While The Spirits Within was a financial failure and played its role in hurting the company, it did not destroy Squaresoft nor did it force the company to merge with Enix. Sparking the interest of others and myself, a few select gaffer's provided fascinating and lesser known details that seemed to add up and make a ton of sense considering the general structure and output in the last decade. Through LevelNth and Drek's posts on the subject, here is Cheerilee's simplified summary of their posts touching on some issues that never seem to be recognized:
Originally Posted by Cheerilee
Enix was bigger than Square, but Enix had very little control over their own IP and no success in America. Enix wanted to merge with Square. Enix gets steadier, more reliable moneymakers, and an American presence out of the deal. Square gets the benefit of Enix's piles of money.
Hisashi Suzuki was hesitant to merge, because Square would become Enix's bitch in the merger, and Square would provide all the growth, when they don't even really need Enix's money.
Hisashi Suzuki and Hironobu Sakaguchi made FF: The Spirits Within, and blew a ton of money. They didn't kill Square, but they seriously hurt it. Suzuki got Sony to bandage the wound.
Enix got spooked by TSW's bomb, and backed away from the merger.
Yoichi Wada stepped up and said "See, these fools are not only killing Square, but they're also scaring Enix away. Put me in charge and I can fix things."
Square put Wada in charge. He merged Square with Enix. Enix liked him, so they let him run the combined show.
Wada said "Hey Enix, you want steady and reliable moneymakers? Lets milk Final Fantasy dry."
Now today, in spite of all of Enix's money, SquareEnix is worth less than Square was when it was supposedly "dying" after The Spirits Within. And Hisashi Suzuki is laughing at SquareEnix over Twitter.
Looking for official sources to reinforce this angle, I've done some searching into the subject and articles mainly dated in the 2000-2003 period and while I won't claim it as the definitive answer, LevelNth and Drek's input are in fact mostly accurate and supported.
Below is a timeline I've attempted to assemble to help illustrate things a little more clearly and I've included certain roles in the company and their influence on development to show the general shift in production as it developed from Sakaguchi and Suzuki to Wada.
*Again, I don't claim anything in the OP or timeline below as a definitive answer or conclusion but as more of a (attempted) guide created in the hopes to establish a more consistent and accurate history of events and hopefully, lead to further information and clarification on the whole matter*
Sakaguchi Appointed President of Square LA, Inc. (now Square USA, Inc.) in 1995 with the establishment of a research and development base for U.S. operations.
Square Pictures is set up in Honolulu Hawaii in May of 1997 with the goal of creating Final Fantasy and other computer-animated films at the company's state-of-the-art Honolulu studio. Square plans to incorporate the movie division's technical advances into its games, spinning a cycle of creativity with games inspiring movies that in turn improve games.
Square and Columbia Pictures team up to bring one of gaming's biggest franchises to the silver screen with a contract to split costs and profits for three pictures, Square is looking to cut additional movie deals.
Columbia Pictures will distribute the movie worldwide (except for Japan and Asia) when it arrives to the silver screen in 2001. "Those of us who have witnessed the phenomenal success of Final Fantasy VII on the PlayStation game console are delighted to be part of bringing the film version to the public," stated Chris Lee, president of production at Columbia Pictures." Considering the recent successes of titles like Ants and its computer animation predecessors, Final Fantasy: The Movie has the potential to be an even bigger success since it has such a long history. Square's ambitious goal is to be the first to simulate human emotions and movements through computer graphics.
"Final Fantasy: The Movie will be the realization of a dream to create a brand-new form of entertainment uniting computer games and motion pictures, using the latest in CG animation technology,"
January 29th: Final Fantasy IX, Final Fantasy X, and Final Fantasy XI are officially revealed. They have announced not only that these games are in development, but that at least Final Fantasy IX and X will be out before the end of next Summer in Japan. (IGN)
February 17 - PS Festival 2000: Square forms Alliance with Disney (Kingdom Hearts) The idea for the game originated from Hironobu Sakaguchi and Shinji Hashimoto
Square announced preliminary plans for Final Fantasy XI, and as of right now the game will be completely online, and is for the Playstation 2 and the game will run on the Play Online network and is being headed by Hiromichi Tanaka, producer of Chrono Cross and Xenogears, and Koichi Ishii of the SaGa Frontier and Seiken Densetsu series.. - idea for the game originated from Hironobu Sakaguchi's years in Hawaii where he was inspired by EverQuest & Ultima ( RPGamer)
Yoichi Wada joins Squaresoft (as CFO in June 2000)
Square and Enix merger discussions begin
January 19: Square announces FFX to be delayed - First red ink in Company History (MMC image source)
January 22: Square talks Nintendo and GBA, announces development of Final Fantasy XII, Sakaguchi has assigned it to be directed by Yasumi Matsuno & Hiroyuki Itou
February 8: Square Does the Management Reshuffling - Hironobu Sakaguchi "resigns" as Vice President, Hisashi Suzuki takes 50% paycut (RPGamer)
May 14th: Hironobu Sakaguchi registers domain name - www.mistwalker.co.jp -,"followed by the registration of Mist Walker on United States Patent and Trademark Office in 25th May 2001.
