Analyst: Square Enix Faces Tough Year With Single-Player Games

[Timothy Chang]

Analyst: Square Enix Faces Tough Year With Single-Player Games

Square Enix's portfolio of AAA single-player games in a highly competitive market could spell a "very tough" year ahead.

Square Enix's latest profit announcement reveals the company expects to incur significant losses [http://www.escapistmagazine.com/news/view/122907-Square-Enix-Forecasts-Massive-Loss-As-President-Departs], partly due to slow sales of major console releases in North America and Europe. Videogame analyst Billy Pidgeon believes that Square Enix has painted itself into a corner with its focus on single-player focused titles, and he predicts that this points to a "very tough" year ahead for the company.

Pidgeon, an independent industry analyst previously with M2 Research, thinks that Square Enix has a difficult task ahead trying to make their big budget console franchises successful. "The AAA market is extremely competitive," he told GamesIndustry [http://www.gamesindustry.biz/articles/2013-03-27-single-player-ip-will-cause-problems-for-square-enix]. "Most of Square Enix's franchises are single player games, which are less popular than multiplayer. Square Enix has been a leader in that sector, but now faces stronger competition from multiple publishers, both large and small, including Bethesda, Capcom, Xseed, Atlus and Level 5."

He explains that the company's franchises, including Hitman and Tomb Raider, are well established, but require progressively higher budgets to exceed expectations. Hitman: Absolution and Tomb Raider managed to sell approximately three million units and earned aggregate review scores of approximately 80%, but Pidgeon still thinks the titles fall short. "For games with development budgets approaching $100 million to be truly profitable, ratings have to be above 8.5 and sales need to be in the five to ten million unit range," he says.

Pidgeon did make some positive observations for the company, though. He saw Yoichi Wada's departure from his role as President as a good thing, encouraging positive changes ahead. He also noted that Square Enix had invested in online, social and mobile games, some of which have performed well in Korea. However, it may take some time for the company to realize any profits from these ventures.


Source: GamesIndustry [http://www.gamesindustry.biz/articles/2013-03-27-single-player-ip-will-cause-problems-for-square-enix]

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[Corain]

Did this guy just mention everything wrong with the industry as good things in one analysis?
Or did I just read that wrong?
The way he puts things really irks me for some reason.

 

[Colt47]

Did this guy just mention everything wrong with the industry as good things in one analysis?
Or did I just read that wrong?
The way he puts things really irks me for some reason.

No what you are noticing is exactly how these business savvy people are thinking. They think metrics and are misunderstanding what quality of content means in the context of those of us who play games. Basically, the system they have been taught, which functions for more traditional and established industries, just doesn't apply in the game industry and this is something that has been proven via EA. What is even more headache inducing is that this is the breed of individual the Universities are marketing and trying to sell with MBA degrees. You know, instead of teaching them how to actually be productive in a specific field and then combine that practical knowledge with traditional business knowledge.

 

[josemlopes]

Hitman Absolution certainly didnt need the budget that it had, the problems that the game had were about the direction that the team took with the series, not that it wasnt polished or wasnt ambitious. So yeah, high budgets for niche games usually dont go hand to hand.

How can anyone expect a Hitman game to sell five to ten million? A lot of people dont buy it because they arent into that type of game, it doesnt have anything to do with being a bad quality game and needing a higher budget to make it good.

And higher budgets certainly dont mean better, Death to Spies is a better Hitman then Hitman Absolution and its an old budget title.

 

[mechalynx]

It's alright Sqeenix, I'll keep spending money on you as long as you keep doing what you're doing.

Edit: Also, when are the critic scores truly indicative of how successful (or good) the game is? I've seen complete ass water getting rave reviews and perfectly OK titles being dismissed for no reason whatsoever. What sells the game is the quality of the PR team and maybe the reputation of the devs/publisher.

 

[mechalynx]

At standard opening retail price of Sixty dollars, times three million sales equals $180 million dollars. Even if the profit margin is halved to account for later purchases at reduced price, that's still $40 million gross or 140% return. Unless promotion isn't included in the original budget. Applying the same formula to Pidgeon's minimum profit range, we get a 200% return. Was this guy's previous job importing spices from China?

Something as wide as a five to ten million unit range alone should be enough to prove this guy is full of shit.

I think he comes from the EA school of successful business - sell 5 gazillion units or it's off to the chopping block.

Captcha: dollar signs. Captcha, the level your awareness is highly suspicious.

 

[Irridium]

He explains that the company's franchises, including Hitman and Tomb Raider, are well established, but require progressively higher budgets to exceed expectations. Hitman: Absolution and Tomb Raider managed to sell approximately three million units and earned aggregate review scores of approximately 80%, but Pidgeon still thinks the titles fall short. "For games with development budgets approaching $100 million to be truly profitable, ratings have to be above 8.5 and sales need to be in the five to ten million unit range," he says.

This is the problem. Right here. The fact that you can sell 3 million copies and still have it considered a failure. These stupidly high budgets and even dumber expectations are the problem, not that the games didn't have fucking multiplayer.

In fact, Tomb Raider DOES have multiplayer, did that help it sell better? Apparently not, since apparently it's considered to be "under-performing" at over 3 million copies sold.

Un-fucking-believable.

 

[Ukomba]

And yet, it they made something simpler, like the coming Evoland, they could make a game for far cheaper and with a better reception. A million dollar skybox is nice but it'll still be more forgettable and have less personality than some 32 bit games.

