Elon
Good morning 53, I'm Elon, and this is Goose Pod for you. Today is Sunday, November 16th.
Taylor
And I'm Taylor. We're here to discuss a major shake-up: Square Enix is undergoing mass layoffs as it reorganizes and consolidates its development back in Japan.
Elon
It’s a significant move. We're seeing reports of over a hundred jobs at risk in the UK and an unknown number in the US. This isn't just trimming the fat; it's a strategic withdrawal from the West. They are fundamentally changing their operational geography.
Taylor
Exactly, it’s a narrative shift. This follows them already selling off major Western studios like Crystal Dynamics and Eidos-Montreal to Embracer Group. They're letting go of iconic franchises like Tomb Raider and Deus Ex. It’s like they’re editing the entire Western chapter out of their story.
Elon
And this isn't happening in a vacuum. The entire video game industry has shed an estimated 45,000 jobs since 2022. January 2024 was the peak of the storm. Microsoft, Sony, EA, Epic—everyone is cutting back. It's a market correction on a massive scale.
Taylor
That’s such a crucial point. While Square Enix’s move feels personal to fans of their Western games, it’s part of a much larger, frankly scary, industry trend. The post-pandemic boom is over, and now we’re seeing the consequences of that rapid, unsustainable expansion. It's a painful reset.
Elon
Painful, but necessary for survival. Bloated operational costs and skyrocketing development budgets for AAA games, sometimes exceeding 300 million dollars, are unsustainable. Companies that don't adapt will simply cease to exist. Square Enix is making a hard choice to ensure its future.
Taylor
And what a choice it is. They're left with a smaller Western footprint, managing franchises like Life Is Strange, Outriders, and Just Cause. It’s a very different portfolio, focusing on publishing deals and smaller-scale projects rather than massive, in-house AAA productions. A strategic retreat, for sure.
Elon
It’s about focusing resources where they generate maximum value. Their core strength has always been in Japanese-developed RPGs. They are doubling down on what they do best. The Western experiment, for them, is largely over. We have to look at the data, not the nostalgia.
Taylor
Let’s talk about that experiment, because it’s a fascinating story. Square Enix’s big move into the West really kicked off in 2009 when they acquired Eidos Interactive. That was a huge deal, bringing all these legendary British game studios and IPs under their Japanese umbrella.
Elon
An ambitious acquisition. They saw an opportunity to diversify their portfolio beyond Final Fantasy and Dragon Quest. They wanted a global development pipeline, but global operations are complex and expensive. The synergies they hoped for never fully materialized in the balance sheet. It was a drag on resources.
Taylor
Right, and for a while, it seemed to work! We got a fantastic Tomb Raider reboot trilogy and two brilliant, if not commercially explosive, Deus Ex games. But then came the underperformance of big-budget projects like Marvel's Avengers. That game, in particular, seemed to be a turning point.
Elon
A predictable failure. The live-service model was poorly executed and didn't align with what the studio, Crystal Dynamics, was known for. It was a costly misstep that likely accelerated this entire process of divestment. You can't burn that much capital without consequences. It forces a radical re-evaluation.
Taylor
And that re-evaluation led to the sale in May 2022. They sold Crystal Dynamics, Eidos Montreal, and Square Enix Montreal, along with a catalog of over 50 games including Tomb Raider, to Embracer Group for just $300 million. It felt like a fire sale to many people.
Elon
Three hundred million for IPs like Tomb Raider, which has sold over 85 million copies, is an incredibly low figure. It shows how desperate they were to get these assets off their books. They weren't just selling studios; they were buying their freedom from underperforming Western divisions.
Taylor
It’s so interesting you put it that way. It wasn't just a sale; it was an escape. And now, as part of this new internal strategy, they've laid out another bombshell: their plan for Quality Assurance. This is where the story gets very, very forward-looking and a little dystopian.
Elon
It's not dystopian, it's efficient. They've stated they expect 70% of their QA work to be handled by generative AI by the end of 2027. They plan to be "aggressive in applying AI" across both development and publishing. This is the future. It’s the only way to manage the scale and complexity of modern games.
Taylor
Aggressive is certainly the word. So we have this complete narrative: the acquisition of the West, the struggle to make it profitable, the sale of its biggest assets, and now, a pivot to Japan coupled with a radical embrace of AI. It’s a full-circle journey that’s reshaping the company entirely.
