Shalini Nagarajan

Square Enix has ambitious plans for 2023, a year it hopes will mark a “major evolution and transformation.”



The Japan gaming giant, best known for developing video game franchise Final Fantasy, has plans to take stakes in “promising businesses,” whether they’re based at home or overseas.



Japan has been openly exploring the integration of Web3 technology into government systems, with Prime Minister Fumio Kishida saying in a <a href="https://www.kantei.go.jp/jp/101_kishida/statement/2022/1003shoshinhyomei.html" target="_blank" rel="noreferrer noopener">speech</a> that the country wants to expand the use of Web3 services utilizing the metaverse and NFTs. 



Square Enix has three investment focuses this year, but the priority area is blockchain entertainment.



“Looking externally, I think it is fair to say that blockchain gained significant recognition as a field in 2022, as evidenced by ‘Web 3.0’ becoming a firmly established buzzword among businesspeople,” company president Yosuke Matsuda said in a <a href="https://www.hd.square-enix.com/eng/news/2023/html/a_new_years_letter_from_the_president_3.html" target="_blank" rel="noreferrer noopener">letter</a> released Sunday.



He acknowledged that the digital entertainment industry has been threatened by a variety of factors that transpired after the pandemic, such as soaring inflation and stock market chaos in the tech sector.



The chip shortage, one of the major consequences of the supply chain disruption during the pandemic, has significantly tightened the gamer’s hardware supplies and subsequently affected the business.&nbsp;



Still, Matsuda expects things to change by early spring this year.



<blockquote class="wp-block-quote is-layout-flow wp-block-quote-is-layout-flow">
“Blockchain has been an object of exhilaration and a source of turmoil, but with that in the rearview mirror, we hope that blockchain games will transition to a new stage of growth in 2023,” Matsuda said.
</blockquote>



Square Enix also plans to hone development capabilities by growing its team and focusing on creating titles with a more global edge.



The company will be moving away from a model where its Japan-based and Western publishing organizations worked independently of each other, to a single global organization Matsuda called, “One Square Enix.” This move aims to “capture as much of the upside as possible from the digital shift.”&nbsp;



Last year, Square Enix <a href="https://blockworks.co/news/gaming-giant-square-enix-sells-major-franchises-to-fund-blockchain-initiatives" target="_blank" rel="noreferrer noopener">sold $300 million worth of intellectual property</a>, including some of its foreign studios, to fund its blockchain plans.



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Gaming

Japan’s Square Enix Circles Blockchain Gaming Investment

David Canellis

<div id="highlights-block_627170bbced7e" class="highlights">
 <ul>
 <li>Square Enix will funnel money from selling major gaming franchises to invest further in blockchain-powered gaming</li>
 <li>The company has played a role in the blockchain gaming sector since 2018 and now enters a “full commercialization phase” after a successful NFT proof-of-concept</li>
 </ul>
 
</div>



Japanese gaming giant Square Enix has sold $300 million worth of intellectual property tied to major franchises &#8220;Tomb Raider&#8221; and &#8220;Deus Ex&#8221; — alongside a number of its foreign studios — in favor of funding its blockchain initiatives.



Swedish game maker Embracer Group, formerly THQ Nordic AB/Nordic Games, scooped the trove of assets, which include whole subsidiaries Eidos and Crystal Studios, as well as more than 50 titles, including “Thief.”



The two subsidiaries generated a combined $170 million of revenue in the fiscal year ending March 2021 — up 21% — which translated to $3.85 million in profit, according to Square Enix’s press release Monday&nbsp;



Embracer Group is well known for its acquisitions. Its <a href="https://embracer.com/about/" target="_blank" rel="noreferrer noopener">website</a> boasts control of more than 850 franchises across 119 studios, with popular titles “Borderlands” and “Saints Row” under its wide umbrella. It disclosed $3.4 billion in assets as of March 2021, and its market value is currently $7.46 billion.



Square Enix expressed a desire to align its overseas business lines with its offerings out of Tokyo, “with the goal of maximizing the worldwide revenue generated from future titles launched by the group’s studios in Japan and abroad.”



The Shinjuku-headquartered firm was, however, vague about blockchain, simply stating that the deal “enables the launch of new businesses by moving forward with investments in fields including blockchain, AI, and the cloud.”



<h3 class="wp-block-heading">Square Enix plots “full commercialization phase” powered by NFTs</h3>



Square Enix has flagged its intent to tap potential benefits of blockchain in shareholder letters dating back four years, <a href="https://www.hd.square-enix.com/eng/ir/library/docs/180511/page08.html" target="_blank" rel="noreferrer noopener">stating</a> in May 2018 it would invest “aggressively” to make use of the technology.