Three key figures have been moved around in the company ranks - actually, they "resigned" from their current positions in order to take responsibility for the losses, and have been reassigned to different positions. Hironobu Sakaguchi, the father of the Final Fantasy series, will no longer be vice president, and will instead be known as an "executive producer." Additionally, company president Tomoyuki Takeshi will become a contractual consultant for the company, with director Masahi Hiramatsu now taking the role of executive consultant.
July 2nd: Square Discusses Financial Woes:
July 2: The Spirits Within Releases, grosses 30 million domestically and will go on to make 85 million in total. Budget including the development of Square Pictures itself is 137 million.
With an over-budget movie hitting theaters next week, and a company that lost money in the last fiscal year, you can bet that shareholders are looking for some answers.
( Box Office Prophets, LA Times )
"Future Films be done fairly quickly and be more cost effective. So yes, if there was another company interested in creating a movie with our technology, we'd definitely be interested, but I'd never want to start from scratch again."
July 19: Final Fantasy X releases in Japan
July 24: Final Fantasy X sells more than 1.9 million units
October 3: After posting an operating loss in the previous fiscal year, Squaresoft had forecasted a 700 million yen (about $6 million) profit for the current year, but now the company plans to book a loss of approximately $13.9 billion yen (about $115 million)to accommodate for the poor performance of the film
October 8: Squaresoft/Hisashi Suzuki gets Sony to buy 18.6 % stake in Square looking to recoup approximately 16.4 billion yen (about $137 million dollars) in production costs from the making of its Final Fantasy movie, which Sony also helped to produce.,
November 26: "CEO Hisashi Suzuki will be stepping down as leader of the once-profitable game company. Current COO Yoichi Wada is set to fill Suzuki's shoes beginning December the 1st and is hoping to lead the company in a restructuring plan that will return it to profitability."
December 18: Final Fantasy X releases in North America
March 11: 'Final Fantasy' Will Return to Nintendo
March 28: Kingdom Hearts releases in Japan
May 15: Square has announced an upward revision of their earning forecast for the current fiscal year, based in large part upon the success of Kingdom Hearts and Final Fantasy X's strong North American performance.
May 16: Final Fantasy XI releases in Japan on PS2
May 28: Company Restructure to take place, Square Announces Final Fantasy X Spinoffs ( MMC image source, Eurogamer.net )
In other announcements made in the meeting, Square has revealed changes in their company in order to cut development costs. Reported by Bloomberg, while Square formally took a development style where teams were formed and dispersed per project, developers will now be fixed into divisions. Source codes and resources will be shared for efficiency, and employees will receive varying bonuses depending on the profit of their division.
By settling developers into groups, Square also aims for the developers to re-use the titles they have developed, making game development more cost efficient. Development costs- originally 2-3 Billion yen, are expected to fall to 1 Billion yen.
May 31: Square Reveals Fiscal Results; Future Titles Discussed, FF XII ready for release in 2003
September 17: Kingdom Hearts releases in North America
Video game software sales, on the other hand, helped take a chunk out of the losses; Final Fantasy X has shipped 4 million copies worldwide and Kingdom Hearts has already sold over 700,000 copies in Japan. The company expects to make 4.4 billion yen ($35.5 million USD) in profits by the end of this fiscal year.
November 13: Square Expects Strong Financial Results
November 17: Final Fantasy XI releases on PC in Japan
November 25: Square and Enix to Merge: "This is an offensive merger," commented Wada. "Square has also fully recovered, meaning this merger is occurring at a time when both companies are at their height."
Takashi Oya, at Deutsche Securities, described the deal as a "virtual" merger and expressed doubts about the benefits.
Dec 23: Kingdom Hearts Achieves Million-Unit Sales Mark in North America - brings the total of units shipped to 3 million worldwide.
"Enix outsources game development and has few in-house creators, while Square does everything by itself. The combination of the two provides no negative factors but would bring little in the way of operational synergies,"
January 11: According to the Saturday edition of the Japanese newspaper Nihon Keizai Shimbun, Square founder Masafumi Miyamoto wants to bring the plans of Square and Enix to a screeching halt
January 14: Square Enix Merger Gets Greenlight from Miyamoto
As the current largest shareholder of Square, Miyamoto would find himself holding significantly less if the two RPG behemoths go through with the deal. As an added twist, Miyamoto's approval is necessary for the merger's completion.
Square and Enix are working on some sort of resolution for this perplexing problem, which could include altering the current terms of the agreement, and the shareholders of both companies will be meeting in February to vote on the merger.
