essentially making concrete the geographical vision the publisher had laid out in a corporate strategy presentation upon committing to make the deal. No longer would the publisher be relying solely on its traditional staples of Final Fantasy, Dragon Quest, and Kingdom Hearts, having seemingly swooped in to acquire Eidos at the moment the latter’s stock price hit rock bottom. Square’s global golden age, boosted by the historical brand value of newly acquired IPs like Tomb Raider, Hitman, and Deus Ex, seemed to be just getting started.
As it turned out, the next few years wouldn’t be particularly smooth sailing, with the publisher only bouncing back from a disappointing financial loss in 2011 via the unexpectedly huge success of Deus Ex: Human Revolution. Despite this, global domination was still the aim as of 2012, with Square Enix boss Yoichi Wada banking on a new IP in Sleeping Dogs, plus rebooted versions of Tomb Raider and Hitman to drive the company onwards and upwards. This strategy, sadly, bombed. The arrival of 2013 saw all three of those games fail to hit the lofty sales figures that Square had predicted for them. Wada was forced to resign due to the resulting 13 billion yen loss and the publisher committed to spending around ten billion yen on major reforms to stop the same from happening again.
The man tapped to take Wada’s place as president was Yosuke Matsuda, whose proposed solution to the financial woes plaguing Square’s releases might offer the first historical hint towards the eventual changes in the publisher’s financial priorities symbolised by the Embracer deal. The problem for games like Sleeping Dogs, described Matsuda during Square’s 2013 financial briefing, is that games of its ilk generally only have one real chance to make money, this being upon release. So, Matsuda argued, game development should strive to financially mirror Kickstarter, by giving players more say in a game’s evolution in exchange for money, allowing games to make profits both before and after release. These comments didn’t really lead to anything at the time, but they certainly are interesting in hindsight.
Failed Mobile Expansion and the Marvel Deal
The next few years for Square Enix were more stable, with the publisher avoiding any direct repeats of 2013’s disaster. However, its global expansion efforts continued to hit problems, with new mobile studios in India and Latin America both being shuttered not too long after their openings, with issues including disagreements between the new studios and Square Enix’s Japanese management being cited among the reasons that these investments, once viewed as long-term, barely got off the ground. Following these setbacks, the next big move the publisher made with regards to its non-Japanese studios came in 2017, via the signing of a deal with Marvel that would see both Eidos Montreal and Crystal Dynamics develop games based on The Avengers.
Even though Sega had previously struggled to make Marvel games profitable, this looked like a good opportunity for Square’s overseas studios to prove their worth to the still sceptical higher-ups in Japan, with Marvel’s cinematic universe being in the process of boosting the popularity of the entertainment company’s superheroes. Instead, this deal, which quickly saw Square Enix have to sell off studio IO Interactive and the popular Hitman IP to free up resources, arguably marked the point at which the remaining studios acquired in the 2009 Eidos deal entered their last chance saloon.
You see, while Crystal Dynamics and Eidos Montreal were working on Marvel's Avengers and Marvel's Guardians of the Galaxy respectively, Square Enix was beginning to get involved in a controversial sector that it now seemingly believes can give it the kind of lucrative revenue structure Matsuda eluded to all those years prior. This time the new fad being touted as the mighty solution that would secure Square’s future prosperity wasn’t Kickstarter, but blockchain-based gaming.
Square Enix’s chosen test case for the new philosophy it was looking to adopt was The Sandbox, a Roblox-esque mobile game by developer Pixowl that had started life all the way back in 2012 as a fairly normal title. However, in 2019, The Sandbox received a huge blockchain-inspired makeover, courtesy of a Hong Kong-based company named Animoca Brands, which had acquired it in 2018. Square Enix was among the companies that contributed around $2 million in cash and cryptocurrency towards the building up of this new version of the game.
A Controversial Vision for the Future
Fast-forwarding a couple of years, by 2021 it was clear that the Marvel investment wasn’t going the way that the publisher intended, with President Matsuda openly discussing his disappointment in Marvel’s Avengers and declaring Crystal Dynamics “the wrong fit” to develop the game. Just a few months later, the Embracer deal was made, and pretty much all of the studios acquired in the 2009 Eidos acquisition designed to take Square Enix global were no longer a part of the publisher. In their place, as outlined in Square’s recently released 2022 financial reports, is a plan to achieve a similar level of global standing via the highly controversial and currently collapsing mediums of NFTs and the blockchain.
Square Enix is partially putting its financial future in the same boat as Snoop Dogg, Avenged Sevenfold, and The Smurfs, all of whom have also partnered with The Sandbox. The fact the publisher would rather return to square one with regards to those globalisation goals it set back in 2009, by investing solely in its Japanese studios in addition to unproven and risky initiatives that might pay dividends at some point in the future, seems, for now, to reflect a step backwards.
I just hope that Square Enix’s decision to do so, even if it makes sense in the short term, doesn’t lead to more turbulent financial waters down the road.