Square Enix in 2010: President Wada Speaks

Since the last time Gamasutra got to sit down with Square Enix president and CEO Yoichi Wada, the company has had a year to integrate the Final Fantasy creators' latest acquisition, Eidos -- and we now know that its early promises of meaningful and binding ties between the two companies, no matter how different their styles, was truthful.

For one example, we know that an Eidos employee, Julien Merceron, has been named the company's worldwide technology director, and has created an atmosphere of collaboration between the company's Japanese, European, and North American studios.

It's also clear from speaking to Wada that he sees Tomb Raider and Hitman creator Eidos fitting in as a vital part of the overall organization.

In this interview, he discusses his company's overall strategy, his view toward integrating companies into a whole and the possibilities of more acquisitions by Square Enix, and the current state of game development in Japan, as troubled as it is, among other topics.

Things have been moving rapidly towards integration since the acquisition of Eidos. From your perspective, how has that integration been going? Are you satisfied with the progress?

Yoichi Wada: In terms of the organization-wide integration with Eidos, we were able to complete it in one year, and I'm very satisfied with that. And this integration was completed with the creators being highly motivated, so how it has been done has left us in a very favorable position.

So what's important is where to go from here; we have become a good family now. What to do, as a family, going forward, is what's important, and I'm really looking forward to what we can do together as a family.

It seems that with most companies that have a Japanese side and a Western side, there's not much actual integration, but you're actively pursuing that. From both a technology and a creative standpoint, it seems like a big challenge. Do you think that you're entering uncharted territory?

YW: I know I don't feel that way, because, to start with, our company was the result of a merger between Square and Enix. Then we bought out Taito, then we bought Eidos. Every time we had an acquisition, we became a new company, and of course there are challenges, but doing these kinds of deals has always become a driver for growth for our company. We respect each other's culture, and try to coexist with these different cultures, and through these interactions, we generate something new.

We consider these moves as strategic moves for the growth of the company. When we acquire another company, it's not simply for the purpose of becoming a bigger entity. The purpose is to bring in fresh air and different blood, by mixing with something totally different. Our intention is to become a stronger organization. This navigation may not have a chart, but the navigation is intentional.

Some ten years ago, Square, Enix, Taito, and Eidos were all separate companies. Is consolidation a general trend in the industry, or simply part of the plan for your business?

YW: From my perspective, it is a part of my plan.

From 2000 to 2010, we've seen the first phase of a major reformation of the industry. I had an idea it would happen, and I also figured that, from 2010 onward, we'd see further large-scale restructuring of the industry, even involving businesses outside of the game industry.

Considering this, I concluded that there was a limit to what we could do with the wholly independent business culture we worked within [as Square alone]. This was the way we were thinking ever since I was appointed president of Square in 2001.

However, independent of this, after Square Enix was born, Japanese companies started merging with each other like clockwork. In terms of how it turned out, therefore, it did wind up being a trend, or a trigger, but it wasn't our intention to kick off a trend.

What's the motivation, and how do you pursue these business opportunities? Is it to simply to bring in different blood, as you said? Taito has its amusement business, Eidos is strong in Western development. Are you going to continue to look at new opportunities?

YW: I have always thought that it would only be a matter of time before a wide range of people would start playing games. Ten or 20 years ago, games were considered to be a very special, unique type of entertainment which appealed only to a very small demographic group. Even then, I was thinking that soon the whole wide world -- not just young men, but also adults, women, and people of different demographic profiles -- would start playing games, too.

Given the situation then, games were being created by young men, and there were so many things that the people who were creating the games did not understand. I thought that as games would eventually be for both the old and the young and for men and women, we would have to have a wider range of creators. Without a wider skill set, or people with wider backgrounds, I felt that I would not be able to fight in this new battlefield. And as a means to acquire the skills to fight with, I repeated this strategy of mergers.

Are you still open to possible mergers and acquisitions in the future?

YW: Of course, I would always pursue one when the right opportunity arises. What I mean to say is, take this premise: new culture is needed. For example, let's say there's a need for social networking type services -- but when it comes to that, maybe the resources we have today may not be enough to address that market's needs.

It seems that like, in particular with social networking games, that there's more of a difference between games in Japan and the West; there are different social networks, such as Mixi in Japan compared to Facebook in the West. It seems like it would be harder to do cross-cultural products. Do you consider that to be a problem, or is it about getting local talent?

YW: First of all, to avoid any misunderstanding, I mentioned social networking as just one example of a place where we might bring in fresh blood. Social networking is one of the skill sets that are missing, so that will be the kind of fresh blood that we may try and incorporate from outside -- I want to make that clear.

Having said that, let me tell you that I believe network communities are very local. And the newer the community, the more local it is, it seems. It looks like they don't tend to become global or international, but rather stay local. So when we try to launch such services, it would be very important to understand the local culture.

As the president of [Japanese publisher organization] CESA, you've been very vocal about the state of the Japanese industry. It seems that this year, we're seeing a lot of high-profile, Western-targeted games. Is that the shape of current generation development in Japan?

YW: Not necessarily so. I think that each developer will try to capitalize on their own strength and come up with different things. Some developers may be American, some may be Russian, but there will be diverse types of games.

What is true is that, until just a few years ago, Japanese game companies were really not making Western types of games at all, and it almost looks like, thanks to the pent up demand for Western-style games, that they are starting to do this today.

Part of the reason I ask is because it seems that, if you look at the sales of many of the games on the Xbox 360 and the PlayStation 3 in Japan, it would be hard to make a profit just selling games that appeal only to the Japanese market, given the cost of development. Is that why it's important to target the West?

YW: Large Japanese publishers always had a pretty strong skill in making games that appeal to Westerners. But the trend that you are seeing now is motivated more by the desire of the creators, rather than those who are trying to sell the games.

Until about 10 years ago, Japan was the driving force for the entire game industry in the world. But that has not been the case for the past 10 years, so the Japanese creators are kind of exploring, kind of struggling, trying to think why. And so through their struggles, they thought that probably we can try and make Western types of games, and try and become the leader of the market.

So it is that, in Japan, those who are in the creative, production side at publishers are exploring what they can do to become the leader again, but they have not found the answer to that. And so it seems like the pendulum is swinging back and forth, and maybe when the time comes, they might go back to making extremely Asian games, too.

Now that Final Fantasy XIII has launched globally, in the end were you satisfied with its performance and the audience reaction to the title?

YW: Looking at the numbers alone, it is pretty good, because we were able to release the latest Final Fantasy in all three markets of Japan, United States, and Europe in a very short period of time, and we were able to reach 5 million units rapidly -- and I think this product will grow further. But when it comes to the customers' reaction to the quality of the game, some value it highly and some are not very happy with it.

What do you think about how the game turned out?

YW: I think this is a product that was able to meet the expectations for those who know Final Fantasy. There are all kinds of games around in the market today. Should Final Fantasy become a new type of the game or should Final Fantasy not become a new type of game? The customers have different opinions. It's very difficult to determine which way it should go.

You recently showed record financial results. What do you put that down to? Is it due to the breadth of content, now that you have Eidos? Obviously Batman: Arkham Asylum is a big boost, and you have Final Fantasy and Dragon Quest and Batman all in one year. Is it due to the mergers, or is it due to a larger strategy?

YW: [Our sales trend] shows steady growth, so I think it's strategy. Of course if you look at each year, some years had a better lineup of products than the other years. But if it were just driven by the quality of the products, it wouldn't have been this way. It doesn't happen naturally.

Of course there was a positive impact from the acquisition of Eidos, or the release of Final Fantasy and Dragon Quest. But basically the strategy was to pursue growth, and that's the way it turned out to be.

It's interesting that you're working with Nintendo to release Dragon Quest IX in the U.S. Can you talk about why that decision was made?

YW: Final Fantasy sold evenly in Japan, U.S., and Europe. Batman sold in the U.S. and Europe. And Dragon Quest was not even released in the U.S. and Europe -- Japan is its predominantly strong market. In our thinking, this is fine for our purposes of globalization. It is okay to have some things lopsided in terms of the numbers sold, depending on the region. We do not believe that everything has to sell well and evenly in every market in the world.

In this environment, we feel that Dragon Quest is strongly Japanese -- the type of game that appeals to the Japanese more. We have made tremendous efforts to try and sell Dragon Quest in the Western market, too. And it was not a failure, but it's not that kind of success, either.

I talked about this with Nintendo, and they showed a strong interest in selling Dragon Quest in the European and American markets. So we thought we should try taking advantage of Nintendo's marketing power. Our expectation is that Nintendo may be able to do what we cannot do by ourselves.

I don't know if you're familiar with OTX but it's a research firm, and it releases GamePlan, a list of purchase intent for the top 25 games in North America. Of the 25 games, only three of them are developed in Japan. How do you feel about that situation?

YW: What are the titles?

The research was conducted a little bit ago; one of them's out now. They're Super Mario Galaxy 2, Gran Turismo 5, and The Legend of Zelda: Skyward Sword.

YW: My immediate reaction to hearing those three titles is that those statistics must have been taken when major, more powerful Japanese titles were not released. Those are not the titles that I've heard about more recently.

[Wada sketches a Y-shaped diagram with a point on each of the tips.]

This axis is the game's element -- for example, is it a sandbox game? An FPS? A cover action kind of game? This is the game's main element.

The second axis is the characteristics of the device it's for -- 3DS, Kinect, Wii.

The third axis is the community aspect. Is it multiplayer, or so forth?

And this [Wada indicates the first axis] is the axis that Japan has become very weak in for the past five years. And these [other] two levels haven't changed much. The Western developers have become much stronger, during the past five years, in this aspect -- the game element. This is the area the Japanese creators are struggling with right now, trying to explore in new ways.

So if you look at all these three factors and ask, "is Japan strong or weak today?" I don't think we can say Japan's strong. But when I heard those three titles that you mentioned, I don't think they correctly reflect the current state of Japanese games and their creative strength. So it could have been the timing at which this research or survey was conducted. Maybe it was a time when strong Japanese titles were not around.

You've announced the Extreme Edges series of Western games in Japan. Do you think that that's a way to get Japanese audiences interested in the titles that you now have access to, through your relationships with Activision, or through your Eidos studios?

YW: Japanese gamers have been avoiding Western games way too much, and as a result for the past five years, they have not even given themselves a chance to experience this aspect -- the game elements [Wada indicates the diagram again.] They haven't even had a chance to try that.

But there are many wonderful games from the Western market as well, and I wanted Japanese game players to enjoy them, too. Of course, I wanted that to contribute to our sales, but I also wanted that to inspire the Japanese game creators. The more they're exposed, the more they can learn.

Do you think that you can make these games mainstream hits in Japan, and sell as well as domestically produced titles, or is it more about just bringing them out and seeing how they perform?

YW: How much do Japanese game users seek diversity in the games they play? Will they be able to accept the diversity of the different games? I will know that only after the observing their reactions.

But I believe that the games like Batman or Fable III are something Japanese gamers would naturally love very much. If I lied to them and told them that these games are developed by Japanese teams, I think Japanese fans would jump to it.

You've released Activision's Modern Warfare 2 and some of their other games in Japan. How would you describe your relationship with the company, and is it satisfying to both parties?

YW: Our relationship with Activision is limited to the Japanese market only, and it's simply to sell Activision titles in Japan. But basically, it's executed on title-by-title basis. By the way, we have a distribution agreement with Ubisoft. Actually, we have such a relationship on a title-by-title basis with several other companies, as well.

In general, they're all going very well. And with regards to Modern Warfare, there were scandals, so I was a little concerned, but fortunately it looks like their next title, Black Ops, will be released as well. I feel relieved. [Ed. note: Square Enix has confirmed that it will publish Black Ops in Japan.]

It's interesting to see that Nier has become a cult hit in America; it's not exactly a huge game, but it's got some buzz. The New York Times wrote a review calling attention to how great the story is. Did you expect that kind of reaction, and are you satisfied with the title?

YW: Yes, I thought it would be a cult hit, but I'm saying this as a gamer -- not as the president of the company. As a CEO, my instruction was to make it a major hit. But this Nier team, they just do cult hits. (laughs)