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Mobile revenue gravity pulls Square Enix inwards

As cash flows in from Final Fantasy titles in the Japanese mobile market, is Square Enix losing its drive to build new IP and conquer overseas markets?

Square Enix is a company that's been in the news rather often in recent weeks; from putting one of its most high profile western-developed franchises, Deus Ex, on indefinite hiatus, to announcing plans to divest itself of IO Interactive, creator of another of those franchises, Hitman. This week, too, it made headlines, bringing development of the Final Fantasy VII Remake, which had formerly been developed in part at external studio CyberConnect2, entirely in-house.

Taken as a whole, it's a slightly odd set of events but one that suggests quite a specific pattern. These moves leave Square Enix looking far more centralised in its Tokyo headquarters than previously; with both Deus Ex and Hitman facing uncertain futures, the only active franchise the publisher is working on outside Japan is Tomb Raider. It is continuing to work on new IP outside Japan - earlier this week it announced that it's publishing Bulletstorm developer People Can Fly's next title - but the centralising effect of these decisions remains undeniable.

"Being overly wary of risk isn't an uncommon malaise in games, but in this case the issue may actually be that Square Enix' wariness is perfectly justified"

Meanwhile, the enormous resources that have been locked up in Final Fantasy XV's tortuous and disastrously managed development process have finally been released along with the game itself, and the company is riding on something of a high with regard to that franchise. FFXV has been a huge success, MMO title FFXIV is about to get its second major expansion pack and enjoys a solid player base and great word of mouth, and mobile titles based on Final Fantasy have been doing pretty great business, especially in Japan's lucrative mobile market.

The decision to bring FFVII's remake in-house likely reflects a variety of factors; unless someone gets loose-lipped we'll never know if Square Enix is pleased or not with the quality of CyberConnect2's work, but we can infer that the end of work on FFXV has left the company with major internal studio capacity, and that the success of that game has re-established a degree confidence in the quality of those same internal studios.

All that be as it may; the reality is that it's a little strange to see a company in Square Enix' position sunsetting franchises and centralising development, rather than pushing in the opposite directions. It's not that the company can't work effectively with external studios on less well-established franchises - Nier: Automata, for example, won't trouble the sales of a Final Fantasy title any time soon but it's a cult hit that's comfortably in the black.

Yet looking at the status of Square Enix as E3 approaches, this feels more than ever like The Final Fantasy Company; or, in Japan only, The Dragon Quest And Sometimes Final Fantasy Company. Its only other major ongoing franchises are Tomb Raider and Kingdom Hearts, and the latter is a stretch of the word "ongoing", since its last full-strength instalment was nearly 12 years ago, on the PS2.

What's going on at Square Enix, then? It's not that this is a company that's always been adverse to new IP - on the contrary, in the past it's been a hotbed of new ideas and IP, even if it's occasionally taken the Nintendo approach of tacking the Final Fantasy or Dragon Quest name onto entirely new games in an effort at giving them an early boost of interest. The problem, it seems, is that Square Enix has become deeply risk-averse - especially on the Japanese side. Being overly wary of risk isn't an uncommon malaise in games, but in this case the issue may actually be that Square Enix' wariness is perfectly justified.

"It's precisely the dilemma which faced Konami a couple of years ago - a dilemma to which that publisher responded by going mobile-first"

The company is, after all, a pretty tough case in risk terms, simply because its recent track record in terms of controlling budgets and timeframes is utterly miserable. The internal studios to which FFVII Remake has been moved may have pushed out a couple of hits in both FFXV and FFXIV: A Realm Reborn over the past few years, but these were deeply troubled births. FFXV was in development for the best part of a decade, morphing, changing and sucking up cash all the way (it was originally meant to be a companion game to FFXIII, as you may recall); FFXIV, meanwhile, had to be shut down entirely after a disastrous original launch, only achieving its present well-regarded form after a redevelopment process which was, by all accounts, pretty much as costly as building an entirely new game from scratch would have been.

In short, if the prevailing logic within Square Enix is that the development side of things has proven its mettle and that this justifies centralising large parts of the company's efforts with those teams; well, that may be true, but investors and industry alike will want to see a fair bit more proof that the awful management practices of the past decade are truly a thing of the past. Until the company has a few more solid hits under its belt, these moves - centralising more of its franchises in Japan and more of its development in somewhat unproven internal studios - feel awfully like a company reducing its reach and withdrawing into a comfortable niche.

There is, however, an elephant in the room in all of this - the company's mobile titles, which have done stupendously well over the past few years. Drawing largely upon the Final Fantasy brand (though other IPs including Bravely Default and Star Ocean have also been utilised in Japan), the company has launched a series of increasingly ambitious mobile games which, though only moderately popular in other markets, have become serious cash cows in the hugely lucrative Japanese mobile market.

"The danger is that in the process of pursuing this vision it ends up leaving itself far too heavily reliant on a tiny number of core franchises"

It's no coincidence that the new in-house project leader on FFVII Remake will be Naoki Hamaguchi, formerly of the Mobius Final Fantasy mobile team; mobile is in the ascendancy at Square Enix, and understandably so. Why wouldn't a company that's found itself forced to wait for years in between cash injections from releases of its biggest franchise be drawn to the warmth of titles that provide a steady, significant cashflow from month to month?

If that logic sounds a little familiar, it's because it's precisely the dilemma which faced Konami a couple of years ago - a dilemma to which that publisher responded by going mobile-first, albeit in a way so grotesquely poorly orchestrated and communicated that it almost felt like a deliberate attempt to alienate its consumers and creative staff. Konami is now a publisher almost entirely focused on mobile, its console efforts restricted to its regular, reliable sports franchises and a thus far slightly half-hearted effort at keeping the cadaver of the Metal Gear franchise warm. Lots of people don't like that decision, and far more people didn't like the way Konami handled the transition, but the business case was undeniable.

Square Enix isn't about to follow along that path - it's a different company with a different culture and very different leadership - but what we're seeing now is almost certainly its own reaction to the same business conditions that drove Konami's choice. The cash-cow nature of the company's mobile Final Fantasy titles casts its console efforts in a very different light; no longer do they stand alone as games that need to make a return on investment. Now they also have to be "events", major tentpoles that boost the profile of their IP in order to drive interest, uptake and sales in the ongoing mobile games that provide the company's baseline of revenue. Square Enix isn't quite there in financial terms just yet, but it sees what the future looks like - a landscape of mobile punctuated by the occasional towering peak of a massive console release.

The danger, of course, is that in the process of pursuing this vision it ends up leaving itself far too heavily reliant on a tiny number of core franchises. A while ago I noted that if any major media firm needs to establish a presence in games in the coming years (with the Disney/Pixar/Marvel/Lucasfilm behemoth being the obvious candidate), Square Enix might be the most appealing independent publisher out there in acquisition terms. That's probably not what the company itself actually wants, but at the same time, no executive wants to make decisions that destroy potential value, and the thinning of Square Enix' IP portfolio could do just that.

It's great that mobile is securing the company's finances and that Final Fantasy has come out strong after years of development hell across multiple projects - but the unusual richness of the Japanese mobile market and the local strength of a couple of core IPs can distort reality a little. If Square Enix wants to grow and succeed, it will need to widen its view again.

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