Square Enix says they want to slim down its title line up and “achieve greater diversity in our title portfolio”

Every quarter, Square Enix holds a Financial Results presentation for its investors and shareholders, as publically traded companies do. At these meetings, shareholders can ask president Takashi Kiryu about the state of the company and future plans. It’s often in these meetings that we get some direct acknowledgment about sales expectations or performance.

While Square Enix held its Q2FY2024 briefing last November, and results were already released at that time, an official transcript of the Q&A session was only put up a few days ago [PDF]. Kiryu gives several interesting answers regarding the current state of the company.

Below you can find my summary of the session. Or you can read the quoted Q&A in full below for yourself, straight up, no chaser.

SQUARE ENIX HOLDINGS CO., LTD.
Q2 FY2024/3 Financial Results Briefing Session Q&A
Date/Time: November 7, 2023 (Tue.); 6:30-7:30 pm (JST)
Main Speaker: Takashi Kiryu, President and Representative Director

Q: Do you expect a sizable profit contribution from “FINAL FANTASY VII REBIRTH,” which is due out in February 2024? What factors do you expect will add to your profits in 2H?

A: We believe that sales of “FINAL FANTASY VII REBIRTH” are the greatest variable on which our ability to achieve our full-year operating income target of ¥55.0 billion hinges. The feedback that we have received thus far on the title has been strong. As such, we do hope to see a sizable earnings contribution from it in Q4. In fact, we expect sizable earnings contributions in Q4 not only from our HD Games sub-segment but also from our Games for Smart Devices/PC Browser sub-segment thanks to “FINAL FANTASY VII EVER CRISIS,” which we launched in September. This is because of the synergies that we expect will arise between that title and “FINAL FANTASY VII REBIRTH,” as well as because of the six-month anniversary and other events that we have planned. We also hope to see a stronger performance from the MMO sub-segment in Q4 and beyond because we will be holding our “FINAL FANTASY XIV” Fan Festival at the Tokyo Dome in January 2024, which we expect will gradually build up excitement ahead of the expansion pack’s release of “FINAL FANTASY XIV: Dawntrail” in the summer of 2024.

Q: Did the progress that you made in 1H FY2024/3 toward your initial guidance align with your expectations?

A: It was in line with our expectations. To maximize our sales of “FINAL FANTASY XIV” over an 18-month period, we intend to roll out downloadable content and the PC version when the timing is optimal.

[Editor’s Note: There seems to be a typo in the Square Enix PDF here, saying “Final Fantasy XIV” instead of “Final Fantasy XVI”.]

Q: As you consider the broad strokes of your next medium-term business plan, what do you think that you currently lack but will need in order to achieve sustained growth? To fill in such gaps, would you potentially consider investments such as M&A activity or other inorganic investments?

A: I will cite two points on which I find us to be lacking. The first is the limited diversity of our title portfolio. Because we possess strong IPs like the Dragon Quest and FINAL FANTASY franchises, I believe that we have tended to be overly reliant on certain gameplay styles or genres. Meanwhile, the tastes of customers in the gaming market have diversified, and customers have come to enjoy content from a variety of genres. Moreover, blockbuster titles are not the only ones that enjoy popularity. For example, our title “POWERWASH SIMULATOR” is somewhat of an outlier in our portfolio in that it is a game well suited for casual play, but we have been able to steadily build up our earnings from it. For these reasons, I want to increase our development proficiency by strengthening our internal development capabilities so that we are able to achieve greater diversity in our title portfolio. I would also not rule out inorganic means as an option for strengthening our internal development capabilities. The second point where I see us lacking is in our marketing. Not only is content increasingly being sold digitally, but the range of devices capable of delivering content is also diversifying. I want us to establish stronger capabilities that enable us to market efficiently in that environment. Because our portfolio has included strong IPs like the Dragon Quest and FINAL FANTASY franchises, we have tended to focus our resource allocation on content development. Going forward, however, we need to strengthen our publishing function, which manages our marketing. I want to focus on putting the right capabilities in place in that domain, which will also involve some hiring. I plan to go into specifics on these two points in our forthcoming medium term business plan.

Q: What is required to execute the productivity-enhancing initiatives that will bolster the profitability of your HD Games subsegment, and how will you go about executing those?

A: At present, some of our development efforts are carried out primarily by internal resources, while others are conducted primarily by external development firms. Over the long term, we need to strengthen the internal portion of our development function. More specifically, I mean that we want to concentrate our development resources on carefully selected new titles that we will develop to a high level of quality. At the same time, rather than focusing solely on major titles, we want to also take on new challenges, partly because we want to add to the diversity of our portfolio of titles, as I noted earlier, while also enabling our developers to expand their skill sets. Through this approach, we hope to strengthen our internal development capabilities, gain greater development proficiency, and establish a development function that enables us to consistently produce highquality games, thereby bolstering our profitability.

Q: Has the way that your development function has spread to cover so many bases made controlling your development efforts more difficult?

A: It has less to do with our development function and more to do with the numerous entries in our lineup. I want to structure our development function so that we are able to ensure higher quality from each title by slimming down our lineup.

Q: Why have you been unable to slim down your lineup until now?

A: As our customers’ needs and the types of devices available have diversified, we have tried to produce hits by developing a wide variety of titles rather than by focusing only on certain ones. I believe that this has resulted in the splintering of our resource pool. Meanwhile, there have been clear winners and losers among the major titles released recently in the gaming market, and it has become possible for even indies titles to make their presence felt. The market is increasingly polarized between blockbuster and indies titles, but I feel that we have developed many titles that fell somewhere in the middle. I want to make clearer distinctions going forward.

Q: There have been 16 installments in the FINAL FANTASY franchise thus far. Do you not think that that makes for a high barrier to entry for game users who have never played any of the games in the series before? You have peers that have adapted their IP for the big and small screens. What do you think of such adaptations to other media as a way of growing the franchise’s fan base?

A: We are open to a multifaceted approach to leveraging our IP and want to explore the possibility of cross-media adaptations of the FINAL FANTASY franchise as a means of further diversifying our sources of earnings. Be it FINAL FANTASY or one of our other franchises, we want to put them in front of a global audience representing diverse age demographics through whatever channels may allow for that. We hope to include specific initiatives of this sort in our forthcoming medium-term business plan.

Q: My impression is that the market’s reaction to “Infinity Strash: DRAGON QUEST The Adventure of Dai” has been harsh. What is your take on it internally? You mentioned that you intend to transition from a product-oriented approach to a market-oriented approach. Can we expect better quality to result from a narrowing in the gap between what the market and your customers expect versus what you are delivering?

A: We have received harsh feedback from customers on “Infinity Strash: DRAGON QUEST The Adventure of Dai,” and we also acknowledge that problems exist. We think that the time that elapsed between the anime’s broadcast and the game’s release, as well as the gap between what customers expected from the content versus the game elements that we focused on as the title’s selling points, also contributed to the feedback that we received. In terms of switching from a product-oriented to a market-oriented development approach, I would note that in the case of our smart device games, we have begun to reflect feedback from customers that have played titles ahead of their releases into our development process. We are also working to put mechanisms in place that allow us to incorporate customer feedback on HD games in the initial stages of development.

Q: Has the formulation of your next medium-term business plan not produced any conflict internally? Does everyone internally share the same goals?

A: I do not believe there to be any conflict in terms of the communication between the management team and the development team. We undertook an extensive research effort that informed a quantitative and qualitative analysis of where we currently stand, followed by iterative discussions regarding what we should do going forward. We have also established trust and worked to achieve buy-in for the plan that we are pursuing by exchanging views in various ways.

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