Square Enix has announced the new Square Enix Medium Term Business plan, called “Square Enix Reboots and Awakens: 3 Years of Foundation-Laying for Long-Term Growth.” The Business plan was revealed in the company’s recent earning’s report. The plan will take effect this year and will end on March 31, 2027. The business plan will be executed through four pillars. Enhancing productivity by optimizing the development footprint, strengthening customer contact points, creating additional foundational stability, and striking a balance between shareholder return and growth investment when allocating capital. The new business plan highlights the company’s shift to multiplatform strategy that “includes Nintendo platforms, PlayStation, Xbox, and PCs. This means there will likely be significantly less console exclusives in the coming years. Especially, in regards to major franchises and AAA titles including catalog titles”. It also notes that a restructuring will be done for its overseas offices. According to the plan, the Group has “begun optimizing costs at its European and American offices via structural reforms.” This likely means these regions will face several layoffs. Lastly, Square Enix also plans to “pursue a shift from quantity to quality as its medium- to long-term philosophy,” and “will strive for a regular launch cadence”.
The full details of each pillar from the report via Gematsu:
(1) Enhance productivity by optimizing the development footprint in the Digital Entertainment (DE) segment
(2) Diversify earnings opportunities by strengthening customer contact points
(3) Roll out initiatives to create additional foundational stability
(4) Allocate capital giving consideration to the balance between growth investments and shareholder returns
(1) Enhance productivity by optimizing the development footprint in the Digital Entertainment (DE) segment
Shift from quantity to quality
The Group (Square Enix) will pursue a shift from quantity to quality as its medium- to long-term philosophy regarding the DE segment’s portfolio. To that end, it will first work to establish the optimal portfolio, striking a balance between a “product-out” approach that reflects the imaginations of its employees to the utmost, and a “market-in” approach that leverages customers’ voices and data to inform development efforts. It will strive for a regular launch cadence, focusing its development efforts and investments on titles with substantial potential to be loved by customers for years.
Focus on development of titles delivering “Fun” that only the Group can create
With the goal of developing titles that deliver unforgettable experiences to customers and ensure excitement, the Group intends to focus on the following points. First, mindful of the need to launch HD titles that help attract additional fans to the Group, the Group will regularly release AAA titles in its major franchises to maintain and build upon its fan base. In addition, the Group will strive to increase its success rate in SD games by launching a carefully curated selection of titles. It will additionally explore ways to leverage its rich library of IP.
Establish an internal development footprint that brings “Fun” that only the Group can create
The Group will retire its business unit-based organizational design and strive to establish an operationally integrated organization with the goal of revamping its internal title development footprint and bringing more capabilities in-house. In addition, while keeping balance between the creativity of its individual employees and the management centered on the organization, the Group will transition to a project management structure. To that end, the Group will redefine the mission for producers and other related employees and organize its internal supporting structure. Also, the Group will improve its development investment efficiency, by reviewing the overall management process of title development.
(2) Diversify earnings opportunities by strengthening customer contact points
Shift to a multiplatform strategy
For HD titles, the Group will aggressively pursue a multiplatform strategy that includes Nintendo platforms, PlayStation, Xbox, and PCs. Especially, in regards to major franchises and AAA titles including catalog titles, it will build an environment where more customers can enjoy our titles. In addition, it will also devise a platform strategy for SD titles that includes not only iOS and Android, but also the possibility of PC launches. Furthermore, the Group will strive to maximize the acquisition of new users when launching a title and that of recurring users after starting management of game operation.
Building continuous customer contact points of our titles by stepping up digital sales
The Group will strengthen user flow of digital sales of new titles at the time of launch regarding the initiatives of promotion. In addition, it will generate the opportunity of generating revenue in our rich catalog titles’ line-up, which leads to strengthen its earnings base by expanding sales of catalog titles. Moreover, the Group will engage in initiatives which focus on the acquisition of PC users.
Create the interaction with customers by increasing sophistication of publishing function
The Group will pursue integrated sales & marketing operations in Japan and make efficiency of publishing by consolidating the marketing functions that were previously spread across creative business units, expanding shared knowledge, and eliminating duplicate functions. Also, it creates a new reporting line in order to enhance collaboration between sales and marketing functions. It will also address the increasing sophistication of marketing by leveraging first-party data, including through the utilization of CRM solutions and data analytics, when developing an ad campaign for HD and SD titles.
Generating the opportunity of new revenue by offering IP across a range of entertainment experiences
The Group will pursue a cross-media strategy capable of approaching new markets. Specifically, it will expand area of license business by establishing a new department focusing on IP business development at global markets. In addition, it will build an organization which makes more active use of its IP by offering it across all media formats. The Group also hopes to generate synergies by integrating the organizations affiliated with its Merchandising segment.
(3) Roll out initiatives that create greater foundational stability
Rebuild overseas business divisions from the ground up
The Group has begun optimizing costs at its European and American offices via structural reforms. It will also promote intra-Group collaboration in Japan and abroad and strengthen the functions of its London development site. For example, the Group intends to work to strengthen the close collaboration between its divisions in Japan (creative studios and publishing) and to enable greater mobility of talent between them and the Group’s publishing functions overseas.
Revamp policies on human resource allocation & investment to balance both “creativity and productivity” in Japan
The Group will build its flat organization by increasing opportunities of promotion by selection in order to pursue a new talent at our company and streamlining the process of decision-making. Specifically, it will roll out a new human resources system in line with integrated management of development functions, building a new system for hiring, promotion, and appointment of management. Moreover, the Group will rebuild training system for new graduates and introduce internal education programs to enhance capabilities of junior and mid-level employees.
Enhance business infrastructure by implementing PDCA cycle in a timely and appropriate manner
The Group will pursue refining its management accounting system that enables greater visibility into business activities. In addition, the Group will not only make infrastructure enhancements that maximize the productivity of its employees under hybrid-working system, but also build its attractive office environment that helps unleash creativity for its development teams.
(4) Allocate capital giving consideration to the balance between growth investments and shareholder returns
The Group has formulated a capital allocation policy that gives consideration to the balance between growth investment and shareholder return, earmarking a maximum of ¥100 billion for total strategic investments (growth investments or shareholder returns) over a three-year period.
As regards growth investments, the Group will carefully select investment opportunities that contribute to the enhancement of corporate value and will utilize insights from its own businesses. It will explore the possibility of undertaking inorganic investments designed to expand its business domains and create greater stability.
Meanwhile, to reward its shareholders, the Group will issue regular dividends based on a basic policy of achieving a dividend payout ratio of 30%. In addition, in a change from its previous approach to capital allocation, the Group has set aside ¥20 billion for the funding of potential repurchases of its own shares to be executed flexibly between May 14, 2024 and May 13, 2025 based on consideration of factors including strategic investment opportunities, the Group’s financial position, and its share price. The firm has also revised the breakdown of its per-share dividends (interim dividend and year-end dividend).
Through these initiatives, the Group will strive to further enhance its corporate value.
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