Video game developer, publisher and distributor Square Enix Holdings Co., Ltd. is best known for its role-playing games and internationally renowned franchises, including Final Fantasy, Dragon Quest, Tomb Raider, and the legendary Space Invaders. President & Representative Director Yosuke Matsuda discusses its ever-sharpening focus on free-to-play and premium apps for smartphones, and the impact of developments such as virtually reality and augmented reality in the rapidly changing industry.
IP is one of the main driving forces in your industry. How is a company like Square Enix promote innovation and ensure that new IPs are constantly being developed? What drives new products?
When people talk about innovation they think about breakthrough technologies; however, in the gaming world innovation is not simply combining a bunch of new technology, but is about offering new gaming experiences. It is a combination of technologies with new approaches that are not anticipated by the users. We have to exceed expectations always. When you only offer something that is expect or that can be imagined by players, then our game is not going to be well received.
People now talk about IP in many ways, but for us it is essential to have something very iconic and symbolic of the company, either a story or a character. For instance, Pokémon GO is rising in popularity, but Pokémon characters have already been on the market for a few decades. The combination of new technologies they are offering in the game is innovative. In my opinion, they were able to enjoy this success because they already had the iconic Pokémon characters. This shows the importance of having an iconic asset, something symbolic that represents the company. That is what we emphasize for our own IP. In order to express that iconic essence, we are in the digital entertainment, so our canvas are the games. By investing in this area, we will continue to have a robust and rich portfolio going forward, so we want to continue to invest in those ways.
How we create that content is a challenge. If we look at our game developing team, we will find a variety of employees working on different contents. They come up with different ideas, and then they decide what is attractive and where do we have to invest to add to Square Enix’s portfolio. We must come up with something new and be ahead of the curve. This is why we use a variety of development teams, because we believe variety is important in order for us to own a rich portfolio going forward.
To what extent are you pushing towards development in new platforms? How do you plan to entice gamers to pay for premium game apps with the current explosion of free games?
If we take a look back to 2011, then we did not have the required expertise and know-how to develop smartphone games. In 2012, the market started shifting from feature phones to smartphones. There were not many free-to-play games on feature phones. Moving into that space, we set up a few venture entities outside of Square Enix, our main studio in Tokyo. At the present time, we are hiring new people in Square Enix and accumulating expertise on free-to-play contents.
What we are going to do with premium apps is a different question. We should step back and talk about how the premium game market is developing. Right now, most of the smartphone games available are free-to-play, and users play premium games on dedicated handheld game devices. However, when I think about whether the dedicated handheld game device market is going to grow in the future, my opinion is that it is questionable.
The performance of smartphones is as good as dedicated handheld game devices. Looking at the consumer’s behavior, older generations have a lot of difficulty in playing games with touch panels, and they want to keep playing games with an interface and controllers with which they are familiar. But when you look at the people in their 20s or teenagers, many of them are becoming unfamiliar with playing games with controllers – for them, the most natural thing to play games is without controller.
Instead of buying a dedicated game device, one would choose smartphones because you can do everything on them, mailing, browsing, making phone calls and also playing games. Compared to an installment base, the smartphone has a much bigger base by far if we compare it to other devices. From the game publisher’s point of view, if the handheld game device market no longer exists, this would be a big headache for us because we have the business to date. We need to find an alternative for the contents we have been developing for dedicated handheld game devices, which would definitely be smartphones.
That’s why we want to offer premium apps for smartphones. We are going to put a strong focus on the initiative from this fiscal year. The issue of the premium app game market is the perception of the people: when they think about apps, they expect that the apps ought to be all free to play. But if we provide rich content at a right price for the quality, then I believe it should be natural for people to pay for that. Of all the premium app games, we are basically the only company which charges a premium price for high-quality contents. We want to build a library of new premium apps, because a library-based business can generate the recurring cash flow over a long period. To sum up, I would like to highlight that we are going to do both free-to-play and premium apps.
Beyond mobile gaming, it seems that suppliers are putting a lot of emphasis on virtual reality. However, users/players have not experienced it very much yet. How do you assess the state of virtual reality in the entertainment industry at the moment? To what extent is Square Enix putting efforts into this technology?
We have an interested view in VR (virtual reality) and AR (augmented reality). Basically, it is necessary to have contents to drive that technology. We are developing contents that will be fit for that.
