Square Enix to diversify business model

In a recent interview with Yomiuri Online, Square Enix president Yoichi Wada disclosed his plans to wean Square Enix away from its dependency on console games. The company's main drive will be to expand into the online space. It is also considering establishing a holding company, additional mergers and acquisitions, and overseas expansion---including regional development studios.

"The rise of the Internet has broken the fundamental principle of the past 20 years, where games were supposed to be played with consoles. Up until now, game machine makers such as Nintendo and Sony Computer Entertainment controlled everything, including software development, manufacture, and distribution. But now, consumers can enjoy games by connecting online with a computer or a mobile phone. Game machine makers no longer have control [over the market]," Wada told Yomiuri. "The market is shifting from console makers towards the software makers, which provide appealing games and content. In the future, only companies that can adapt to the online market can survive."

Wada said that the Japanese game market may appear to be trending downwards when only console software sales are taken into consideration. However, when online and mobile games are included, the number of game consumers is actually on the rise. "Running a business that depends on the software sales through retailers has become a thing of the past, he said. "Mobile games are only 300 yen ($2.65) a month, while games for home consoles are 7,000 to 8,000 yen ($62 to 71), meaning they generate less money. However, mobile games also have no distribution cost and can generate a large income if a consumer continues to subscribe for a long time."

Wada said Square Enix's acquisition of Taito will boost its strength in the online and mobile sectors. "We will become the largest and greatest content maker," said Wada. To exploit the new organization's full potential, the Square Enix board is pondering the creation of a new holding company, along the lines of Sammy-Sega Holdings.

Wada also revealed that he has plans to distribute mobile versions of Final Fantasy and Dragon Quest to North America, Europe, and China around the end of 2006. He explained that the overseas market is starting to catch up to Japan and that third-generation mobile phone systems, which allow for high-speed data transfers, are starting to expand worldwide. Wada stressed that the overseas market is vital for Square Enix, and he is currently considering establishing or acquiring local development studios in the United States and Europe.

"The reorganization of the game industry, beyond country borders and category of businesses, has just begun. There even are possibilities that an American company would buy out a major Japanese game software maker," said Wada. "As for Square Enix, we will continue to make alliances with other businesses, such as online payment companies and server operation companies."