In his 2019 New Year’s address, President Yosuke Matsuda <a href="https://www.hd.square-enix.com/eng/news/2019/html/7e02fb3d678dcdbb79dff7223bf32028.html" target="_blank" rel="noreferrer noopener">noted</a> non-cryptocurrency blockchain applications had risen out of crypto mania the year prior.&nbsp;



Matsuda was referring to NFTs, long before the most recent surges in popularity associated with CryptoPunks and Bored Apes. CryptoKitties was the premiere NFT (non-fungible token) project at the time.



Two and a half years later in November 2021, Square Enix <a href="https://www.hd.square-enix.com/eng/ir/pdf/22q2outline.pdf" target="_blank" rel="noreferrer noopener">detailed</a> what it called a successful blockchain proof-of-concept.



The company had just launched a suite of NFT digital cards under the “Shi-San-Sei Million Arthur” <a href="https://shisansei.million-arthurs.com/" target="_blank" rel="noreferrer noopener">brand</a> in partnership with third party NFT studio double jump.tokyo. The NFTs, deployed on the LINE blockchain, powered a free-to-play digital card game that echoed “Magic: The Gathering” and “Hearthstone.”



“In addition to the sort of content creation we have traditionally engaged in, we will focus on blockchain games premised on token economies as a form of decentralized content,” Square Enix said at the time.&nbsp;



Square Enix expressed a desire to make blockchain a pillar for the company moving forward by integrating token economies into its games, although secondary sales of “Shi-San-Sei Million Arthur” NFTs <a href="https://shisansei.million-arthurs.com/shop" target="_blank" rel="noreferrer noopener">aren’t</a> currently supported.



<figure class="wp-block-image"><img decoding="async" src="https://lh3.googleusercontent.com/dBlY-sg2GC-4iQNaurpPAxEdgjhDMHWXszBEqpphHC0YjmLpzrXw2E1gh9NM8iDWPhRCoxr0MCMGvomhp9Ba8SEgZPTEAqZ7HkZALukobVM_w10qrLt-nnW--pvJlwQtFV-Z5QcdBvWKEe7d8A" alt=""/><figcaption>Source: <a href="https://www.hd.square-enix.com/eng/ir/library/pdf/22q2outline.pdf" target="_blank" rel="noreferrer noopener">Square Enix</a></figcaption></figure>



The most recent “Shi-San-Sei Million Arthur” mint boosted the total number of NFTs distributed to 3,376, according to notes on the game’s website. It’s not clear how much revenue was generated. 



Square Enix’s persistence in expanding its blockchain-powered offerings runs in stark contrast to a number of game studios that have backtracked NFT enthusiasm in response to criticism, including “S.T.A.L.K.E.R 2” developer <a href="https://www.polygon.com/22841151/stalker-2-nft-content-canceled-reaction#:~:text=%E2%80%9CBased%20on%20the%20feedback%20we,tokens%20for%20its%20shooter%2FRPG." target="_blank" rel="noreferrer noopener">GSC Game World</a>, <a href="https://www.theverge.com/2022/2/1/22913110/team17-worms-nft-metaworms-gaming-playtonic-overcooked" target="_blank" rel="noreferrer noopener">Team17</a>, and “FIFA” creator <a href="https://kotaku.com/nfts-ea-fifa-madden-apex-legends-crypto-scam-loot-boxes-1848467337" target="_blank" rel="noreferrer noopener">Electronic Arts</a>.



Execs from <a href="https://kotaku.com/reggie-fils-aime-nintendo-blockchain-nft-animal-crossin-1848855120" target="_blank" rel="noreferrer noopener">Nintendo</a>, <a href="https://gamerant.com/take-two-interactive-nft-integration-comments/" target="_blank" rel="noreferrer noopener">Take-Two</a> and Ubisoft (among others), though, have expressed hope for the future of NFTs in gaming – indicating that crypto-native studios could have stiff competition moving forward. Although, the latter’s first <a href="https://www.pcgamer.com/ubisoft-ends-its-nft-experiment-in-ghost-recon-breakpoint-but-promises-theyre-coming-to-other-games/" target="_blank" rel="noreferrer noopener">foray</a> into NFT gaming was a resounding flop.



In any case, market reaction was muted on the deal between Square Enix and Embracer Group. Square Enix stock is trading evenly while Embracer gained 1%, hinting that any boons to either company are to be felt further down the line.



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