March 13: Final Fantasy X-2 releases in Japan (Square ships more than 1 million copies of X-2)
As previously reported, Square founder and No. 1 shareholder Masashi Miyamoto objected to the proposed merger with Enix, criticizing the exchange ratio of one Square share for 0.81 Enix shares. Today the companies announced that the issue has been resolved, by altering the ratio to 1 to 0.85. This move should pave the way for the merger to go ahead as planned on April 1st.
April 1: SQUARE CO., LTD. merges with ENIX CORPORATION, and the new Company is subsequently renamed SQUARE ENIX CO., LTD.
July: Wada relocates Headquarters to Yoyogi, Shibuya-ku, Tokyo, - due to Wada having visited a fortune teller with several locations in mind (Nobuo Uematsu will leave because of the move)
Square Enix's Business Strategy as of July 2003:
Sakaguchi in 2001:
GIA: Are you ever worried that Square will become too heavily dependent on the Final Fantasy name?
HS: Avoiding that has actually been one of Square's goals for a long time. It is our aim to try and develop a few more major franchises for the company; that has always been on our minds.
Square and Enix financial data from 1998-2002:
Game Shipments: (as of 2003)
Data taken from here
Nobuo Uematsu on Sakaguchi leaving Square:
1up: The consumer reaction, how many people went to go see it, wasn't very much, and it became a big financial failure for Square, and despite how much Sakaguchi-san had done for Square, it was this project that kind of led to his eventually leaving the company. Looking back, do you think that was a sad moment, especially considering how much he had done for the company and where he had brought the company? Japanese companies in general seem to be quick to look for a scapegoat whenever something doesn't go right. How did you feel about what happened with Sakaguchi-san?
NU: [Long pause] No matter what happens in the future with the company of SquareEnix and with the individual Sakaguchi, one thing that's not going to change is that he is the father of Final Fantasy. He made the series. And it was a difficult time when he left Square -- at that time it was still Square. As an individual myself, as someone who creates content, not purely for business purposes or making money or gaining profit from something I create as a content creator, it's really hard to say this, but I really don't think Final Fantasy should have been made after Sakaguchi-san left the company. Square the company owns Final Fantasy the property, so it's really up to them what they decide to do. But me personally, that's what I thought when he left the company. And I think at the same time that they started to change the direction of the company. We weren't sure who was in charge of what. It meant a lot of things if we look back at that time when he left and maybe soon after he left. There were a lot of changes, and it was probably a turning point for the company. I don't know if there has been another turning point within SquareEnix the company, but that was definitely a moment that meant a lot of different things.
1UP: Companies like this, entertainment companies, are always in it to make some kind of money because without making money you can't continue to produce and create new entertainment, but would you say that when Sakaguchi left Square, would you equate that to something like when Walt Disney died? Because after Walt Disney died, it changed from Walt Disney Productions to the Walt Disney Company. It acquired more of a corporate mentality as opposed to this -- I don't want to say a family business necessarily -- but it turned it from something that seemed a lot more...it had a humble human element in Walt Disney Productions; you know, there were real people behind it. It wasn't just a faceless corporation. When Walt Disney died, it became the Walt Disney Company and it acquired a corporate feel and maybe it lost something. It lost some of that innocence. And Disney as a corporation just started cranking out annual animated movies to capitalize on the public's thirst for cartoons and family entertainment, and it became much more of a business. Would you say that sort of transformation took place because before there were individual Final Fantasy games, and now they come like five at a time. Final Fantasy XIII times five.
NU: You know, the example of when Walt Disney died and became corporate, now that I've left the company, I can't really say, "Yeah, it's completely changed." It's probably better to ask someone who went through that change with Sakaguchi-san leaving, what they think of the company today, but in my opinion -- and I hope that Sakaguchi-san feels the same way -- is that we did treat each and every Final Fantasy as a birth of something, as a great product that we believed in. All we really wanted to do was to be able to express a very simple belief of friendship or family love or just love in general and if that becomes something that is going to be bought by money and can easily be a base for making a successful business, I just want that to be sold in that manner. Like, this was going to be a boxed package that was going to make money. That's not -- as one of the creators of the games that we worked on -- that wasn't necessarily our purpose. So that's the line that we always have between the business side and the creative side of the business. But all I hope for is that with the people who are still at SquareEnix, I hope that they still have that belief in them, and I wish that they would continue to execute their jobs and projects in the way that we were able to do back then. It's not a MasterCard slogan, but it's priceless. The work is priceless. And I hope that everyone continues to hold that belief. I don't know if this is going to be a good example, but if blood sells, that doesn't mean I think every single game is going to need blood because they think it'll make money. That's just easy to say in words, but it's not really why it should be in the game. There still has to be a very deep and important substance there to create that blood, and if it needs to be there, it needs to be there. But we're not going to make a game just based on blood and violence because it sells.
Other threads/stories related to development changes, company culture and working conditions:
Square Enix Company Culture
4gamer interviews Yasumi Matsuno
Are working conditions at Square Enix getting really bad?
Wada Was The Start: Why Square Enix Is In Serious Trouble