Square Enix is also concerned that Crystal Dynamics and Eidos will “cannibalize” sales of other games.
A few months ago, Square Enix sold Eidos, Crystal Dynamics and Square Enix Montreal to the Embracer Group for a small price. These are profitable studios that have made critically acclaimed games like Tomb Raider and Deux Ex before, and there’s a good chance they’ll do it again.
Earlier today, Square Enix discussed the latest financial results for the sale on a conference call.Analyst David Gibson participated in the call and Provided a summary on Twitter (pass VGC) This is really eye-opening.
As it turns out, Square Enix isn’t necessarily concerned about the profitability of the studio itself, but more about how games like Tomb Raider and Deus Ex will impact the financial performance of Square Enix’s other brands.
“The sale of Crystal Dynamics/Eidos was driven by concerns that these games would eat into the sales of the rest of the group, so it could improve capital efficiency,” Gibson wrote, adding that the sale is only the first of Square Enix’s master plan stage. The second phase will involve “diversification of studio capital structure”, which will begin with a review of its studio portfolio. This could lead to more studios being sold in part or in full, with Square Enix expecting its European and US studios to be the most affected. Square Enix then planned to reallocate resources to focus on its Japanese games.
Gibson also offered his own expert opinion on Square Enix’s plans. What he finds interesting is that it plans to sell the studio, while Sony, Tencent, Nexon, etc. are all looking to buy. He also finds it interesting that Square Enix has $1.4 billion in cash and no debt following the sale of Crystal Dynamics and Eidos, making it wonder why publishers would spin off profitable studios.
“An extraordinary decision by management” Gibson wrote. “Shares love it in the short term (+9% today), but in the long term…”
Square Enix also mentioned plans to “build a new studio” and maybe even make acquisitions while divesting overseas operations. This could mean that Square Enix is looking to acquire more Japanese studios, or it might just want to look good before selling itself to a bigger Japanese company.
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