For VR we are going to need a heavier investment. Looking at the game content that is available in the market today, I do not think it is sufficiently robust for people to enjoy VR yet. We are working on a few projects, but again it will not be sufficient if the game content is something similar to existing ones. We are trying to be creative and come up with something different. I am aware that Sony is launching their PS VR and Oculus is already in the market. I think we should watch how things will play out for some more time before we determine our investment route.
Another important aspect we should take into account is the introduction of 5G toward the Tokyo Olympics in 2020. With 5G, graphics will look very different because data will be easily transmitted. The graphics that you see on your PS4 will probably be available on smartphones. Pictures will look totally different.
If I were to make an analogy, when the first phone came out, we had to carry those bulky big cellphones around. And now we have super slim phones. This is the stage where we are with VR. In the past it took 10 to 20 years for the big cellphone to become compact, but I think the cycle is getting much quicker.
At the Olympic games we are going to have something more sophisticated with VR, and the market will rapidly change. This is why we need to start preparing ourselves to be able to provide the contents for VR when the time comes.
Square Enix wants to be in the forefront of innovation in the entertainment industry. The launch this summer of the first Apple Watch exclusive RPG, Cosmos Ring, is a good example. What other innovations that are Square Enix working in will be launched in the upcoming months?
We are also working on some new entertainment content outside the gaming area too. At this point I cannot give you further information, but I think we can show something at the Tokyo Game Show. We also have our group subsidiary called Taito. As you may know, they have the Space Invaders and other classic arcade games. Alongside, they also have the new Densha de GO! – a train simulator game. In Square Enix, we are thinking about how we can combine the VR and the AR with arcade games as we believe we can offer new experiences that people have not experienced yet.
With more than 100 millions of copies sold, Final Fantasy saga has been one of your best sellers. Final Fantasy XV will be released this November. What are the ingredients of the success of this saga in your opinion?
It is hard to say. We do make the Final Fantasy titles as a series, but they are actually new titles every time they are launched. Of course, we have common motifs like crystals, also the basic rules are the same. There are common monsters and magic spells; but the contents are very new every time.
Each installment is also developed with different development team. In a way, it has become a tradition for the development teams working in new titles to try to exceed the previous one and work on the project as if this is going to be the best Final Fantasy game. It all comes down to the pride and commitment of those development teams. They are always trying to come up with something to exceed expectations. Rather than combining existing elements, they are trying to make the upcoming title very innovative when compared to the previous one by incorporating new and very different elements. That strong morale of the team has greatly contributed to improving the game. That is why we always exceed user’s expectation and why we were able to have this franchise for a long time.
Together with China, the US is one of the two biggest markets for the games industry. Square Enix has corporate offices in LA and a development studio in San Francisco. In this regard, how do you see the US market as capital for you, not only in terms of sales but also regarding product development and of course, investors?
We cannot talk about the gaming industry without mentioning the US market, particularly for the high-end games. We always must think in terms of US consumers, investors and developers. Obviously, Japanese users are important for us but other users in US and Europe are similarly important. We also have a strong fan base in other markets outside the US and Europe. This is why we decided to do a global launch for Final Fantasy XV, releasing the game at the same time worldwide.
On the product development side, it is not only being conducted in Japan. We also have teams of engineers and developers from Western countries. We have a mixed pack of talent from Asia, the US and other regions. We have studios not only in Tokyo, but also in San Francisco, Montreal, Copenhagen, and some external partners located in New York State. We are also collaborating with a network of global top-notch studios. That really stimulates other development teams and keeps them very motivated.
You have been partnering with some of the top US companies, such as Disney (with Kingdom Hearts), Intel (to improve gaming experience) and Electronic Arts. To what extent are you considering new partnerships with US companies in your product development and expansion strategies?
There are a lot of things in the pipeline, but you will have to wait for future announcements.
In 2013 you were elected as Square Enix Holdings President and Representative Director. What is your personal vision for the company? If we come back in five years from now, where would you like Square Enix to be?
In Square Enix, we are an entertainment contents company and we want to remain among the top global entertainment companies, because we are a content provider expressing our ideas on digital platforms, which continuously change and evolve. In that ever-changing environment, we will want to continue to offer fascinating contents and new gaming experiences for users. In that sense, we want to be that top-notch content provider inside this context. This is why we have been working on IP development and in creating our own icons. These are all important because iconic contents and elements live for a long time, even when then environment changes.
What would you like to tell your fan base in a nutshell?
I just want to ask our fans to look forward to our upcoming lineup and future announcements!