Whether traditional gamers like it or not, non-fungible tokens (NFTs) will impact major consoles and video game franchises in the future. The question is, will your favourite developer or publisher play a role in their adoption? Perhaps they may ignore NFT games and the play-to-earn (P2E) phenomenon but still utilise blockchain technology in some way.
In a series of articles that examine where each AAA game developer, publisher and console manufacturer stands on NFTs and blockchain technology, I'm going to answer these questions and more.
This article focuses on Square Enix, a company formed from the merger of Squaresoft and the Enix Corporation. With a legacy that dates as far back as the early 1980s, this Japanese developer makes some of the biggest franchises in the world. But what is its stance on NFTs and Web3?
Read on to find out. And make sure you also read our NFT guides on Epic Games, Nintendo, Sega and EA.
While it's a leader across many genres, Square Enix will forever be known for its pioneering work in role-playing games (RPGs). For many, it defined the genre. Final Fantasy, Dragon Quest, Kingdom Hearts, Chrono, Mana and Star Ocean are the most notable, but far from the only RPG series that have wowed generations of gamers.
Square Enix has never been focused on hardware or even the arcades. It has stuck to its guns as a traditional games developer for the most part. Other notable franchises include Front Mission, Bubble Bobble, Drakengard, Just Cause, Life is Strange, Outriders and Valkyrie Profile.
While still a force, in 2022 Square Enix did sell off a big chunk of its business. Eidos, which it had acquired in 2009, departed and took with it some massive franchises. These include Tomb Raider, Deus Ex, Gex and Thief. Also part of that sale was Marvel's Avengers developer Crystal Dynamics.
Make no mistake, Square Enix is all in on NFTs, P2E and the Web3 metaverse. Although it was a little bit later to the party compared to other pro-blockchain outfits like Microsoft and Ubisoft, its interest is just as earnest.
It was in January 2019 that we got the first glimpse into Square Enix president Yosuke Matsuda's plans. He told investors in his annual New Year's address:
"With the subsiding of the cryptocurrency bubble, the use of blockchain technology has spread to a variety of non-cryptocurrency domains as well. One has been the gaming space, where there have been some interesting developments with games and game platform services using blockchain technology. We are also very interested in potential applications for blockchain technology in the digital content space."
However, the first notable movement into the space didn't happen until March 2020. Square Enix made the savvy investment in The Sandbox. This NFT game owned by Animoca Brands continues to be a success story in the blockchain gaming scene. Indeed, its success also courted investment and even crossovers with Ubisoft.
Just a few months later, in May 2020, Matsuda made his first of many comments about where he saw Square's future investments. He signalled "blockchain games as a new domain on which we should focus our investments". But that would still be a while off.
It wasn't until October 2021 that we saw the company release its first NFT game. Teaming up with double jump.tokyo, Square released NFT digital trading cards based on Japanese video game Shi-San-Sei Million Arthur. Better known as the Million Arthur NFTs, they were labelled a "proof of concept" by Square, but managed to sell out in under 2 weeks.
From here on, Square Enix started to become a lot more active in the NFT games scene, talking up the possibilities of NFTs and the metaverse.
In November 2021, Square Enix told investors that the Million Arthur NFT experiment was a success. Square Enix also revealed that it was "contemplating a robust entry into blockchain games [due to a] changing environment with increasingly diverse profiles of incentives for people involved in gaming".
It was around this time that traditional gamers were really starting to rally the troops in an attempt to push back the interest in NFTs and blockchain gaming from AAA developers. A growing anger that boiled over around the launch of Ubisoft Quartz platform and the now-infamous Nicolas Pouard interview.
This deterred many AAA game companies to distance themselves from the movement publicly. Not Square Enix.
On 1 January 2022, Matsuda's New Year's address said what many gamers didn't want to hear.
"By designing viable token economies into our games, we will enable self-sustaining game growth. It is precisely this sort of ecosystem that lies at the heart of what I refer to as 'decentralized gaming' and I hope that this becomes a major trend in gaming going forward."
He did clarify that he sees this new opportunity as appealing to a different subset of gamers. However, Matsuda does believe that some of these players already exist in traditional games as those who create user-generated content (UGC).
"I realise that some people who 'play to have fun' and who currently form the majority of players have voiced their reservations toward these new trends and understandably so. However, I believe that there will be a certain number of people whose motivation is to 'play to contribute', by which I mean to help make the game more exciting."
"Traditional gaming has offered no explicit incentive to this latter group of people, who were motivated strictly by such inconsistent personal feelings as goodwill and volunteer spirit. This fact is not unrelated to the limitations of existing."
This paints a picture where Square Enix will create experiences where players who contribute user-generated content will become part-owners or investors in the product. And indeed, an owner of the content they have created themselves. Matsuda sees this as great news for these players.
"I believe this will lead to more people devoting themselves to such efforts and to greater possibilities of games growing in exciting ways. From having fun, to earning, to contributing, a wide variety of motivations will inspire people to engage with games and connect with one another. It is blockchain-based tokens that will enable this."
While not officially confirming it, Matsuda went as far as to suggest that a Square Enix coin could become the mainstay of the developer's portfolio's economies.
