We began a new holding in a single of Japan's leading video game publishers, Square Enix. The company was established in 2003 in the merger of Square, founded in 1983, and Enix, founded in 1975. Buying of Taito in 2005 diversified the company into the operation of arcades and arcade machinery development. In '09 they acquired Eidos Interactive, a British gaming publisher, inside a strategic push to improve their exposure to Western markets, boost their development capabilities and gain new ip. We have followed the company because the original merger and also have taken the opportunity to start a position following a 16% fall within the stock price year up to now.
Unlike Nintendo, in which the most of its gaming software is played exclusively on its own hardware consoles, Square Enix doesn't produce any hardware and it is software programs are made to be compatible with other companies' hardware platforms. It may lose a few of the profit margin but doesn't have the main city and technology risk of designing hardware and it is platform neutrality provides it with a multitude of outlets to distribute its Ip . It is, in our view, an excellent business design although arguably somewhat inferior to Nintendo's while there is reliance upon a series of platforms over which Square Enix has little control. 77% from the company's revenues are sales of video game software played on dedicated games consoles, on smartphones, on PCs or as Massive Multiplayer Online games.
Square Enix has a quantity of core franchises. Its landmark IP is the Final Fantasy series which goes back to 1987 when it was initially released by Square; since then the series has sold a lot more than 130 million units worldwide. Dragon Quest is a similarly storied franchise – since its creation in 1986, it's sold over 71 million units worldwide. These two franchises are pre-eminent role doing offers, particularly Final Fantasy. As MMO games, they can be monetised both through users paying to purchase the software and also a separate fee every month for playing online against other gamers. Essentially this operates like a monthly subscription business design which supplies greater stability towards the earnings because it creates a base of recurring revenue. Other important IP includes: Tomb Raider, Kingdom of Hearts, Just Cause and NieR:Automata. The Amusement segment is 17% of sales and operates 140 Taito arcades across Japan. Roughly sixty-six per cent from the business is operating the arcades and also the remaining third is developing arcade game machines. This part of the business is inferior, lower margin compared to core video game publishing business and it has limited growth prospects however it can generate stable cash flows. If eSports take off in Japan because they have far away, they could be used as venues for hosting events. The Publication and Merchandising segments take into account 4% and 2% of sales respectively. The former may be the sale and licensing of comic books, magazines, digital comics and game-strategy books; while the latter is the production and licensing of merchandise based on their IP.