Why Sony Probably Won't Buy Square Enix

Money is in the air and video game companies are being bought up left right and centre.

Microsoft went on a shopping spree but has had to stop until the Activision deal is paid off the credit card. Take-Two bought Zynga for about half the cost of the Sun. Sony has been dabbling in some stonks in between some key purchases such as Bluepoint and Bungie, and the Embracer Group has been purchasing anything they can get their hands on; they now own a majority share of my liver (whiskey owning the other part).

Despite this flurry of acquisitions, there are many potential acquisition targets still out there. Some of these companies are independent by choice (that is, they aren't interested in being acquired). However, some, like Square Enix, are waiting for their lucky day. It is widely believed that if anyone is going to purchase Square Enix, it would be Sony, given the close relationship they have had over the years.

Despite Sony's announcement that they will be acquiring more studios (and Square Enix's recent moves to sell off its western IP and studios to Embracer Group and focus on core titles - a move that is often regarded as 'slimming down' prior to acquisition), no deal has yet come to fruition.

Without tempting fate, I do not believe Sony will buy Square Enix.

Square's uncertain future

Without a doubt, Square Enix is one of the biggest names in video games, with a history of successful franchises and universally recognised IP. But that prestige came from a different time.

The high profile IP that Square Enix still owns (Final Fantasy, Dragon Quest, and Kingdom Hearts in particular) are franchises that grew large during the Japan-centric era of video games, where the formula for success was often found in crafting enormous single player JRPGs. But times have changed. The video game industry has arguably become more Western-centric and the formula for success has changed (the massive rise of live service experiences is an example of this).

In buying Square Enix, Sony would have the ability to produce more 'prestige' single player experiences. That sounds great until you remember that Sony is already the market leader in this space, with existing franchises like God of War, The Last of Us, and Horizon. More franchises doesn't necessarily equal more success, and at some point it seems reasonable to assume that Sony would see diminishing returns as their portfolio of single player games swells.

Unfortunately for Square Enix, these franchises aren't necessarily at their peak either, with underwhelming recent releases. The future success of these franchises, large as they are, is not a foregone conclusion. Consider the other major IP that Square Enix owns: Life is Strange, Outriders, Just Cause, Bravely Default, and various other "HD2D" titles. None of these arguably stand out as an obvious or must-have investment for Sony.

This is not to say that Square Enix as a company is in trouble. It's just that their future position as a leader in the industry is absolutely not assured, perhaps being no more certain than a coin toss. I'd say they have the potential to go either way (don't forget their worrying fascination with NFTs and blockchain technology, either; in this context it's hard to have confidence that they 100% know what they're doing). Why would Sony gamble on that?

Sony’s future lies in a different direction

With the acquisition of Bungie - developers of Destiny 2 - Sony made it very clear that this was a deal that wasn't about exclusivity, but rather, formed a key part of Sony's future plans to invest further in games as a service. In fact, the console giant claims to be aiming for more than ten live service games over the next four years.

As mentioned earlier, Sony is currently the market leader in the "triple-A single player narrative experience" space. It's now clear they want to branch out. GTA Online, Fortnight, and Roblox are mammoth money makers that neither Microsoft or Sony have been able to replicate. But Sony definitely wants a piece of that pie, which is why it purchased Bungie, why it invested in Epic Games, and why it also bought EVO. In other words, Sony is investing in areas that haven't traditionally been its core strength.

In this context, it's hard to see Square Enix factoring into their strategy. Yes, Square Enix owns what is arguably today's most popular MMO in Final Fantasy XIV. But a popular MMO doesn't necessarily align with Sony's games as a service strategy more broadly. It would presumably be up to Sony to do the heavy lifting and figure out how to leverage Square Enix's impressive IP to develop new games as a service offerings. But can these franchises make such a switch? How would a Kingdom Hearts live service game work? And would people even want that?

In summary, Square Enix doesn't jump out as an obvious purchase, given Sony's stated goals.

The friend zone works for now

Sony isn't concerned about platform exclusivity for franchises like Final Fantasy. Microsoft won't be able to buy Square Enix for at least another year (should it even be interested), and the Xbox platform hasn't traditionally been home to a core audience for Square Enix's games. The Xbox doesn't sell in Japan, and it seems unlikely that Square Enix exclusivity would be enough to push Game Pass to the required extent.

So, if Final Fantasy XVI is available on multiple platforms, then it seems clear that PlayStation will continue to be the place where most gamers will play it. Sony might as well have exclusivity in this case.

There are also some potential risks with further large industry consolidation. Square Enix does significant business on the Nintendo Switch, for instance, and a Sony acquisition might provoke Nintendo into either counter-offering (very unlikely - Ed.) or initiating some sort of antitrust dispute. In other words, an acquisition of this size in the current industry might not make sense for Sony on many levels - not just their corporate strategy.

It's also worth pointing out that Sony are very possibly thinking about, waiting for, or negotiating other acquisition deals that might be far more fruitful for them. Whether that might include companies like Capcom, Sega, EA, Ubisoft, or someone else...it's hard to say. But I'd argue any of these companies would be a more natural fit for Sony.

The long and short of it is that Sony is already benefitting from Square Enix through its existing relationship. Spending vast sums of money to actually own Square Enix and its remaining IP likely wouldn't move the needle enough to justify an acquisition. So, for now at least, Square Enix remains in the friend zone.