After a strong year following the completion of of its acquisition of UK Publisher Eidos, Square Enix is positioning itself to take advantage of the next evolution in the home console business. But unlike the format holders and other publishers, it doesn't see motion controls, CPU upgrades or 3D as fundamental shifts in the market.
Instead, the company is looking towards networked services as the next true evolution of the business, allowing publishers to interact more closely with consumers. In this exclusive interview with GamesIndustry.biz, global president Yoichi Wada talks about the role of services, why he'd like format holders to relax restrictions on current offerings, and hints that the company is currently in the midst of planning its own alternative to services already on the market.
Q: Square Enix posted very successful full-year revenues and profits last month, with a majority of success attributed to the Japanese market. What measures is Square Enix taking to increase sales and success in the other two key markets of Europe and North America?
Yoichi Wada: If you look at sales of our games, 56 per cent of our business is from outside of Japan. This fiscal year it will be even larger, with 77 per cent accounted for by the market outside of Japan. This is for packaged software only and if you look at MMORPGs the market is even more diversified so it is not totally dependent on the Japanese market.
When you look at Square Enix as a whole you can see that there are several business segments and some of them are for businesses only in Japan, so it looks as if Square Enix is a very Japanese company, however, if you look at the games business we have already achieved a very good balance of Japanese, American and European markets. In our amusement and publication segments the numbers are large and the revenues are high, but we only do these kind of businesses in Japan, so it looks as if Japan is the dominant market for us but if you look at the games or the mobile we are very well-balanced in different markets.
Q: There's two big trends at E3 this year. One is motion control and other other is 3D. Where do Square Enix' interest lie in those technologies and how do you see them advancing the industry?
Yoichi Wada: Basically these technologies will stimulate the consumer market, so as a game company we welcome these new trends and the next step will be for us to create new games that will work on the different platforms or with different technology. But be it Microsoft, Nintendo or Sony, the announcements they are making this time are not the kind of technology that will definitively change the industry itself. So I think it is only an extension of the existing trajectory, if you will.
Q: Do you see the Move and Kinect motion controls extending the lifecycle of the current Sony and Microsoft hardware?
Yoichi Wada: I think there will be that impact, what the motion controls and other new technology will do is extend the lives of the consoles, but they themselves are not the true battlefield. The true battlefield is the respective network services that support consoles, whether or not they can truly establish these network services will have the definitive effect on the future of games consoles.
Q: What would Square Enix like to see in terms of network services for the home consoles, and how can these better serve the publishing community?
Yoichi Wada: First and foremost I would like them to come up with a network infrastructure that will allow the publishers like us to freely design different business schemes. For the publishers the advantage of the networks is that it allows more types of diversified revenue models and I don't want their networks to interfere with that.
Q: Sony in particular is suggesting that stereoscopic 3D is the next evolution of home entertainment, and a more significant leap from standard definition to high definition. Would Square Enix agree with that, and what it is the company's feelings about adopting 3D in the home?
Yoichi Wada: On a long term basis I think it will have a huge impact but on a short-term basis I don't think it will have any effect. What I'm trying to say is would the customers buy it just because it's 3D and end up paying the premium for that? Would they buy a game they have never heard about or never seen just because it's 3D? No, it's not that easy, so you can't expect that kind of a short term impact. However, on a long term basis there will be solid growth and in fact one of our research and development themes we to include 3D. Whenever we hear about the new 3D models we will make sure we run some experiments with that.
Q: You're saying that the technology advancements for home consoles that we're seeing now are only incremental upgrades?
Yoichi Wada: This is how I look at trends in games. What's inside the games consoles, like the CPUs, this has been quite advanced already today. But the biggest gap was seen a little more than ten years ago, when Sony came up with the PlayStation. Since then, so many things have already been added that I think it has almost reached the upper limit. No matter what they do, I don't think there can be any more added affect or significant impact with game consoles.
With game console input, Nintendo's DS and Wii had a dramatic effect. What was announced with Kinect is just a small extension to what is already available. So it has also reached a point where something different has to happen for next level disruptive technology. Unless Kinect becomes the interface like the one we have seen in Minority Report or it becomes so advanced that it reads brain waves, technology has jumped so much already we can't think of anything more that can be added to that.
A little further away from games consoles is the output such as 3D. True 3D is not the 3D that you can see inside the screen, it has to come out and jump out at you like a hologram. 3D today is not bad, but only so-so.
The true value added goes further and further away from the games consoles. This is still in the infant level and has the biggest room for dramatic innovation there. The innovation that we hear about during this E3 are only minimal additions to the existing technologies. What is not visible today is the quiet change that's taking place at the network level.
Q: Would Square Enix be interested in developing their own delivery methods along the lines of Valve's Steam platform or an equivalent on home consoles?
Yoichi Wada: If you're asking me if Square Enix is interested in creating a certain type of platform, my answer is yes. But it would not be the kind of platforms that you have mentioned in your question.
Q: What kind of ideas are you interested in exploring at Square Enix, how would a digital delivery service created by Square Enix work?
Yoichi Wada: What we are interested in is the layer or level closest to our customers, those that form communities. Anything below that level is something either we could do or we could take advantage of somebody else's technology and whatever it is we will choose the most efficient means to get there. The closest image I can think of is Valve's Steam service. But I do not want to end up fighting with Valve or the game console manufacturers and as a diplomat and ambassador I will not be saying anything that will offend them.
Yoichi Wada is global president of Square Enix. Interview by Matt Martin.