Enix was completely different.
Their headquarters only maintained a core team of about thirty planners and producers.
The actual development work—such as art design, programming, and music production—was all outsourced to external partner studios.
This "core + outsourcing" model allowed Enix to maintain extremely low administrative costs and highly efficient operations.
They had accumulated extensive experience in quality control and project management, enabling them to advance multiple R&D projects simultaneously.
"In the 16-bit era, SFC development tools were very mature, and there were a large number of outsourcing teams in the market familiar with 2D assembly language at your disposal," Takuya Nakayama said, peeling back the superficial layer to analyze the underlying logic. "But in the 32-bit and 64-bit eras, the market environment changed. The N64's complex 3D architecture and demanding programming requirements shut the door on the vast majority of small and medium-sized outsourcing teams."
He paused, observing Keiji Honda's reaction.
"Where are you going to find so many outsourcing companies that have mastered N64 microcode?" Takuya Nakayama delivered the fatal question. "Managing 3,000 internal employees and managing three external studios require completely different administrative structures. Enix has established a rigorous audit standard for outsourcing quality control. But on the N64 platform, due to the closed nature of the microcode, your auditors can't even effectively test code submitted by third parties in the early stages. This will lead to a total loss of control over project progress. If you can't find a suitable technical execution team, the new Dragon Quest will be stuck at the proposal stage, indefinitely delayed."
Keiji Honda remained silent.
Takuya Nakayama had precisely struck Enix's Achilles' heel.
The disconnect in their outsourcing network was the biggest crisis Enix faced during the transition to the next generation.
Traditional 2D outsourcing teams are incapable of handling 3D game development, while large studios with 3D capabilities often have their own projects and are unwilling to take on outsourced work.
Hironobu Sakaguchi of Square was a tech fanatic; they would buy expensive Silicon Valley workstations just for a few seconds of CG animation.
Enix couldn't do that, nor did they want to.
Their core competitiveness lay in their stories and systems.
Forcing Enix to adapt to a heavy-asset development model would be like cutting one's feet to fit the shoes.
Recently, Enix hadn't released any major blockbusters to support their revenue, and the numbers on their financial reports didn't look good.
Rumors began to circulate outside, claiming the company had fallen into a capital chain crisis, with some media even speculating that Enix was looking for a buyer.
"There's a lot of speculation about Enix's financial situation," Takuya Nakayama said, looking at Keiji Honda. "Some say you're short on cash and might not even make it through this fiscal year. Sega doesn't see it that way."
Keiji Honda smiled, picked up his teacup, and took a sip of the now-tepid tea.
"Rumors stop with the wise," Keiji Honda replied clearly. "Enix's cash flow is very healthy. Our shareholder structure includes heavyweight financial institutions such as the Master Trust Bank of Japan. As financial investors, they provide ample capital security. What the Master Trust Bank of Japan values is Enix's steady profitability and low debt ratio. Blindly expanding our development team would upset this financial balance. Even if we really needed a large amount of R&D funding, it would be easy for us to raise capital in the market through private placements or by issuing convertible bonds. Money has never been the primary issue for Enix. What troubles us is a lack of direction and core development resources."
"Sega is well aware of this," Takuya Nakayama added, taking the opportunity to state his position. "So, the reason I am sitting here today is not to discuss an acquisition. Sega has no interest in Enix's equity, nor will we make taking a stake or cross-shareholding a prerequisite for cooperation. We are only here to discuss business cooperation."
The guarded look in Keiji Honda's eyes faded significantly.
Many hardware platform holders prefer to use capital penetration as a tactic when wooing top-tier third-party developers.
Sony, for example, often uses capital injections to secure exclusivity agreements, attempting to turn third parties into their own appendages.
Enix's senior management was extremely averse to this kind of partnership that would result in a loss of independence.
What they needed was an equal partner, not a condescending suzerain.
"Furthermore, Sega highly respects Enix's layout in manga publishing and peripheral merchandise channels," Nakayama Takuya added. "We are only discussing cross-platform cooperation for the gaming business; we will not interfere with your company's diversified operations, let alone ask for a share of the profits from your publishing business."
With the threats of capital mergers and business encroachment removed, the atmosphere of the conversation became purely professional.
This was a purely commercial negotiation based on mutual benefit.
"Since money is not the issue, what troubles President Honda must be the matching of development resources." Nakayama Takuya took a bound document out of his briefcase and pushed it toward Keiji Honda.
Keiji Honda picked up the document and opened it.
It was a detailed list.
It listed dozens of game development companies and studios, followed by their technical expertise, staff size, and previous projects they had participated in developing.
"Over the past year, the Japanese game market has undergone a drastic reshuffling," Nakayama Takuya explained the origin of the list. "Many small companies that blindly followed the trend of making 3D games went bankrupt, and there are others that are poorly managed and barely scraping by."
"Sega's Third-Party Liaison Office has been collecting this information, conducting technical evaluations and integrating resources for them."
Keiji Honda carefully examined the data on the list.
Most of these companies had suffered from deficiencies in planning capabilities and distribution channels, leading to project failures, but their underlying programming and art construction skills were not lacking.
"For instance, this Pixel Workshop," Nakayama Takuya pointed to a line on the list. "They originally made 16-bit side-scrolling action games, and couldn't get orders during the shift to 3D. But Sega's technical team previously provided them with three months of training in C language and polygon modeling. They are now fully capable of handling town modeling and NPC behavior logic tree scripting for RPG games."
"These teams are familiar with the C language and have mastered basic 3D polygon generation technology," Nakayama Takuya threw out his trump card. "More importantly, they have all had hands-on experience with the Jupiter development kit. Sega can fully connect these mature outsourcing resources to Enix."
Keiji Honda's breathing became heavy.
This was exactly the missing piece Enix desperately needed.
With these outsourcing teams, they could restart that familiar "core + outsourcing" model.
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