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Square-Enix "struggling to achieve a fair expected return" on console

Square-Enix "struggling to achieve a fair expected return" on console

Tue 05 Feb 2013 8:35am GMT / 3:35am EST / 12:35am PST
Financial

Group swings to 5.7bn loss for 9 months ending Dec 31

Square-Enix has announced a loss of 5.7 billion for the nine months ending on December 31, 2012. For the same period a year prior, the company secured profits of just over 5 billion. Despite that disparity, sales actually improved over that period, jumping from 95.7 billion to 102.7 billion.

Whilst the group showed some growth in mobile markets, with the successful launch of socially networked games on both DeNA's Mobage and Gree's mobile platform, the console business has proven less rewarding. Despite the launch of Hitman: Absolution and Sleeping Dogs during the period, and a publishing deal for Black Ops 2 in Japan, the company's report largely glosses over the sector's contribution.

"During the nine-month period ended December 31, 2012, the Company has not recovered the operating loss posted in the six-month period ended September 30, 2012," reads the statement accompanying the figures. "[This is] primarily due to the increasingly difficult condition of the world-wide console game market, under which the Group is struggling to achieve a fair expected return on its investment.

"On the other hand, content for other platforms such as PCs, smartphones and SNS such as 'Sengoku Ixa,' a browser game, and 'Final Fantasy Brigade,' a social networking game for Mobage, are generating an acceptable profit. In addition, newly released game titles, such as 'Kaku-San-Sei Million Arthur,' a social networking game released in April, 2012 serving more than 1 million registered users, have been expanding at a satisfactory pace. Registered users of Final Fantasy Artniks,' a social networking game released in November, 2012 for Gree, exceeded 1 million at the end of December, 2012."

Square's console titles may have generally reviewed well and shown a healthy chart position in the last year, but they've clearly been buried under the success of the aggressive monetisation strategies shown in projects like Final Fantasy Brigade.

A brief mention is also made of increased corporate level expenses, which presumably include some of the costs for the launch of the company's Core-Online game streaming service.

Forecasts for the full year represent a significant drop in year on year income, but maintain a positive balance, with a predicted full-year net income pinned at 3.5 billion - a 42.2 per cent drop from the profits for the previous financial year.

24 Comments

Morville O'Driscoll
Games Blogger & Journalist

1,520 1,313 0.9
This:
"On the other hand, content for other platforms such as PCs, smartphones and SNS... are generating an acceptable profit."
does not necessarily equal this:
Square's console titles may have generally reviewed well and shown a healthy chart position in the last year, but they've clearly been buried under the success of the aggressive monetisation strategies shown in projects like Final Fantasy Brigade.
Without knowing sales figures for PC, surely? I mean, sure, it's likely that the monetisation of FFBrigade is overwhelming everything else, but without sales figures it's not a foregone conclusion.

Edited 1 times. Last edit by Morville O'Driscoll on 5th February 2013 9:37am

Posted:A year ago

#1

Bruce Everiss
Marketing Consultant

1,692 594 0.4
Just another marker along the road as paid for plastic and cardboard games shuffle towards their inevitable demise whilst digitally distributed FTP games boom like crazy.

Posted:A year ago

#2

Sandy Lobban
Founder and Creative Director

314 206 0.7
I dont think its anything to do with packaging Bruce. Its all to do with price and bang for buck. Some developers are turning out decent games on iOS now, and they have low cost overheads to go with it. That formula works if the game is good enough.

Sometimes you get what you pay for, but these days the difference in quality between traditional console games and new platform games, is negligible in a lot of cases. Therefore its all boils down to the simple argument of price, or bang for buck.

Posted:A year ago

#3

Bruce Everiss
Marketing Consultant

1,692 594 0.4
With smartphone gaming the device you play on is free. It comes with your telephone contract. Then the games are free. Then the games are better (more compelling) otherwise the consumers just download something else.

Difficult to compete against.

Posted:A year ago

#4

Morville O'Driscoll
Games Blogger & Journalist

1,520 1,313 0.9
Then the games are better (more compelling) otherwise the consumers just download something else.

Posted:A year ago

#5

Dan Pearson
European Editor

101 234 2.3
Popular Comment
Bruce, I think it's disingenuous to call smartphones 'free' - they're clearly very much accounted for in the price of any contract from an operator and people are aware that they're paying for hardware, albeit via a different model. In fact, if you want to buy a smartphone independently from a contract, you'll pay well above the cost of a new console or handheld.

