Square Enix has revealed that its sale of three studios earlier this year was intended to stop those studios from cannibalizing sales from other developers. As such, the sale was decided on so as to improve the efficiency of capital generation within the company.
So Square Enix sold studios to stop them from stealing sales from other studios?
Apparently, yes. Earlier today, Square Enix held a conference call (handily summed up on Twitter by analyst David Gibson) for investors to discuss financials recently released by the company. According to Gibson, Square Enix told investors that it decided to sell Crystal Dynamics, Eidos Montreal, and Square Enix Montreal to Embracer Group earlier this year to prevent them from "cannibalizing" sales (that's Gibson's word, not Square Enix's). In addition, Square Enix says that the sale is part of a longer-term plan to improve its finances, with that plan also involving selling stakes in its studios. It's not quite the total acquisition postulated by ex-Eidos CEO Stephane D'Astous, but it's still startling news.
According to Gibson, although Square Enix says it will sell stakes in some of its studios, others will remain 100%-owned. After the sale of the three aforementioned studios, Square Enix expects to have around $1.4 billion in cash for development and zero debt, which should more than cover its $840 million development costs. As such, Gibson calls the decision to sell stakes in studios "extraordinary" and suggests that while it might be popular with shareholders in the short term, this decision might have detrimental long-term effects on Square Enix. We'll have to wait and see.
How is Square Enix doing financially?
Recently, Square Enix shared information regarding its financial results for the first quarter of the fiscal year ending in March 2023. The company says net sales and operating income are down year-on-year due to a "decline in earnings from new titles", but that paid subscribers for Final Fantasy XIV rose on a year-on-year basis (which makes sense given that the content cycle for recently-released expansion Endwalker is still in its early stages). Despite this decline, Square Enix says net income at the company was up in Q1 2022-23 due to "foreign exchange gains". It's well worth taking a look through the full Square Enix presentation if you want a deep dive into the company's financials.
As well as its slate of upcoming games, which includes the hotly-anticipated Final Fantasy XVI and the recently-delayed Forspoken, Square Enix also has plans to expand its blockchain and NFT strategy, so expect to see much more Web3 nonsense emerging from the company in the coming months. It's unclear exactly how Square Enix's plans will affect gamers, but it's safe to say that projects like Final Fantasy XVI and Forspoken, at least, are safe, so if you're looking forward to those, these plans shouldn't change much. We'll bring you more on this as soon as we get it.