The History Of Square Enix: The Formation

By Darryl Kaye on May 29, 2011, 8:58PM EDT

In the last few weeks, we've published a few articles about Square Enix. The first looked at the buy-out of Eidos, and how Eidos is what is seemingly keeping the company going at the moment, while the second commented on whether or not Square Enix were right to pursue Facebook games and apps as a viable way to generate revenue for the long-term.

However, all this needs some perspective. And with that in mind, we've decided to compile a comprehensive list of how exactly Square Enix ended up in the position they are right now, a position which is a far cry from how many remember the publisher in the late 90s.

To do this though, we need to go back to that very time, before Square Enix was even under consideration by either Square or Enix. This first part will look at what went wrong at Square Co. and will lead us right up to the formation of Square Enix. Hopefully you will find this timeline constructive, as it looks to shed as much light onto the company as possible. We've tried to compile as many key events as we can which related directly to Square Enix, so you won't see anything like "Final Fantasy VII releases."

Q1 1997 - Square Forms Square Pictures

Towards the start of 1997, Square USA, a subsidiary of Square Co. formed a new studio called Square Pictures. It was based in Honolulu, Hawaii, and at the time of its inception, Square Co. expected the studio to cater for a third of the company's worldwide operations.

It was also the third expansion Square Co. had made into the USA, with the founding of subsidiary SquareSoft in 1989 and then Square USA in 1996, which would be a research and development (R&D) studio based in LA. The aim of having Square Pictures based in Hawaii, was that it was between Japan and LA.

Legendary Final Fantasy creator Hironobu Sakaguchi moved over to Hawaii in order to oversee the new studio, which would be involved with the development of CG in Final Fantasy titles as well as working on blockbuster CG feature films, the first of which he would write and direct himself. This film later became known as Final Fantasy: The Spirits Within.

The opening of the two R&D facilities saw Square Co. post the first loss ($27 million at the time) since 1986, when Final Fantasy saved the company. It was a loss they were willing to make though, in order to stay ahead of the curve.

It's a significant place to start, because this single act - the decision to make Square Pictures about big budget CG films - was the action that set the ball rolling to the events that are occurring now. You see, it was only because of the success of Toy Story that Square decided that they too should make full length CG films. Had Toy Story not happened, the studio formed in Hawaii may well have been purely about making high quality games.

2000 - Proposed Merger With Enix Falls Through

The merger between Square Co. and Enix is now history, but it was originally considered as much as three years before it became a reality.

After their first ever losses were recorded, things got worse for Square Co., however, Enix were also having their own difficulties. They had spent 99.2 million yen (approx $840,693) on shares in Game Arts, the developer of the Grandia franchise, which gave them the publishing rights for the game.

This, combined with an increase in development costs and unfortunate delays, saw Enix's profits dropping rather quickly. Thus, they looked for a partner in order to make life easier for them. They formed an online agreement with Square and Namco, but a merger with Square was put into jeopardy because of their declining profits due to the disaster happening at Square Pictures.

February 2001 - Tomoyuki Takechi Resigns

After joining Square Co. in 1996, Tomoyuki Takechi became the chairman of the company in 2000. He was tasked with turning things around as the company was in quick decline, but in February of 2001 he resigned. Under his leadership, Square Co, had gone into the red for the first time since 1986 - only four years after it had seen its first losses since the same time.

Due to the high-profile nature of his failure, Takechi was expected to commit ritual suicide (Seppuku), but he declined.

May 25th, 2001 - Sakaguchi Plans Exit, Trademarks Mistwalker

It's well documented that Hironobu Sakaguchi saved Square Co. with the creation of Final Fantasy and led it to become one of the biggest video game franchises on the planet. But even he wasn't immune to the repercussions of the impending failure of Final Fantasy: The Spirits Within.

Over the course of its development there had been numerous problems, with Shiro Kawai stating that while 1,336 shots were in the final production, 1,427 shots were cut - it was a complete mess.

Sakaguchi was the guy who was supposed to be leading this mess, and The Spirits Within was created under his direction. And following the failed release of the film, Sakaguchi relinquished his position as executive vice president at Square Co, remaining nothing more than an executive producer at the company, he was no longer allowed a creative role.

This day is more notable for other reasons though, as this was the day that Sakaguchi registered the Mistwalker trademark - before The Spirits Within even released. His intentions weren't clear at the time, but they became very clear a few years later.