Likewise, the game which has been the biggest success for S-E during the period covered is actually a paid-for game, not a free-to-play one. FF Brigade is a pretty cynical assault on the rose-tinted sections of customers' wallets, in my opinion, and represents the antithesis of what a good F2P offering should hold dear: granular payments and value for money. It's not a trick you can pull off too many times.

Conflating Square's current mobile vs console margins with an "inevitable demise" for console gaming glosses heavily over a great deal of the situation's nuance, too. Changes are undoubtedly afoot, but I think we're still a long way from the revolution which you're so keen to televise. :)

Posted:A year ago

#6

Sandy Lobban
Founder and Creative Director

314 206 0.7
Although I buy my phones outright, my total spend on entertainment and having a smart phone is probably a lot more than having a basic phone, a console and playing full price console games for a year or two combined, which is something worth thinking about if you're talking about overall spend on entertainment.

"A wolf once decided to change his nature by changing his appearance, and thus get plenty to eat. He put on a sheepskin and accompanied the flock to the pasture"

Edited 1 times. Last edit by Sandy Lobban on 5th February 2013 12:32pm

Posted:A year ago

#7

Patrick Williams
Medicine and Research

93 61 0.7
Popular Comment
Square Enix needs to accept that their sales problems have more to do with its products than the platforms they're selling them on.

Posted:A year ago

#8

Jim Webb
Executive Editor/Community Director

2,246 2,233 1.0
Dragon Quest X for Wii (and Wii U soon) as well as the Dragon Quest VII remake on 3DS have been or will be financial bright spots for this quarter. But I don't see much else after that to keep things going well. FF Versus XIII is nearing vaporware status.

Posted:A year ago

#9

Paul Smith
Dev

189 148 0.8
FF Versus XIII reached vaporware status about 6 years ago.

Posted:A year ago

#10

Anthony Gowland
Lead Designer

176 561 3.2
people are aware that they're paying for hardware, albeit via a different model
Funnily enough Dan Ariely posted a video just yesterday that explains the which factors involved in the "different model" will make people barely think about the cost of their phone at all. It really wouldn't surprise me to find that 80+% of people think of their phone as free.

Posted:A year ago

#11
There are rarely free games which are totaly free or good and free and most definately are not free when touted as free. Since there i no free lunch, can I just buy and pay at the counter without the hastag free (one day like PPI claims, i'm sure someone will mount a legal challenge stating Free to play games are totally misleading)

Posted:A year ago

#12

Christopher Bowen
Editor in Chief

412 579 1.4
Executives don't really care about things like "they have to realize it's about their products". They know "this works. That doesn't. Do more of this, less of that". They wrote their own report, so their mindset is obvious: we're going to see more shitty mobile games. They - with the low investment required, the high margins, and their built-in fanbase of fools - are much less risky to the company than trying to hit a home run in the AAA market.

If you're a fan of Square-Enix's properties, this is awful news.

Posted:A year ago

#13

Adam Campbell
Associate Producer

1,154 939 0.8
Its all about the product and the timing.

I think there have been serious issues in both areas and that worries me for such a creative and well respected company of its sheer sizer in Japan.

Posted:A year ago

#14

David Serrano
Freelancer

299 270 0.9
A "fair" expected return on investment?

Was something lost in translation or is SE implying they've been cheated by companies in the product chain?

Posted:A year ago

#15

Alex Bunch
Proof Reader

94 106 1.1
'Dragon Quest X for Wii (and Wii U soon) as well as the Dragon Quest VII remake on 3DS have been or will be financial bright spots for this quarter. But I don't see much else after that to keep things going well. '

Hopefully Tomb Raider might have something to say about that.

Posted:A year ago

#16

Pier Castonguay
Programmer

189 106 0.6
I played through Hitman: Absolution and I can say that in the technological aspect, this is one of the most well done game I ever seen. As a gamer, I appreciate this a lot, but as a business man I can't understand why they did it. Strangely, the gameplay design is very poor compared to the technology driving the game. Why did they spend that much on the tech driving a game that they knew not that many people will buy based on the popularity of the previous games of the series? I think it's a bad choice, I just hope the work is not lost and it will be re-used in future titles.

Also I hate that free-to-play propaganda on every articles. I personally will never play any cell phone / facebook games as long as good AAA products are available. They just aren't looking as interesting.

Edited 2 times. Last edit by Pier Castonguay on 5th February 2013 9:42pm

Posted:A year ago

#17
I suppose another question is, does SE have too many devs of a certain size?

