Square Enix market value lose billions despite Final Fantasy 16 success

As per Bloomberg, several anonymous employees and contractors have voiced concerns about the company's troubled development structure and quality control. Michael Prefontaine, a Tokyo-based developer, pointed out that releasing an unfinished or inadequately tested game every year was detrimental to the company's reputation and success.

While it's easy to use Final Fantasy 16 as a scapegoat, keep in mind that Square Enix likely made back its developmental costs within days of the game launching. On the other hand, Marvel's Avengers, Balan Wonderland, Babylon's Fall, and Forspoken, all cost Square Enix nearly just as much but never really amounted to anything. When you factor in the lack of commercial success of the likes of Marvel's Guardians of the Galaxy and even Outriders and it's easy to see why investors are losing their trust in Square Enix's ability to make profit.

Insiders attributed some of the company's issues to its decision to bestow an overwhelming amount of control to each game's individual producers regarding the direction and scope of projects. Moreover, they have pointed to insufficient documentation and unclear team structures as compounding factors. Notably, the company'sannouncement of a PC version for Final Fantasy 16 and the addition of two paid DLCs failed to assuage these concerns.

The issues are far-reaching, with the CEO, Takashi Kiryi, intending to reduce the number of smaller titles, shifting focus to big-budget games with a better potential for profitability. This move, while logical, is mired by reports indicating a disorganized production process with unpredictable project goals.

Financially, Q2 2023 reports showed an approximate 14% increase in revenue year-on-year for Square Enix. Yet, profits plummeted by around 65%, a concerning figure for investors and stakeholders. The company's share price, after Tokyo Stock Exchange's closure on a particular Friday, stood at ¥6,366. However, it decreased to around ¥5,457, marking its worst intraday drop in three years.

The underwhelming performance of Final Fantasy 16, with sales not meeting the company's high expectations, is widely believed to have contributed to these financial setbacks. Although Final Fantasy 16's sales figures (3 million copies in a week) matched those of its predecessor, Final Fantasy 7 Remake, it still paled in comparison to the series' bestseller, Final Fantasy 15.

But, while Final Fantasy 16, Final Fantasy 14, and even Final Fantasy 7 Remake, are all doing relatively well, these trio of best-selling titles can only do so much.

Already, Square Enix has tried to cut losses by letting go of some of its western subsidiaries and closing down Luminous Productions, the studio responsible for Forspoken.

What's clear now is that Square Enix is looking to streamline the video game development process so it can release the type of games that can make money and don't spend too much time in development, such as Final Fantasy 16 and Final Fantasy 7 Remake and fewer of a similar ilk to Forspoken. Unfortunately, this raises concerns about whether or not the company will decide to nix "smaller" passion projects like Diofield and Triangle Strategy, which offer more creative freedom and are a crucial part of its portfolio.

This isn't the first time Square Enix has had trouble managing their development timelines. Final Fantasy 15, the best-selling Final Fantasy entry at launch, spent a decade in development hell and was still released as an incomplete product.

The ideal scenario is that Square Enix will double down on the smaller titles, as they represent minimal risk compared to larger projects that have faced issues over the years due to mismanagement and overblown budgets.

With painful lessons learned, a company restructuring seemingly working, the impending port of Final Fantasy 14 to the Xbox platforms, as well as plans to double down on remakes of proven properties like Final Fantasy 9 and Final Fantasy Tactics and the upcoming release of Final Fantasy 7 Rebirth and Kingdom Hearts 4, the next few years are bright for Square Enix.

But, to get there from here will take a significant amount of hunkering down and battening the hatches as Square Enix prepares for an incoming financial storm.

If nothing else, maybe this will make Square Enix reconsider about its stance of making its best-selling titles exclusive to the PlayStation platform.

Final Fantasy 7 Rebirth is expected to be one of the highlights of the September 14 State of Play.