Square Enix didn’t know how to squeeze profits out of its western studios
Did you miss a session from GamesBeat Summit 2022? All sessions are available to stream now. Learn more.
Square Enix is washing its hands of its biggest western studios. The company announced it is selling Eidos and Crystal Dynamics to Embracer Group. This raises numerous questions about what is happening next with Square Enix, but first let’s focus on the why. Why did Square Enix drop the Tomb Raider and Deux Ex studios? And why for the seemingly low price of $300 million?
The bottom-line reasoning for this move is profitability. Square Enix has spent a lot of money on these studios, but it hasn’t figured out how to make income from that investment. In 2021, Eidos Interactive generated its highest revenue in three years. But those revenues did not offset its costs — Eidos had a profit margin of 0.65%. During that same period, Crystal Dynamics also had its highest revenue but generated a profit margin of just 3.6%.
“Square Enix as a whole had an operating income margin of 14.2% last year,” Niko Partners analyst Daniel Ahmad wrote on Twitter.
Companies hate to carry around a drag on their profitability, but that doesn’t mean they instantly sell off underperforming business units. Square Enix had the choice of figuring out what to do next with Crystal Dynamics and Eidos. But this deal suggests that Square Enix ran out of ideas.
The publisher already went from having Crystal Dynamics and Eidos working on their own IP to working on Disney’s major Marvel brand. The cost of that license almost certainly contributed to the low profitability of the studios. But more than that, you get the sense that Square Enix is saying, “if Marvel couldn’t make these studios profitable, nothing can.”
As I reported around the time of release,
Read more on venturebeat.com
