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Japan's Square Bets It Can Transfer
A Hit Video Game to the Big Screen

By ROBERT A. GUTH
Staff Reporter of THE WALL STREET JOURNAL

TOKYO -- Hisashi Suzuki, a 38-year-old college dropout, has become a mogul in the video-game business, thanks to a game intended as a swan song by his colleague, then a burned-out games writer.

Now, "Final Fantasy," one of the best-selling video games ever, is headed for Hollywood. Mr. Suzuki and the company he runs, Square Inc., are making a film featuring computer-generated characters whose hyper-real movements and expressions approach those of people. "My life is like a role-playing game," laughs Mr. Suzuki, a wiry, fast-talking man with a Cheshire cat grin. "It's like a dwarf turning into a warrior."

Square's film is one of the boldest entertainment gambits by a Japanese company in recent years. The company has spent the past four years and, according to some estimates, more than $100 million on "Final Fantasy," a tale of scientists trying to take back the planet Earth from alien conquerors. Featuring a screenwriter who co-wrote "Apollo 13," and the voices of Alec Baldwin, Donald Sutherland and James Woods, "Final Fantasy" is scheduled for release in July 2001, and is being tracked on movie-fan Web sites around the world. Square hopes the movie's characters, or "synthespians," can be rented out to appear in commercials or even other films.

The past 10 years are littered with failed attempts to turn video games into big-screen hits, and "Final Fantasy" is running behind schedule. But Square's adventure is worth watching, because it shows how the $20 billion video-game industry is growing up.

Last year sales of video-game consoles and software in the U.S. alone reached $8.9 billion, eclipsing U.S. movie box-office receipts of $7.3 billion. The industry has revolved around pulse-quickening shoot-em-ups played over dedicated consoles. But companies like Square are trying to push their creative talents into movies and Internet content, as well.

Mr. Suzuki says that next year, Square will open PlayOnline, an Internet service available in English and Japanese, which will offer games that can be played online, as well as music and other entertainment. Businesses like these are a first step in the introduction of broadband, or high-speed, Internet services that can handle the kind of rich computer graphics Square excels at.

Square's fate will depend on the animated Mr. Suzuki and the company's creative wizard, Hironobu Sakaguchi, the creator of the "Final Fantasy" game and now director of the movie, which is being produced in Hawaii.

"It's a big gamble. We're confident that we'll succeed, but if we fail, it could do major damage to us as a company and Japan as a whole," he says, because Japan already has a reputation as a loser in the film business, and a flop of "Final Fantasy" proportions could forever scar reputations here. "It's a survival game, so you have to stay ahead of the others."

The company already has chops in the entertainment world. Thanks to the "Final Fantasy" game, Square reaped sales of $700 million (72.9 billion yen) last year. Sony Corp.'s emergence as the leading maker of game machines came thanks in part to Square -- after Sony wooed Square executives to move the popular game series to its format and away from a rival's.

Square's roots go back to a provincial power-equipment company. Square's founder, Masafumi Miyamoto, thought the game business could be a money-spinner and in the mid-1980s got his father, who ran a company that made towers for electric-power lines, to dish out start-up capital. Mr. Miyamoto brought in Mr. Suzuki as part-time help in 1986. Then in college studying economics, Mr. Suzuki took on all administration, from hiring to office management. Two months on the job, he placed a tiny ad for a game developer and landed Mr. Sakaguchi, at the time a computer-engineering student.

Square limped along making games for personal computers and Nintendo Co. At one point, Mr. Sakaguchi says, he grew tired of writing games and decided to return to college. First, he set out to make what would be his last game -- "Final Fantasy." Mr. Sakaguchi spent a year developing it, honing the story line while in the shower.

Released in late 1987, Final Fantasy was a small hit, riding on the success of Nintendo's Famicon game machine. Mr. Sakaguchi decided to stay on. Mr. Suzuki also quit school.

"Final Fantasy" is a role-playing game that immerses the player in a world of flying machines and futuristic cities. You guide a human character through secret passageways and treacherous stairways, encountering exotic creatures, some friendly and others out to kill. Within a few years of the game's launch, droves of gamers were dedicating the around 50 hours it takes to play the entire game. Between 1988 and 1994, Mr. Sakaguchi spun out versions II through VI, each time expanding Square's fortunes. When Square went public in 1994, its share price shot up, turning Mr. Miyamoto, the founder, into a billionaire. Though no longer in Square's management, he still holds 52% of Square, a stake worth $1.7 billion.

By then Mr. Suzuki -- who holds Square stock worth about $25 million -- was itching for his own success, having watched Mr. Miyamoto get rich and Mr. Sakaguchi gain cult-hero status as the father of "Final Fantasy." In early 1996 he set up Digicube Co. Ltd., aiming to change how games are sold in Japan. Against opposition from Square insiders and specialty shops that had a lock on video-game sales, he had Digicube streamline Square's distribution by selling games through Japan's ubiquitous convenience stores.

Meanwhile, Sony executives had launched their PlayStation game machine in late 1994 and were trying to woo Square away from Nintendo's console. At first Square resisted, but it was won over by a generous contract and Sony's decision to equip the PlayStation with a standard CD-ROM drive, which Square thought would be easier to work with than Nintendo's proprietary method of storing games.

