Square Enix sold studios over concern Tomb Raider cannibalized other sales

Square Enix’s executives made this announcement to investors Friday in the first quarterly earnings conference since they sold the Tomb Raider/Deus Ex franchises, and the studios that produced them.

The publisher’s reasoning, according to analyst David Gibson, is that its Western studios and their products might have been cannibalizing sales from the rest of the group, so selling them off “could improve capital efficiency” — basically, making more money relative to what the company spends to make more money.

Square Enix transferred Eidos, Crystal Dynamics and all their IPs to Embracer Group in May. These studios represent the most recent big-name purchase for Sweden’s publishing conglomerate. It already has Gearbox Software and Saber Interactive and Plaion (formerly Koch Media) and Deep Silver as well as tabletop gaming maker Asmodee and comic book publisher Dark Horse.

The sell-off followed a long stretch where Square Enix’s Western operations would publish a AAA game and headquarters would poor-mouth its sales performance in the next call with investors. Marvel’s Guardians of the Galaxy, a critical success developed by Eidos, “undershot our initial expectations,” Square Enix’s Yosuke Matsuda said in February.

Before that, Eidos’ Marvel’s Avengers was “disappointing,” the company said in its 2021 annual report; in a 2019 quarterly call, Matsuda said Shadow of the Tomb Raider “got off to a weak start” after selling 4.12 million units in the preceding four months. Matsuda was also to blame Shadow of the Tomb Raider Just Cause 4 (developed by non-Square Enix studio Avalanche) for a “disappointing quarter.”

In 2017, at least Mankind divided by Deus Ex’s sales weren’t enough to save that franchise from hiatus, despite favorable reviews and positive community response. And though it does not own the studio that made their second stab at a live-service game, 2021’s Outriders, Square Enix nonetheless told People Can Fly one year ago not to expect any royalty payments, and the studio confirmed it wasn’t profitable for 2021 despite selling between 2 and 3 million units.

Square Enix stated to investors that it will be closing its $300 million Crystal Dynamics and Eidos sales. have $1.4 billion cash on hand and no debt. Gibson, the analyst, said the studio sale is “phase one” of a plan to get back on track; “phase two”will “fund expanded game investment” without having to sell studios or stakes in them to competitors.

Square Enix’s latest quarterly report, published Friday, said sales and operating income were down 16 and 17 percent relative to the same quarter last year, and while sales of its HD games category continued to slide, its MMO unit rose thanks to increased “paying subscriber numbers” for Final Fantasy 14, year-over-year.