How Marvel Triggered a Baffling Video Game Deal

How Marvel Triggered Baffling Video Game

While gaming companies like Sony, Nintendo and Microsoft are known for both hardware and related exclusive games, the bread and butter of smaller companies only in publishing is the intellectual property they control.

As such, the relinquishing of Square Enix’s western studios Crystal Dynamics, Eidos-Montréal and Square Enix Montreal to Swedish holding company Embracer Group for $300 million as announced last week, seems fairly baffling. This will grant Embracer control of acclaimed IP like “Tomb Raider,” “Deus Ex” and others upon the deal’s approval.

Given the low price tag for what is essentially the entire Square Enix Europe subsidiary, this is a sweet deal for Embracer, which already owns several gaming companies like Koch Media, Saber Interactive, THQ Nordic and more recently Gearbox Software, which was merged with Embracer in 2021 for $1.3 billion.

In total, the three studios Embracer is getting from Square Enix will add 1,100 more employees to the company’s total headcount, which it expects to surpass 14,000 by the deal’s expected close later in 2022.

As for Square Enix, this exchange of studios and IP comes after disappointing sales for two big releases tied to Marvel IP: 2020’s “Marvel’s The Avengers” and 2021’s “Guardians of the Galaxy,” developed by Crystal Dynamics and Eidos-Montréal, respectively.

Per an analyst from MST Financial, the two games may have caused Square Enix to lose as much as $200 million, which seemingly explains the $300 million agreement to sell the developers to Embracer as a way of recouping the costs as the company reorients around its existing Japanese IP like “Final Fantasy” and the company’s professed interest in expanding to games built around blockchain and NFTs.

Net sales at Square Enix have been on a steady climb over the preceding 10 years since a sharp 35% dip from the 2009-10 to 2010-11 fiscal years, due in large part to the company’s acquisition of Eidos Interactive in 2009, which is how the company assumed control of the studios it is now selling to Embracer.

It’s clear the underperforming sales were an unexpected disappointment, especially since Square Enix has previously benefited well from licensing Disney IP for its long-running “Kingdom Hearts” franchise, a fourth installment of which was announced in April.

Assuming the pivot of its Square Enix Europe studios from the IP they were known for to Marvel may have been doomed from the start, though.

As successful as the Marvel brand is — “Doctor Strange 2” opened to $185 million this past weekend, the second best opening of the pandemic after the $260 million net by “Spider-Man: No Way Home” in December — its replication across a medium lie video games is never a sure bet for sales at that scale of its film franchises.

Gamers aren’t just fans of specific games and franchises; they are fans of studios and will engage with any given studio’s output based on what’s come before. When Insomniac Games agreed to develop “Marvel’s Spider-Man" for Sony, it did so after the conclusion of its prior “Resistance” games and more recent releases for family-friendly franchise “Ratchet & Clank,” all of which were PlayStation exclusives — meaning they were being funded by a company backed by hardware sales, on top of software sales.

As a smaller company that only publishes its games, Square Enix was never in a position to give the Marvel games it assigned to its now-departing studios the proper polish time that console companies typically ensure for first- and second-party studios, nor were those games locked into second-party agreements with larger gaming entities.

Now that Insomniac is a first-party studio under Sony, it has even more solid footing for “Spider-Man” sequels as well as the Wolverine game it is developing and publishing after licensing the “X-Men” character from Marvel and Disney.

Embracer’s announcement of the studio acquisitions revealed the “Tomb Raider” and “Deus Ex” games account for a combined 100 million unit sales.

Even if neither franchise commands the name-brand recognition of Marvel across the wider media zeitgeist, these are games that still had presence among players. Their abandonment in favor of failed attempts to cash in on Marvel hype was the key mistake on Square Enix’s end to begin with.