Square launched "Final Fantasy VII" for the PlayStation in January 1997, selling 2.7 million copies the first month, nearly two million of them through Mr. Suzuki's convenience-store scheme. He had made his mark.

A few months before that release, Mr. Sakaguchi walked into work and said he wanted to make a movie. A year earlier he had seen "Toy Story," the first big-screen hit fully made from computer graphics, and was convinced Square could do its own movie. Mr. Suzuki fought the idea, arguing that Square might lose focus on its core games business. He also knew the grim record of Japanese companies in Hollywood, including Sony itself, which in 1994 wrote off 265 billion yen ($2.7 billion) of goodwill associated with its acquisition of Columbia Pictures Entertainment Inc.

Undeterred, Mr. Sakaguchi called on Jun Aida, who had produced the 1994 film "Street Fighter," based on a video game of that name. Mr. Aida politely listened to Mr. Sakaguchi's plan at a late-afternoon Los Angeles meeting, which stretched into dinner at a Japanese restaurant. The next day, to Mr. Aida's surprise, Square called to arrange a plane ticket for him to Hawaii. Soon Mr. Aida and Mr. Sakaguchi were sipping drinks at a beach bar in Waikiki, and Mr. Sakaguchi fleshed out his plan.

Square would build a cutting-edge computer-graphics studio in Hawaii, the idyllic halfway point between Japan's animation experts and Hollywood's computer graphics talent. Mr. Sakaguchi explained that "Final Fantasy" would give Japan a crack at making it in Hollywood. The artists, instead of making cartoons, would gin up digital characters so lifelike they would move audiences to tears. Mr. Sakaguchi promised the movie would be out in the summer of 2000, in time for Mr. Aida's 40th birthday. Intrigued, Mr. Aida signed on as producer.

The next summer, in July 1997, Mr. Sakaguchi tapped his contacts at Sony to arrange a meeting with Sony's then-chairman, Norio Ohga, who piloted a jet to Hawaii that month. On Independence Day, the venerable Sony head swung by Square's 31st-floor offices near Honolulu airport.

As 747s took off outside, Mr. Sakaguchi and a nervous Mr. Aida showed Mr. Ohga all they had: a 10-minute computer-graphics film that had been made for "Final Fantasy VII," the video game. It was primitive, no indication that they could pull off a full-length film. Still, Mr. Ohga was impressed enough to arrange a meeting with John Calley, head of Sony Pictures Entertainment, the parent of Columbia studios. A trip by Mr. Aida to Los Angeles, a showing of the video to Mr. Calley, and "Final Fantasy" had Columbia as a worldwide distributor.

Mr. Sakaguchi went on a hiring blitz. Touting the allure of being part of a groundbreaking film in the luxury of Hawaii, he plucked artists from across the movie industry. Square snared some 15 people from Digital Domain, the computer-graphics house behind "Titanic" and "Apollo 13." Digital Domain's president warned Square in a letter to keep its recruiters off Digital's lot in Venice, California.

But aside from Mr. Aida's brief stint in the movie business, Square had little experience in movie production. Egos clashed; key artists quit. That turnover, coupled with the engineering challenge of creating graphical characters who show emotions like real humans, proved far more difficult than Mr. Sakaguchi expected. He delayed the movie's release.

Back in Tokyo problems were brewing. Square had hired wantonly and it launched a raft of new games whose sales fell below expectations. Square posted a loss of 1.2 billion yen, its first since going public, in the fiscal year that ended in March 1997. The company's stock plunged.

Last year, Square began talking with Microsoft Corp. about the software giant's plan to launch a game machine called the X-Box. Like Sony before, Microsoft hoped to attract leading game makers to its machine. In late 1999, Microsoft President Steve Ballmer visited Square's Tokyo boardroom, cluttered with TVs and game consoles. Square executives showed Mr. Ballmer a short clip from "Final Fantasy." People who were in the room say Mr. Ballmer offered to invest in Square; one person says Microsoft wanted a majority stake. Within a month, though, the talks fizzled out.

But Mr. Suzuki, who became Square's president in April, was helping turn the company around with a cost-cutting drive, including a 200-person layoff. In the year ended this March, Square posted net income of 3.4 billion yen.

Mr. Aida, the producer, says the "Final Fantasy" movie is on track for a July 2001 opening. Set in 2065, it follows scientists who are trying to win back Earth from aliens. The scientists clash with human military leaders pushing their own plan, a weapon that might wipe out not only the aliens but could also destroy the Earth. Amid the struggle is a romance: a soldier torn between his duty to the military and his love for a beautiful scientist. Early clips of the film show computer-generated characters who sweat, walk and display anger and fear, uncannily like real people.

Meanwhile, Square's own odd saga continues. On April 5, employees at the Digicube unit jumped when gunshots slammed into their office. Police later found that two .38-caliber bullets had been shot under one of the company's doors. Some people speculate that Digicube's expansion into online music distribution miffed underworld types connected to the entertainment industry.

Mr. Suzuki shrugs off the gunplay and says he doesn't know who shot at his company. On a Friday morning this month, he turned out at a Tokyo store for the release of "Final Fantasy IX" and watched fans storm in to buy the four-CD game set. Square sold 2.6 million copies of the $75 game in the first weekend. "That should keep us from tripping up this month," he jokes. "Next month? Who knows."

Write to Robert A. Guth at rob.guth@wsj.com

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