Squaring the Circle

Square Enix, formed from a merger of RPG giants Square and Enix in 2003, is still a mighty force in the Japanese games industry, all the more so since its 2005 acquisition of arcade specialist Taito. Its Final Fantasy and Dragon Quest series are guaranteed multimillion sellers, with distinguished histories that go right back to the creation of the Japanese home console market.

But the changing face of videogames presents numerous challenges to this most traditional of Japanese publishers. As the domestic market of core gamers shrinks — and, thanks to Nintendo, the casual market explodes — Square Enix's competitors, Sega and Capcom among them, are aggressively pursuing the Western dollar (or Euro). Meanwhile, online gaming and Asian markets are growing at a tremendous rate, and an unpredictable and diverse new generation of consoles has yet to find its feet. How will Square Enix — sometimes perceived as a dinosaur — keep up?

We caught up with company president Yoichi Wada on a recent visit to London to ask him just that, and seek his views on the present and future of the games market. In part one of this exclusive interview, Wada discusses the differences between regional markets, Square's MMO strategy, and the acquisition of Taito.

Yoichi Wada: The European market is of course very big as it is, but it has great potential for growth as well. So I would like Square Enix to be stronger in this particular market. One of the purposes of this visit is to get a better grasp of what's going on in this market at the moment, and also to find out about the other main players, and how they're doing.

It's not very appropriate to talk about Europe as just one block. Each country has different customs and a different culture. The risk for us Japanese is regarding Europe as one big area; that could lead to fatal mistakes.

Each country in Europe can be different in two things. Firstly, cultural background: for example in France, Japanese animation and manga are very popular, therefore they have a cultural background where overtly Japanese character design is highly appreciated.

Secondly, we have to consider their views on technology in general: how the people of a particular country regard networked systems, and if they're prepared to look at it as a means of fun.

Yes. We would like to develop a strategy to equal the moves made by Sega and Capcom, or maybe exceed them.

Square Enix is best known for RPGs of course, but we have our own concept of the worlds we create within our games, and also they tend to be based on good storylines. RPGs tend to be seen as one genre, but it doesn't have to be so. The same kinds of concepts and stories can be expressed in action games, adventure games, even shooters. Our basic attitude to game production is that we take a lot of care, and that attitude can be expressed in any type of game.

Obviously, Asia is a huge market for us. We've already tried some online games in China, and that's going very well. But we do see a necessity to change direction a little bit, and make a fresh start, not just in China but in every country in Asia. Our strategy might be quite different in China compared to the US and EU. The same content would not be appropriate, we think.

It's haphazard growth, if you like. Nintendo has been doing really well, and DS particularly is enjoying a great boom. But when it comes to games for core gamers, it's quite weak. Sooner or later core gamers will become impatient, and there'll be a point where 'real' games will resume growth, but it's not happening at the moment. However, for core games, the European and American markets are growing at enormous speed.

MMORPG is a big genre, but it can be diversified by different means — one is the game design, the other is the payment system. With FFXI, we intentionally haven't changed the game design or payment since we launched it five years ago. But when it comes to our MMORPG games for the domestic and Asian markets, as an experiment we have tried different formulae on a quite minor scale with smaller titles, such as a per-item payment system. Following that, we have already prepared a few MMORPGs that have been experimentally played internally.

In general we regard it as a success. Nowadays, all consoles are network-compatible. When we started the FFXI project, everybody thought it was a big challenge, but now we cannot imagine a console that's not networked. Obviously the PC market is still going strong, but on the console market is even stronger, so in order to seize good market share, I think we have to be on both console and PC.

M&A is not necessarily our main method, but obviously it has to be deemed as one of the main strategy options. If we were to look for a place in the top three in the global games industry, obviously we would have to consider it seriously.

There were two strategic merits for us; the first one was financial, the other was in terms of making content.

Manufacturing game software is a bit like building a really huge building. It takes a lot of money, and for a year or even more in some cases, you cannot expect any profit. It's the kind of industry where simple physical strength is in demand. Taito, which runs arcades, can get cash flowing in; in that sense it's quite physically strong, and that was beneficial for us.

Secondly, when Square Enix was born as a result of the merger five years ago, we expected that the whole concept of games would change in three ways: input, output, and communication or networking. I think this consciousness must have been shared with Nintendo, because since then they've produced the Wii and the DS. As you know Square Enix does not produce game consoles itself, but if we have arcades, we can experiment in those areas.

We wouldn't write off the possibility, but probably not in the same way that arcades used to be. They used to have this image of being like a gambling venue. But a small section as part of a shopping arcade might work. There's no reason we should be optimistic about the future of arcades, but we still think there's a possibility that people can enjoy playing games 'outdoors' in European and American markets as well.