July 2nd, 2001 - Final Fantasy: The Spirits Within Airs For The First Time

On this day, Final Fantasy: The Spirits Within received its premiere showing. But despite Square Enix investing approximately $167 million ($137 million production, $30 million marketing) on the project, even they would have hoped for a better return on their investment.

However, Final Fantasy fans were bemused by the association, as there was very little in common with the franchise they knew and loved. Other movie-goers just saw a generic sci-fi flick with no real appeal - the film just got drowned out.

The result? The tenth biggest box office bomb of all time (when inflation adjusted). Final Fantasy: The Spirits Within lost Square Co. almost $82 million.

October 4th, 2001 - Square Pictures Ceases Production

Later in the year, following the huge losses incurred by the studio, Square Co. revealed that they would be making an exit from the movie business. The failure of Final Fantasy: The Spirits Within saw Square Co. announce what they deemed "extraordinary losses", of $115 million.

Their last contribution to the world from a creative perspective was a short film for the Animatrix called Final Flight of the Osiris and upon its completion, Square Pictures was disbanded as an R&D studio.

Square Co. did however, keep Square Pictures open in order manage revenue generated from their ventures into the movie business. The Spirits Within didn't make as much as expected, but it was still generating some revenue. (Page 53)

December 2001 - Yoichi Wada Appointed President and CEO of Square Co.

Yoichi Wada, born May 28, 1959 in Nagoya, joined Square Co. in April 2000. By June of the same year, Wada was named director and chief financial officer (CFO). In September 2001, he was appointed as chief operating officer (CEO).

Wada is responsible for "revitalizing" and reorganizing Square's management, leading the company to a dramatic recovery in profits and the highest operating margin in its history by the end of fiscal year 2002.

By December 2001, Wada was named President and CEO of Square Co. It would not be until April 1, 2003, when Wada led the merger between Square and Enix to form what many know as Square Enix today.

March 28, 2002 - Square Co.'s Last Major Franchise Arrives In Kingdom Hearts

Development on Kingdom Hearts began as early as 2000, when Square producer Shinji Hashimoto happened to run into a Disney executive in an elevator, not an uncommon meeting considering the two companies shared the same building. The idea was planted and character designer Tetsuya Nomura would lead the project as director.

This would be the first time Nomura was put in the director's seat, he previously worked as a creature designer on earlier Final Fantasy titles before gaining mass recognition for his character designs in Final Fantasy VII. Kazushige Nojima of FFVII fame also served as the scenario writer.

Kingdom Hearts marked the last new successful franchise to be developed by Square Co. prior to the Square Enix merger and has gone on to spawn a sequel and many spinoffs across multiple platforms. Previous Square franchises outside of Final Fantasy include the Mana, SaGa, Chrono, Front Mission and Parasite Eve games.

January 1, 2003 - Square's Founder Objects To Enix Merger

Prior to the Square Enix merger in April 2003, founder and largest shareholder of Square Co. Masashi Miyamoto expressed his objection to the merging of the two companies, arguing that the merge would devalue Square Co. stocks.

The agreement would allow for 1 Square Co. share to be exchanged for 0.81 Enix shares. At the time, Miyamoto held 30 percent stock in Square Co., making him the top shareholder of the company. An agreement was reached a few days later, which satisfied Miyamoto's concerns.

After Square and Enix merged in April 2003, Miyamoto's share dropped to 18 percent, putting him behind the new largest shareholder of Square Enix, Yasuhiro Fukushima - founder and chairman of Enix, presently honorary chairman of the company.

March 13, 2003 - The First Direct Final Fantasy Sequel Is Released By Square Co.

Despite Final Fantasy having many sequels, up until the release of Final Fantasy X-2 there had never been a direct sequel to any of the games. Each had been seen as a compact, enclosed story, but Final Fantasy X-2 continued to follow the adventures of Final Fantasy X protagonists, Yuna and Rikku, while also introducing a new protagonist in Paine.

The game released under the Square Enix banner in North America and Europe, but in Japan, it came out before the Square Enix merger. It is a Square Co. game, but, it's a Yoichi Wada Square Co. game.

Final Fantasy X-2 can be seen as a first step towards a new direction for the company, one which has spawned countless sequels and off-shoots since Final Fantasy X-2 appeared on the market. The most prominent of which, is the Compilation of Final Fantasy VII.


Be sure to check back in the future to see the next part in our Square Enix timeline. It will deal with the next stage in the company's history, from its creation, to the end of the PlayStation 2 era.

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