NFTs weren't the main reason Square Enix sold to Embracer Group

Square Enix's primary motivation for selling its Western games division was not NFTs or blockchain.

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Square Enix plans to sell Crystal Dynamics, Eidos Montreal, and its Canadian mobile division to Embracer Group for $300 million. The deal includes a ton of IPs like Tomb Raider, Deus Ex, Legacy of Kain, and Thief--among many more. We've gone over why the deal was made, but the condensed reason is that they want to avoid risks.

Making AAA games takes hundreds of millions of dollars. Case in point: Square Enix spent a record $700 million+ on game dev in FY21. Sometimes those games don't break even and you lose a lot; Square Enix, for instance, lost an estimated $200 million on Avengers and Guardians of the Galaxy.

Square Enix is basically cutting its losses.

So where do NFTs come into play? Multiple websites have framed the Square Enix sell-off as a way to fund its NFT ventures.

It's not hard to see why. The official transaction's press release mentions NFTs and blockchain directly:

"The Transaction will assist the Company in adapting to the changes underway in the global business environment by establishing a more efficient allocation of resources, which will enhance corporate value by accelerating growth in the Company's core businesses in the digital entertainment domain. In addition, the Transaction enables the launch of new businesses by moving forward with investments in fields including blockchain, AI, and the cloud."

This is only partly true. Square Enix's top priority is to "strength IP ecosystem," as outlined in a medium-term plan published May 13, 2021. See below.

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NFTs and blockchain are part of its second initiative. Yes, Square Enix is interested in NFTs. In fact, they've already released NFTs that have done very well. The publisher says they are "contemplating a robust entry" in blockchain...but that seems very risky considering the market is so speculative.

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However, based on the medium-term business strategy we can see that NFTs will be ancillary and won't be a major part of Square Enix's business, at least for now. They are likely seen as very risk averse in terms of overall investment--it costs far less to make and mint NFTs than it does to make a release a full video game--but the main priority here is HD games and spreading existing and new IP across a multitude of segments, which includes MMO, browser/smartphone, and even merchandising.

That being said, Square Enix has lofty ambitions of create-to-earn blockchain games where consumers would create and sell their in-game items, levels, etc. in exchange for in-game token currencies.

There's a chance nothing will come of this higher level of planning outside of smaller-scale NFTs and mobile experiments. The publisher's ambitions have always been high; Square Enix's Matsuda has evangelized every tech fad from AR/VR/XR and AI to cloud gaming and the newer blockchain/NFT craze.

Here is our analysis on Square Enix's so-called Autonomous Game Content, a platform that would essentially fuel its create-to-earn blockchain ideas.

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