Posted:A year ago

#18

Paul Johnson
Managing Director / Lead code monkey

810 1,013 1.3
@David - "A "fair" expected return on investment?"

Couldn't agree more with your comment. There's nothing "fair" anywhere. Personally I feel it's deeply unfair that SE might take market share away from our yet to be released fantasy game. Bastards!

Posted:A year ago

#19

Paul Johnson
Managing Director / Lead code monkey

810 1,013 1.3
@Bruce, I'm with you man. There's a lot of people who can't see the wood for the trees when comparing plastic to digital and console to mobile. It wouldn't be so bad an argument to have if it wasn't already settled.

High street shops are closing daily. Really, it's ridiculous how high street chains are imploding as they are.
In the mean time, most AAA studios and publishers seem to be closing or downsizing or something negative.
Whereas revenue from mobile games just keeps on going up and up and up.

Console and/or AAA isn't dead yet and I think it will take a while. But that the bell is tolling is in no doubt at all in my mind. A lot of people dread this and it's totally understandable, but that doesn't mean it isn't coming.

Posted:A year ago

#20

Patrick Williams
Medicine and Research

93 61 0.7
Many years ago, in the early PS1 era, one of the Konami execs declared that the consoles Squaresoft supports is the one that win the console wars and Sony went on to dominate with the PS1 and the PS2. It is easy to point to A Spirit Within to explain why Squaresoft fell, but I think really their biggest mistake was their fusion with Enix. While Enix was certainly Square's main competitor in the JRPG realm back in the day, their only good product line was Dragon Quest. The remainder of their catalog consisted mainly of torture simulators like 7th Saga.

I'll use Final Fantasy to illustrate what's wrong with SE. Final Fantasy was Square's crown jewel, but it is no longer the paragon of JRPGs that we can expect it to be. While Square's combat designers and their artists are among the best in the industry, that has only left Final Fantasy as a shell of its former self. Hironobu Sakaguchi knew how to inspire life into the characters of the series by giving them heart and making them relatable. The characters are what made the stories of so many of their games great; they have since been replaced with shallow unidimensional cardboards that leave a player drowning in embarrassment if anyone walks in on them at the wrong moment (minus Sazh, but a broken clock is right twice a day). Nobuo Uematsu is one of the most famous composers in gaming and with good reason. He's created countless works that are easily recognizable and pleasant to listen to. The same can't be said for his replacement Masashi Hamauzu who makes noisy, ambient background filler. Finally, the games are no longer engaging. Instead of walking through a story, we have deus ex machina cinematics of characters god-moding whatever opposition they have, robbing the games of any tension, completely disengaging their audience.

A few days ago, Andreia Quina made an excellent contribution outlining what was wrong with EA and that it basically came down to how EA did not connect with its customers. SE is the same. It would only be too fitting that they would fuse into SEA. It is a bit ridiculous to think that SE is now making more profits from mobile than consoles if only because so many of their portable games have been remakes or releases of their old titles. Thank god for Level 5.

Edited 5 times. Last edit by Patrick Williams on 6th February 2013 3:00am

Posted:A year ago

#21

Cameron Lourenco
Studying Business Managemant

21 16 0.8
Is there really a such thing as a "fair and expected return" if you're putting out crap? With proper marketing and execution, your game will sell and get the reviews you will need. If you fail to market or develop a game, don't expect people to buy whatever you shat out that year.

It also says "6 months ending September 2012". Hitman sold pretty decently and came out in Novemeber, perhaps they should include the entire year's sales when properly analyzing their fiscal year financial performance. I get it that Sleeping Dogs was badly marketed and came off like a half assed GTA game, but Hitman was actually pretty good, albeit with less of what made Blood Money so much fun (more assassinations and creative execution, please).

Posted:A year ago

#22

Rick Lopez
Illustrator, Graphic Designer

1,269 941 0.7
Honestly Final Fantasy is Dead to me, Xiii2 wasnt that great and lightenings return doesnt look so good. However Tomb Raider look excellent. I want final fantasy to succeed, but in its current form Im simply not interested. then there is that game called Mind Jack which shouldnt have made it out of the door. White Knight chronicles was pretty lack luster, list of bad games goes on.

Posted:A year ago

#23

Sam Brown
Programmer

235 164 0.7
...the world we knew is gone - finished. The conditions which framed and taught us our standards have gone with it. Our needs are now different, and our aims must be different.
- John Wyndham, "The Day of the Triffids"

Posted:A year ago

#24

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