"We will keep a close eye on societal shifts in this space while listening to the many groups of users that populate it and ramp up our efforts to develop a business accordingly, with an eye to potentially issuing our own tokens in the future."
Gamers may have been angry. But the reality is that the company's share price jumped 8% following Matsuda's message.
As a result, in February 2022, Square Enix opened a Blockchain Entertainment business division within the company. And then in March 2022, the company completed season 1 of its Shi-San-Sei Million Arthur NFT game. Square told investors: "Encouraged by the results and feedback from our NFT business, we have decided to produce a second season."
Matsuda's continued his public support of blockchain gaming in April 2022, despite the fact that the broader cryptocurrency space was in free fall at the time. This left no doubt about the company's intentions to push on.
"Until now, in most games, we provided the content as a finished product. And the players played that content. However, there are a certain number of players in the world who want to contribute to making games more interesting by creating new settings and ways of playing. If, instead of relying on goodwill, we can also provide incentives to those who contribute to development by utilising technologies such as blockchain, there is a possibility that innovative and interesting content can be created from the ideas of users."
Then in a stunning move, Square Enix sold off a huge and popular chunk of its company to "enable the launch of new businesses by moving forward with investments in fields including blockchain, AI and the cloud".
This bombshell moment happened in early May 2022. Beloved developers Crystal Dynamics, Eidos-Montréal and Square Enix Montréal were sold off to the Embracer Group for US$300 million. And with it over 50 library games and the rights to huge franchises such as Tomb Raider, Deus Ex, Thief, Gex and Legacy of Kain.
In a financial results meeting held later in May 2022, the company clarified this initial statement. While blockchain was mentioned, so were AI and cloud gaming. And that would appear to be the focus of where these new funds would be invested.
"Rather than using the proceeds from the divestiture in new investment domains such as NFT and blockchain, we intend to use them primarily to fund our efforts to foster solid IP and to enhance our development capabilities in our core Digital Entertainment segment."
Yet Square Enix wasn't changing its overall tune. The company went on to say in the May 2022 briefing that the NFTs were still going to get a lot of investment.
"Our plan is to incorporate game content into our service and to leverage the development and operational expertise we have amassed in our existing businesses to explore the potential of earnings structures, breadth of play and NFT ownership experiences in the NFT business."
More importantly, documentation released in this financial results meeting described the medium-term remit for its Blockchain Entertainment division as the following.
Extrapolating these points reveals a lot about the next key plays of Square Enix. It will create new IP to host its NFT plans, which is a wise move. Square will look at how to unify NFTs with user-generated content experiences in create-to-earn games. And it will look into the acquisition or formation of play-to-earn guilds in service of lower-economic countries.
This report also indicated that further investment would be made by Square Enix in Animoca Brands and its game The Sandbox.
In June 2022, Matsuda would confirm that a medium-term goal for the company was still "the development of blockchain games and entertainment products". He also stipulated that the company was not thinking about using blockchain in any upcoming releases. "It's still too early to consider making Dragon Quest and Final Fantasy blockchain games," he said.
This appeased gamers to a point. And it was intriguing to hear Square Enix also say it planned to "launch a new brand/IP of creative NFTs that emphasise world view and story". The possibilities of that thought are somewhat endless.
In August 2022, Square Enix dove deep into the pool of gamer angst by announcing Final Fantasy VII NFTs. Arguably the most beloved game in the company's rich history, Final Fantasy VII is celebrating its 25th anniversary in a number of ways. This includes partnering with Enjin to mint a host of NFT collectables based on the famed RPG.
Two types of NFTs were announced as part of the celebration. There are trading cards based on the game. And there are figurines. Both NFTs are acquired by buying a physical version of this collectable. In the box you will find a code that unlocks an NFT in the form of that figurine so you have a digital asset as well.
Enjin is a solid partner for Square Enix. The company is an OG in the NFT game space, pioneering interoperability from the very start, as well as experimenting with new standards and its Efinity platform to help developers bring their games to blockchain easier. Enjin CTO Witek Radomski was passionate about the partnership.
"This partnership marks a coming-of-age phase for digital assets and entertainment; Square Enix, an esteemed developer with iconic intellectual property, is paving the way for the industry. By using Efinity, fans can experience interactive NFTs without even realising they're on the blockchain. Enjin can establish the next phase of growth in blockchain entertainment, merging curiosity and creativity."
Of course, traditional gamers were not happy. Many suggesting that Square Enix was becoming like Final Fantasy VII's antagonist, the environment-hating Shinra Corporation.
While the cryptocurrency and NFT crash of 2022 may have been enough to keep some developers quiet on the possibilities of NFTs, blockchain, P2E and the metaverse, Square Enix wasn't one of them. Not by a stretch.
Square Enix isn't just talking about what it might do. It's actively investing in it. There is a division with clear goals and a strategy for integrating Square Enix deeply into a Web3 future. But for gamers, at least, it looks like the blockchain side of the business will stay separate from beloved franchises such as Final Fantasy, Just Cause, Dragon Quest and Kingdom Hearts.
To be continued…
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