At the beginning of the month, Square Enix announced the sale of three of their major Western studios (Crystal Dynamics, Eidos Montreal and Square Enix Montreal) and several significant IP (Tomb Raider, Deus Ex and Thief) to the Embracer Group, "a massive, decentralized collection of entrepreneurs," as Square Enix described the group. Now, a new financial report has shed some light on their reasonings behind the sale and plans for the future.
There were three main reasons given for the sale. The first simply says they wish to optimize resource allocation in order to "develop appealing titles better aligned to customer needs while simultaneously bolstering our profitability." The second is that Square Enix wants to restructure its publishing function to better align with their headquarters in Tokyo. Finally, the last reason is to help them "accelerate [the] launch and monetization of new businesses by moving forward with investments in focus fields (blockchain, AI, and the cloud)." This echoes controversial statements by Square Enix's president, Yosuke Matsuda, last month committing to making blockchain games, saying that traditional games would be "not enough" for the company and expressing an interest in "autonomous game content." (These comments come from an interview with Yahoo Japan and the translation comes courtesy of VGC.)
The report later goes into greater detail on their interest in the blockchain, calling back to the establishment of the Blockchain Entertainment Business Division in February 2022 and the first season of NFTs sold based off of their Million Arthur franchise in March 2022. "Encouraged by the results and feedback from [their] NFT business," they will be producing a second season of NFTs and plan to incorporate game content into the blockchain as well. Other blockchain initiatives include an effort to "establish regulatory clarity and guidelines for blockchain games" and getting "world‐building, story‐focused creatives" to assist in launching new NFT brands and IP.
Finally, Square Enix is looking to "strengthen [their] IP ecosystem" on both the development and publishing side. They're looking to "cultivate robust IP (including creation of new IP)" and to bolster their game development capabilities by creating or acquiring new studios; on the publishing side, they will appoint a Chief Publishing Officer to "enhance global publishing function" and will integrate group management to "speed up decision-making."
These changes could indicate Square Enix's intent to extricate itself from AAA Western development. Any mention of overseas restructuring in the financial report only referred to bolstering publishing ability, not development. Despite still owning several Western IP, it is possible they don't fully own any Western developers anymore (with the exception of Square Enix London Mobile, founded last October) as no other Western studios are listed on their Group Companies page. (Square Enix America and Square Enix Europe, the branches responsible for localizing and publishing Square Enix-developed games, are also listed as "development" teams, but no games seem to be attributable to them, possibly meaning they only act as support developers.) The press release that accompanied the sale to Embracer Group said that the company's "development function" now consisted of its Japanese studios, Square Enix External Studios and Square Enix Collective. Curiously, Square Enix Collective is a subsidiary of Square Enix Europe focused on publishing and marketing indie games, with no mention of game development found on its website. Square Enix External Studios also appears to be a publishing subsidiary of Square Enix Europe, focusing on publishing Square Enix-owned IPs, as well as other titles like Batman: Arkham Asylum (back when they were known as Eidos Interactive), according to a press release from People Can Fly announcing Outriders.
This move has arguably been forecasted by Square Enix's history of publicly expressing disappointment in their Western-developed games' sales and by comments made by its president last month, telling Japanese developers not to go out of their way to appeal to Western audiences, believing good Japanese games have a worldwide appeal. "The designs of the monsters, and the visual and audio effects, are all still somewhat Japanese," said Matsuda. "And players around the world know that this is what makes Japanese games good." (Once again, thanks to VGC for translating Matsuda's interview with Yahoo Japan.) Of course, we don't know for sure if this is case and can only speculate until we know more about what studios Square Enix creates or acquires.
As for what's happening with the former Square Enix studios now, we largely don't know what they're working on. Eidos Montreal released Marvel's Guardians of the Galaxy last summer, but since there were no plans for DLC, they've likely been mostly done with the game for the better part of a year now with no announcement on their next project. Square Enix Montreal had been working on a Space Invaders AR mobile game but, as that IP is still owned by Square Enix, the state of that game is unknown.
Crystal Dynamics is the exception, as they announced a new Tomb Raider game and will still be working on the reportedly-troubled Perfect Dark reboot (according to a Tweet from the developer). They also recently cancelled the 2022 roadmap for their Avengers game at the same time they announced a new character would be coming, possibly indicating this will be the last release and Crystal Dynamics hopes to finish the game before the sale to Embracer Group finalizes.