Square Enix Seeks China Partners Amid Hunt for Asia Growth

Square Enix Holdings Co. (9684), maker of the Final Fantasy and Dragon Quest video-game series, is in talks with potential partners in China to reduce its reliance on the Japanese market.

The Tokyo-based gamemaker aims to boost sales from Asia outside its home market to 30 to 40 percent of its total within “several years,” President Yosuke Matsuda said in an interview today. The company, which gets less than 2 percent of revenue from the region, already has tie-ups with Tencent Holdings Ltd. (700) and Shanda Games Ltd (GAME) and is seeking other partnerships to expand sales of hit titles.

“China is a very attractive market to us, given its population and the significant growth of its game industry,” Matsuda, 51, said in an interview today at the company’s headquarters. “We are in talks with other companies to grow in the Chinese market.”

Matsuda, appointed president in June last year, is restructuring the company to focus more on developing games for smartphones as players seek alternatives to traditional video-game consoles, such as Microsoft Corp.’s Xbox and Sony Corp. (6758)’s PlayStation. This fiscal year is a “critical time” for Square Enix to accelerate game development for mobile devices, Matsuda said in May.

Photographer: Akio Kon/ Bloomberg

Yosuke Matsuda, presient of Square Enix Holdings Co. Close

Yosuke Matsuda, presient of Square Enix Holdings Co.

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Photographer: Akio Kon/ Bloomberg

Yosuke Matsuda, presient of Square Enix Holdings Co.

Square Enix shares rose 2.5 percent to close at 1,793 yen in Tokyo trade, the highest in almost three months. The benchmark Topix index added 0.8 percent.

China Expansion

Expansion in China is a “major theme” for the company in the current fiscal year, Matsuda said at the annual earnings briefing on May 12. Square Enix is trying to release titles that have been successful in Japan to overseas markets, including China and Southeast Asia, he said.

China is lifting a 13-year ban on video game consoles with both Sony and Microsoft announcing ventures to tap the world’s largest market. The mobile game market in mainland China will grow to more than 500 billion yen in 2015 from less than 100 billion yen in 2012, according to a Square Enix presentation in May.

Square Enix plans to sell Final Fantasy XIV, a role-playing game available on desktop computers and Sony’s PlayStation, in China this summer in alliance with Shanda Games, Matsuda said May 12.

In the Final Fantasy game, a player controls a group of characters in an imaginary world, fighting battles and completing tasks to advance the story line. More than 100 million copies of the series has been sold since its release in 1987, according to Square Enix’s website.

Photographer: Akio Kon/Bloomberg

Yosuke Matsuda, president of Square Enix Holdings Co. Close

Yosuke Matsuda, president of Square Enix Holdings Co.

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Photographer: Akio Kon/Bloomberg

Yosuke Matsuda, president of Square Enix Holdings Co.

Asia Market

The company is also working with Tencent to introduce smartphone title Sangokushi Ranbu in China. The role-playing game adopts historical characters and events that took place in China during the second and third centuries.

“There are a lot of smartphone games in the market, but the volatility is also very high,” Matsuda said today, referring to the popularity of mobile titles. “So it is important for us to have sufficient stockpile of games to stabilize the earnings.”

The company posted record operating profit of 28.2 billion yen ($279 million) in year ended March 2010, according to data compiled by Bloomberg. Matsuda said today he aims to surpass that in the next few years as Asia sales, driven by China, grow.

“Asia’s game market has high potential given its population and income levels,” Matsuda said today. “We are at take-off stage now and this year is very important to us.”

Company Forecast

Square Enix posted net income of 6.6 billion yen in the year ended March 2014, compared with a 13.7 billion yen loss a year earlier. Sales rose 5 percent to 155 billion yen. The company forecast net income of between 3.5 billion yen and 6.5 billion yen in the current fiscal year.

About 47 percent of Square Enix’s 94.6 billion yen digital entertainment sales last fiscal year were generated from high-definition games, while 27 percent came from titles for smart devices and computer browsers, according to its earnings presentation in May. Approximately 20 percent came from multiplayer online games such as Final Fantasy XIV, it said.

Square Enix’s unit Taito Corp. released its Puzzle Bobble title on smartphones through partnerships with Line Corp. in Japan and Kakao Corp. in South Korea, the largest messaging application providers in each country.

Puzzle Bobble for Naver Corp. (035420)’s Line application has attracted more than 3 million downloads since its release in December last year, according to a release from Taito on June 17. The South Korean version was available from May this year and reached the same download figure in about a month, it said in a separate statement on June 10.

Square Enix said in January the smartphone title Dragon Quest Monsters: Super Light had more than 1 million downloads within four days of its release and the game currently has more than 5 million downloads, according to its website.

In April, Sony sold its entire stake of 9.52 million Square Enix shares for 15.3 billion yen. Sony made the investment in 2001 before Enix Corp. bought Square Co. in 2003.

To contact the reporters on this story: Marco Lui in Tokyo at mlui11@bloomberg.net; Takashi Amano in Tokyo at tamano6@bloomberg.net

To contact the editors responsible for this story: Robert Fenner at rfenner@bloomberg.net Aaron Clark

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