The Fall of Square Enix: A Retrospective On What Went Wrong and What Needs to Change

The gaming industry seems to be in the “awkward teen” phase of its evolution. Straddling the line between adolescence and adulthood, it tries to be everything to everybody, leading to an identity crisis. Publishers still obediently answer to their investors (parents) and developers are forced to maintain the status-quo for fear of getting the axe (social stigma). For an industry that lives and dies on the independent creativity of those who inhabit the space, this sense of anxiety could very easily become a death sentence.

A publisher/developer that seems to perfectly exemplify this self-conscious attitude and inability to be the “person” they truly are, is none other than Square Enix.

Although the brand is near and dear to my heart, Square is dreadfully lacking in anything that resembles a clear vision of what the company needs to be. This has all come to a disappointing apex over the past few years, reducing the corporation to a shell of its former self. With a huge shakeup in the works at the company, Square Enix has finally seemed to acknowledge that they are going down the wrong path, but will they be able to do enough to right a ship that is woefully off course?

I truly hope so, but before attempting to find solutions to the problems, we have to look at the causes. The factors behind this dreary financial situation are complicated to say the least, so finding out how and why they strayed from their winning ways may shed some light on how to remedy the situation.

Prior to looking at what went wrong, lets start with the current state of Squenix. Simply put, It’s not good. Just look at their expected/actual sales numbers for their last 3 AAA-titles:

Sleeping Dogs
Actual: 1.75 million units
Expected: 2 – 2.5 million units

Hitman: Absolution
Actual: 3.6 million units
Expected: 4.5 – 5 million units

Tomb Raider
Actual: 3.4 million units
Expected: 5 – 6 million units

Although all three were well-received from a critical standpoint, these failures to hit targets prove that their outdated revenue model and reliance on super expensive western-titles have created an extremely precarious financial outlook going forward.

Add these numbers with other worrisome indicators like the fact that the most profitable game for Square in the past decade has been Final Fantasy XI, an MMO title that garners little attention outside of those who play it; an anemic debut from Dragon Quest X (500,000 first week units and no traction  in North America); rumors that the big-budget Thief is in development hell; and a dramatic sales drop of their flagship RPG franchise, Final Fantasy (even after going multi-platform), and it is easy to see that Square is between a rock and a hard place.

All said, Square is at the lowest point in its 30 year lifespan.

c3bg5jixgaijuvb

Now to the interesting part…Why did this happen? The answer, although complex, but can be partially summed up using three similar words: overcompensation, overthinking and oversaturation. Notice a theme?

Lets start from the main turning point in the company’s history. A vast majority of gamers will point directly to the 2003 merger between Squaresoft and Enix as the beginning of the end, and they are predominantly correct.  Although we need to keep in mind that there are many other factors involved that made this merger a problem in the long -run.

Most people, at the time, thought the partnership was a no-brainer. These individuals expected the two companies to become instant bedfellows, perfectly complementing each other. This was not the case.

Even with the slow-burning disaster that ensued, the partnership actually did start out rather well. Much of this had to do with the fact that little shake-up initially occurred from an employment standpoint. Although Enix was the “surviving company” (i.e. Square stock was converted into Enix stock), 80 % of Square employees stayed on board, and the company continued to operate at a high level for several years.

But they were unable to keep up this momentum.Why? Simply put, the leadership in place overcompensated. They thought the merger would produce a bountiful yield in terms of market growth, and felt as though they needed to keep up with this expected surge by creating as many business opportunities as possible. They overstepped their bounds big time.

Lets look at a quick run-down of some of their larger failures:

  • Acquired Taito Corporation in 2005 for too much money, bringing in a company whose last major achievements were Space Invaders and Bubble Bobble.
  • Hastily moved into the wireless market with the acquisition of UIEvolution, Inc
  • Broke contract with Soft-World International, leading to an expensive lawsuit against Square
  • Their planned takeover of Tecmo was stymied
  • Complicated their corporate structure by transforming into a “holding company” (owns shares of other companies, does not produce goods) and spinning off the gaming, contents and publishing business.
  • Major push to social networking games and apps for cell phones in 2011 (after the biggest financial loss in company history), even though Square developers had not worked in this area previously.

All of these moves, up to this point, have served absolutely no purpose. As a way to contextualize these missteps, we can look to Hisashi Suzuki, the former Square boss from the golden era, who claimed (rightly) that the total value of publicly traded stock is not higher than it was before Square joined with Enix.

According to Suzuki, “The merger was a complete failure. There’s no vision for the future.”  In this case, the latter sentence is most telling.

A huge amount of effort was expended by the Board of Directors and Executives to grow and diversify their company, but they lost sight of one extremely important thing, the one thing that made them a success in the first place: the quality of the games they produced.

Not only were they focusing too much on the biz dev side of things, the development timelines and budgets for their existing titles grew bloated, slowing their ability to profit on a consistent basis. Clinging to an archaic business and revenue model, they refused to change their ways.

This included the insistence on using only in-house engines, coding everything from scratch. This is not usually a bad thing by any means, but when you realize that Enix does not have an internal development studio to help out, you have one group who has to shoulder more and more of the workload, seriously impeding progress.

