Square Enix published its annual repot for shareholders and it includes a lot of details about the company’s future strategy directly from CEO Yosuke Matsuda.
Matsuda-san explains that the objective of the sales of some of Square Enix’s western studios to Embracer was to revamp the company’s portfolio of IPs and studios enabling it to be selective and focused on leveraging development resources.
He admits that achieving growth is difficult for companies that compete primarily in the Japanese market, so it’s “critical” for Square Enix to produce hit games that speak to the global market, offering greater scale in terms of customers and sales volumes.
With development efforts becoming bigger and more sophisticated the investment required is also much greater than in the past, which means that the Japanese market is no longer sufficient to generate enough sales to recoup development investment and generate profits.
As such, Square Enix has to focus its limited resources on the development of strong games.
“For our Group to better focus on developing titles for the global market in this changing environment, we need to concentrate our limited resources on the development of strong and robust titles. We need to enhance our presence in the global market by quickly establishing an organizational structure that
enables us to consistently roll out high-quality content produced through selective and focused resource allocation, which requires the revamping of our title and studio portfolio.”
Matsuda-san admits that the studios that have been recently sold made major contributions to the group, however, they were focused on developing major games, which risked to seriously cannibalize Square Enix’s financial resources over the medium to long term. That’s why the company decided to divest them in order to optimize its own resource allocation.
The second stage of this process, as Matsuda already mentioned during the latest financial conference call, is to diversify the capital structure of its studios.
This can be achieved by adding to wholly-owned studios the ability to acquire partial stakes in studios outside the group and to let third-party acquire partial stakes in some of Square Enix’s own studios.
Under that strategy, Square Enix can also engage in merger and acquisition activity to achieve a balance between growth and financial stability.
“Specifically, we would diversify the capital structure of our studios by not only owning some studios outright, but also by welcoming third parties to take stakes in some of our studios or
by our taking stakes in studios outside the Group. In this way, we would create a studio portfolio that spans a continuum from studios that we own outright to those that are equity-method affiliates or less. Under such a strategy, we would also engage in M&A activities, for example, and work to achieve a balance between growth and financial stability.”
Matsuda-san then moved on to talk about Blockchain, which has been identified as the most important factor among the AI, Blockchain, and Cloud focus identified in the company as part of its medium-term plan.
According to Matsuda-san, working with AI and the cloud in game development primarily involves incorporating new tech into the existing gaming experience. Blockchain is different as it’s not purely technological, but it lies more in its philosophical aspects around the concept of decentralization.
While traditional games are “centralized” with players enjoying games within the confines determined by developers, Blockchain games involve players exercising their own agency in creating and running the world of the games themselves. Matsuda-san believes that the concept of decentralized games and the proliferation of token economies will lead to the creation of new types of games produced unlike any anyone has ever seen before.
He admits that the field is still in its infancy and we haven’t yet seen any game providing the type of excitement only possible with blockchain technology. On top of that, there are users who view the very concept of blockchain with suspicion.
That being said, he believes that blockchain gaming holds the potential to create new forms of gaming content and that it represents a new business domain that is worth being addressed by Square Enix alongside traditional games.
Following the creation of a Blockchain Entertainment Business Division in February 2022, Square Enix will take on the field aggressively and won’t limit itself just to Blockchain games, but it will pursue a wide range of new types of entertainment.
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