Elon
From a business standpoint, this is a logical, albeit brutal, consolidation. Their Western studios were a financial drain, and games like Guardians of the Galaxy, while critically acclaimed, failed to meet sales expectations. You cannot operate a business based on sentiment. The numbers have to work.
Taylor
But the conflict here is between the balance sheet and the creative soul of the company. They’re losing decades of institutional knowledge and the unique design sensibilities of these Western studios. You lose the creators of Deus Ex and Tomb Raider, and you lose something more than just an asset, you lose a perspective.
Elon
A perspective that was costing them money. The alternative is to let the entire company weaken. A focused, profitable company centered in Japan can produce better games and be more stable in the long run. This move protects the core, which is Final Fantasy and their other Japanese IPs. It’s strategic triage.
Taylor
I see the strategy, but it feels like they're building a creative echo chamber. The tension between Japanese and Western design philosophies often produced really interesting results. Now, their portfolio risks becoming homogenous. Will we lose the unexpected hits that come from that kind of creative friction?
Elon
You’re romanticizing friction. Friction creates inefficiency. The biggest conflict is internal: the battle against rising costs and stagnant development models. Embracing AI for QA is a direct assault on that problem. It's a necessary war on inefficiency to enable more creative risk-taking elsewhere. We must innovate or perish.
Taylor
But that creates another conflict, doesn't it? The tension between human testers and AI. An AI can find bugs, sure, but can it tell you if a game *feels* right? Can it understand the nuance of player experience, the pacing of a story, or the emotional impact of a scene? That’s not something you can easily quantify.
Elon
Not yet, but it will. And it will do it faster and cheaper than human teams. The conflict is between clinging to old methods and embracing a future of augmented creativity. The real challenge isn't whether AI can do the job, but whether we have the vision to implement it correctly.
Elon
The immediate impact is clear: a leaner, more focused Square Enix. But financially, they've been struggling. Reports for their recent fiscal quarters show lower revenue and operating income in their Digital Entertainment segment. These layoffs are a direct response to that financial pressure. They need to stop the bleeding.
Taylor
And the impact on their brand is huge. For a generation of gamers, Square Enix was this cool hybrid company that made Final Fantasy *and* Tomb Raider. Now, their presence in the Western market feels diminished. It changes how people perceive them and what they expect from them in the future.
Elon
Perception is secondary to profitability. The broader impact is on the gaming industry's job market. Thousands of talented people are now looking for work, and junior-level positions are becoming nonexistent. It’s creating a bottleneck for new talent trying to enter the industry. This is a systemic problem.
Taylor
It's heartbreaking. One level designer told PC Gamer they feel like they’re just going in circles, looking for junior roles that have vanished. This wave of layoffs disproportionately affects the next generation of creators. The long-term impact of that brain drain could be devastating for creativity in the industry.
Elon
It forces a necessary evolution in skills. Developers will need to become more adaptable, perhaps working with AI tools more closely. The structure of studios will change. The impact is a painful but potent catalyst for innovation in how games are made and who makes them. The old model is breaking.
Elon
The future for Square Enix is clear: Japan-centric development, a smaller global footprint, and aggressive AI integration. Their 2027 goal for 70% AI-driven QA is the headline. It's a bold, first-mover advantage that will either be a masterstroke of efficiency or a catastrophic failure in quality control. High risk, high reward.
Taylor
It really is a gamble. If they succeed, they could create a new, more sustainable model for AAA game development, and every other publisher will follow suit. If it fails, and their games are released as buggy, soulless products, the damage to their reputation could be irreparable. It's a fascinating, high-stakes narrative.
Elon
Their global market strategy will now rely on the universal appeal of their Japanese games. They're betting that a new Final Fantasy or Dragon Quest has more global pull than a new Deus Ex ever did. It's a return to their roots, powered by futuristic technology. The future is a fusion of tradition and AI.
Taylor
So, the key takeaways are a major strategic pivot to Japan, a sign of a massive, painful trend in the gaming industry, and a bold, controversial leap into an AI-driven future. It’s a story of consolidation and difficult choices.
Elon
That's the end of today's discussion. Thank you for listening to Goose Pod. See you tomorrow.
