Square Enix Reportedly Sold Its Western Studios Because They Were "Cannibalizing" Sales, Long-Term Plan To Improve Finances In Motion

In May, Swedish company Embracer Group acquired Square Enix's Western studios for $300 million, including Crystal Dynamics, Eidos Montreal, and Square Enix Montreal, which at the time was quite the 180° alongside the Japanese publisher's push into the NFT space. However, in a financial reporting conference call on August 5, Square Enix reportedly said the reason behind selling the three studios stemmed from them "cannibalizing" sales from other developers so it could "improve capital efficiency."

"Cannibalizing" is a specific word to describe the decision and was used by Senior Analyst David Gibson at MST Financial. According to Gibson, the conference call for investors discussed the 1Q financial results by Square Enix that ended on March 2022 and dove into why the Western studios were sold earlier in the year to further the company's long-term plan to improve its finances.

Square Enix's long-term plan going by "Phase 2" is to sell stakes in some of its studios - with some remaining 100% owned - to bulk up its development fund with zero debt. They're expecting a whopping $1.4 billion after selling stakes and the Western studios that'll easily cover its $840 million development costs.

3) Phase 2 you say? Rising development costs of making games means with 100% owned studios, they need to be selective and concentrate resources, which limits expansion

— David Gibson (@gibbogame) August 5, 2022

Gibson stated it was quite an "extraordinary" plan that'll likely be popular with shareholders for a short while but may have long-term detrimental effects on Square Enix. Though, supposedly Phase 2 will see Square Enix allocate resources mainly to its Japanese titles, which is arguably their strong suit as a company.

Still, their 1Q results revealed the company's net sales and operating income are down due to a "decline in earnings from new titles." The "MMO savior" Final Fantasy XIV is rising on a year-on-year basis and pulling up Square's decline, but titles such as Final Fantasy XVI, Forspoken, and whatever NFT strategies they have planned is anticipated to jump up their financials in the coming quarters.

Do you think Square biting down hard to push out Japanese titles is a good move despite pushing out notable Western studios? Let us know below!