With these long development cycles, the second major issue came about: overthinking. I believe TOO MUCH thought went into their titles, and in doing so, muddling their effectiveness in the process.

wallpaper_sephiroth_1920x1080

This all came to an unfortunate pinnacle with Final Fantasy 13, one of the most utterly disappointing titles I have ever had the displeasure to experience. Everything about the game screamed “polish” but the concept was so convoluted, and the gameplay so linear, that no amount of beautiful visuals could ever hope to save it. A bit melodramatic? Maybe. But for someone who has cherished the FF series, this was brutal to see.

Not only did the title bomb critically, it also painted the company into a corner because they invested way too much in this world. FFXIII Versus XIII-2 and now XIII-3 (Lightning Returns) all got stuck in no-mans land because Square went “all in.” without an exit strategy.

This serial tendency to overdo it seemed to be a corporate policy, with former CEO Yoichi Wada himself once saying, “it’s very difficult to hit the jackpot, as it were. Once we’ve hit it, we have to get all the juice possible out of it.” That is an understatement to say the least. Unfortunately, they have not hit jackpot for a long time now, but they are still trying to get all the “juice” possible out of their titles, creating another problem in and of itself: oversaturation.

Pushing what has worked in the past is only viable if you can bring something new to the table, but all Square has been able to do is bring a lot of mediocre titles with the skin of their predecessors. Of course, this deluge of spinoffs have not included what fans really want: true sequels and HD remakes of their classics. Why not? It is because they are scared. Scared trying to beat what they did in the past will destroy their company.

This claim that Square is fearful does not seem to make sense at first, but when you think about it, this is the philosophy of an organization that simply does not have the confidence or swagger to  bring the fans what they want, because they never think they can recover from it. This is a mindset that will annihilate creativity and lead companies into a vicious cycle of generic thought and weakness. Dune author Frank Herbert put it well: Fear is the mind killer. Well, Square sums this up perfectly at this point.

So, according to my records,  Square Enix has overcompensated, overthought, and oversaturated their market consistently throughout the past decade, leading to their current state of affairs. Add these factors with a fearful company plauged with a lack of innovation, and you get a non-starter that will never succeed until it finds the courage to press on and create.

So what can be done to stem the bleeding?  From a business perspective, Square is already on top of it. The weak numbers, along with unknown internal issues, led to CEO Yoichi Wada, resigning from his post.

This move is part of a larger restructuring effort within the company. Current chief, Square President Yosuke Matsuda, outlined his new business plan by stating the following to investors in their most recent conference call:

“After having succeeded the important role as the president, I plan on reviewing all Square Enix duties, business and assets on a zero-based budgeting standpoint. Due to the radical change of environment, I’d like to fundamentally review what works and what doesn’t work for our company, then cast all of our resources towards extending what makes us successful and thoroughly squeezing out what doesn’t.”

Basically, this means that the company is cleaning shop and moving their focus towards a leaner business model, getting rid of everything that was not working. All told, it looks like Square will stand to lose $106 Million in the restructuring, which will affect development policy, organization structure and business models.  But any new business model will be all for naught if they are unable to continue creating excellent games.

massive-square-enix-games-sale-slashes-prices_bufy-1920

Now let’s put on our thinking caps and try to find the gaming solution to their long-term issues. If I had my way, I would sharply reduce the amount of titles the company is working on, and focus on developing a limited number of new IP’s while taking what has made them successful in the past and re-engineer this process in a simple, yet innovative fashion.

Square must also open communication and dialogue with their fans as opposed to operating in a bubble. Capcom has started the process of seriously taking their fans opinions into account, and I guarantee this will end up being a huge benefit in the long run for Square’s Japanese peer.

True Square fans want a fresh JRPG experience that can be seen as a step forward without trying to reinvent the wheel. I say forget the “Western” sensibilities that have plagued development over the past ten years and work on variations of what has made Square an industry behemoth. They should keep the Deus Ex and Tomb Raider series going, but the main development focus should be placed on their primary areas of expertise.

It is perfectly okay to use what has succeeded in the past as long as you don’t rely on these ideas as a crutch, and instead use them as inspiration. Maybe that is part of the issue. The developers over the past 10 years have shown a demonstrable lack of inspiration, which has resulted in weak original IP’s and rehashing as opposed to re-imagining.

Nobody will fault Square for trying to reignite what made them a powerhouse…. Actually, quite the opposite. People are ready for them to get back to basics, and now is the perfect time to remember what made them such an important part of the gaming landscape. With big changes being made within Square, lets hope they can summon Phoenix and rise from the ashes.

But just like we have seen throughout this article, what good will any of this do if leadership continues to drop the ball. Without the right management in place, there is no amount of vision or foresight that can help right the ship. So until we see leaders in place that who are effective, Square Enix is simply polishing the brass on the titanic.

Advertisements

One comment

  1. rob1337 · · Reply

    Correct the Final Fantasy XIV Online support on Xfire, the ffxivgame.exe changed to ffxiv.exe, and the path to game, or add new Fantasy XIV Online as Fantasy XIV: A Realm Reborn. thx

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: