We’re used to seeing astronomical sums of money flying around as development studios, and publishers change hands – but Square Enix has sold off some of its teams at a suspiciously low price…
It’s how things are going this year: a new week, a new studio buyout: this time, the Embracer Group has snapped up several Square Enix developers, namely Eidos Montreal, Square Enix Montreal and Crystal Dynamics. After the deal’s announcement, many users expressed doubts about the fate of the new Perfect Dark, but the people behind the arrangement reassured fans.
The studios sold were reportedly underperforming.
However, there are community members whose questions lead elsewhere: how is it possible that Embracer Group only paid $300 million for these three studios? Given the billions of dollars of transactions we’ve seen so far, players have been quick to point out the discrepancy in the value of the studios.
“Crystal Dynamics had a 3.6 per cent profit margin in 2021; Eidos Montreal, 0.65 per cent.”- Daniel Ahmad
Seeing the emerging controversy, well-known analyst Daniel Ahmad posted some reasons that could explain this “very cheap” sale. In his Twitter post, he said that Square Enix’s Western developers had underperformed expectations, leaving them in a worse position regarding the company’s growth in areas such as smartphones and MMOs, which are all controlled by Japanese studios.
To illustrate such claims, Ahmad recalled the company’s recent financial reports showing the difference between Western and Japanese studios: “Just for comparison, Crystal Dynamics had a profit margin of 3.6% in 2021, while Eidos Montreal had a profit margin of 0.65% in 2021. Square Enix as a whole had a 14.2% margin last year.”
What could Square Enix be up to?
The other interesting question is what Square Enix will invest the money it received from Embracer in when the deal closes in the coming months, likely between July and September.
Well, we already have the answer. As we read in the company’s own press release, the plans include investing in blockchain and cloud gaming technologies. While this is often said in front of investors, the words make clear Square’s intentions for the future, boosting NFTs and other vital businesses.
Square Enix will dedicate $300 million from studio sales to NFTs and cloud gaming.
“Accelerating growth in key businesses. The transaction will help the company adapt to changes in the global business environment by creating a better allocation of resources, which will help increase the company’s value and accelerate growth in key digital entertainment businesses,” they explain. “The transaction will enable the launch of new businesses by investing in areas such as blockchain, artificial intelligence and cloud.”
While the complete list of intellectual properties that will become part of Embracer has not yet been announced, we already know that Square Enix will lose Tomb Raider and Deus Ex, to name a few of the more prominent names. However, this shouldn’t affect projects that the leading studios are already working on too much, such as Perfect Dark with Crystal Dynamics.
Source: Square Enix
For reference, Crystal Dynamics had a profit margin of 3.6% in 2021 while Eidos Montreal had a profit margin of 0.65% in 2021.
Square Enix as a whole had an operating income margin of 14.2% last year. pic.twitter.com/2F5mGmu4Ln
— Daniel Ahmad (@ZhugeEX) May 2, 2022