Square and Eidos: The History

Square's Story

The tale which leads Square Enix to this conclusion is an altogether less fraught one. Created in 2003 by a merger between Japanese giants Square and Enix, the former rivals whose RPG franchises have dominated Japan's games market for almost two decades, Square Enix has been aggressively pursuing growth ever since.

Some of that pursuit of growth has been rather unconventional, such as the firm's decision to exploit its original IP by entering the movie, TV and book publishing markets. Its willingness to branch into other media has not helped to exploit valuable IP such as Final Fantasy and Dragon Quest, it has also given Square Enix new hits - such as Fullmetal Alchemist, a manga (comic book) series published by Enix' book publishing arm and since converted into globally successful TV series, movie and game releases.

However, Square Enix' growth has also come about in more conventional ways. Facing concerns that the Japanese market is shrinking, the firm's strategy has, understandably, been to maintain revenue growth regardless - the best way to retain the same amount of shrinking pie being, of course, to increase the size of your slice. Thus in 2005, the company acquired legendary arcade game publisher Taito, and with it, the rights to classic franchises such as Space Invaders.

Last year, however, a similar deal - attempting to take over publisher Tecmo, creators of the Dead or Alive, Ninja Gaiden and Fatal Frame franchises - was rebuffed, leaving Square Enix looking elsewhere for further expansion. Overseas was a logical place to look, but Square Enix has never seemed comfortable investing heavily on foreign soil, despite the growing popularity of franchises such as Final Fantasy around the world.

This, perhaps, is why the Eidos deal was such a surprise - because Square Enix simply hadn't telegraphed any intention for major overseas expansion before it announced the acquisition bid. Yet on paper, it's hard to deny that the deal makes perfect sense for the Japanese giant.

Europe, after all, is a major growth market - and Eidos' London base provides a perfect jumping-off point for Square Enix to build its global presence, perhaps emulating the success SEGA has had with its European operation in recent years (a significant part of which, ironically, comes from publishing Sports Interactive's Football Manager following Eidos' parting of ways with the studio). Eidos' price tag is lower than Tecmo's would have been, with the Tecmo deal valued at over GBP 140 million, while Eidos is being sold for close to GBP 85 million - but the cost of bringing the company back up to speed will undoubtedly eat much of any remaining cash Square had allocated from its warchest.

The Square Enix deal is in some regards opportunistic, and I don't doubt that the extremely low value of Sterling against the Yen on the currency markets has helped to push the negotiations along. However, it also fits with Square Enix' unspoken but clear policy of expansion, and marks a bold move abroad for a company which will be hard-pressed to realise significant revenue growth in the home market in the coming years.

As for Eidos, British industry watchers who have fond (albeit typically cynical) views of the country's one-time publishing superstar will be keen to see what the Japanese company does with its new division. Relationships between Japanese and British firms, even as divisions of the same company, have not always been easy - with vastly different markets to address and major barriers in corporate culture to surmount. However, Square Enix is, in many ways, what Eidos must become to succeed - a powerhouse of IP whose attention to the perceived quality of its brands co-exists with a ruthless exploitation of the full potential of those brands. This, all along, has been one of Eidos' biggest failings - so perhaps, with a little tutelage from their new owners, we might finally see the House that Lara Built restored to its former glory.