 

[Ishigami]

It's alright Sqeenix, I'll keep spending money on you as long as you keep doing what you're doing.

Making sequels to FFXIII, delaying FF vs XIII and keep investing in FFXIV?

Not that the last two projects could have had anything to with their poor result...

So we now need 5 to 10m sales for something like TR to be viable?
Oh funny times ahead.

 

[LiMaSaRe]

Multiplayer games are not more popular. Popular games are forced to become multiplayer.

 

[teamcharlie]

Gotta say that argument about singleplayer and multiplayer games seems airtight. The fact that there exist multiplayer games that have sold better than some of Square's recent single player games obviously proves that all three million people who bought Tomb Raider wish it was multiplayer only.

On a similar note, fast food franchises on the whole sell more food to more people than upscale restaurants, so all restaurants should either close down or strive for exactly the same quality and style as McDonald's, from diners to fancy French restaurants. After all, how could anybody really want a nice steak when there's the McRib?

[/SARCASM]

 

[BloodSquirrel]

At standard opening retail price of Sixty dollars, times three million sales equals $180 million dollars. Even if the profit margin is halved to account for later purchases at reduced price, that's still $40 million gross or 140% return. Unless promotion isn't included in the original budget. Applying the same formula to Pidgeon's minimum profit range, we get a 200% return. Was this guy's previous job importing spices from China?

Something as wide as a five to ten million unit range alone should be enough to prove this guy is full of shit.

First off, they're not making sixty dollars off of every game sold. Other people are getting a cut.

Second, there are a lot of other costs other than the game's development budget. Marketing, distribution costs, producing the disks, taxes, publisher overhead, etc.

The fact that Squeenix is posting a loss clearly shows that the problem isn't that they're expecting too much profit from each game- it's that they're over-budgeting based off of unrealistic sales expectations.

 

[Adam Jensen_v1legacy]

It's alright Sqeenix, I'll keep spending money on you as long as you keep doing what you're doing.

I'll trow money at Square Enix too. I love their stuff. I don't care about multiplayer. They just need better marketing. Not necessarily more expensive marketing.

 

[Leonbelmont64]

At standard opening retail price of Sixty dollars, times three million sales equals $180 million dollars. Even if the profit margin is halved to account for later purchases at reduced price, that's still $40 million gross or 140% return. Unless promotion isn't included in the original budget. Applying the same formula to Pidgeon's minimum profit range, we get a 200% return. Was this guy's previous job importing spices from China?

Something as wide as a five to ten million unit range alone should be enough to prove this guy is full of shit.

I've worked in Retail in games at Walmart before the cost on games is usually around 10$ less then what we sell for so Walmart or EB or any games company makes 5-10$ off of any new game that sells factoring shipping etc from the company that makes the game. At Retail level they are probably making 40-45$ off each game that sells at full 60$ price. So your calculations are off.

 

[ShadowKatt]

At standard opening retail price of Sixty dollars, times three million sales equals $180 million dollars. Even if the profit margin is halved to account for later purchases at reduced price, that's still $40 million gross or 140% return. Unless promotion isn't included in the original budget. Applying the same formula to Pidgeon's minimum profit range, we get a 200% return. Was this guy's previous job importing spices from China?

Something as wide as a five to ten million unit range alone should be enough to prove this guy is full of shit.

SOmething to keep in mind though. Your equation works on the basis that Squeenix gets that 60$ you spent on the game. They don't. That $60 covers not just the development cost, but marketing, distribution, and retail markup. Everyone gets a cut of that $60.

Don't think that I'm defending Squeenix though. It's not because they focused on single player games. Despite what the industry might think, the future doesn't HAVE to be multiplayer. If you want more proof of that, look at the indie market. It's doing well, and it's almost entirely single player games. No, the problem Squeenix has is that they make BAD games, and they absolutely deserve to have a tough year ahead of them. FF XIII and XIV come to mind first and foremost, however other games like Supreme Commander 2 have been completely flops. And now they're remaking FF X and X-2 which just boggles the mind. And I know some people are defending the remake of X, but NO ONE wants X-2 again.

I've already sworn off anything Squeenix touches. I bought Supcom 2 and regretted it. I bought FF XIII secondhand and still regretted that. As far as I'm concerned, they deserve to go under unless they can look back at what made their games great and learn how to do that again. I'm not just talking about FF VII, I mean the whole library up until Squaresoft merged with Enix and everything went to shit.

 

[Weaver]

I'm sure half-baked multiplayer taped onto a game really sells well.

Also, how in the fuck is Xseed a danger to squeenix?
Don't get me wrong, I love them for bringing some of the overlooked, smaller Japanese games to NA markets, but square enix is on an entirely different level.

 

[IronMit]

Hitman Absolution certainly didnt need the budget that it had, the problems that the game had were about the direction that the team took with the series, not that it wasnt polished or wasnt ambitious. So yeah, high budgets for niche games usually dont go hand to hand.

How can anyone expect a Hitman game to sell five to ten million? A lot of people dont buy it because they arent into that type of game, it doesnt have anything to do with being a bad quality game and needing a higher budget to make it good.

And higher budgets certainly dont mean better, Death to Spies is a better Hitman then Hitman Absolution and its an old budget title.

I agree. I am actually surprised by the budget considering how many thimble sized levels there were.
Maybe it was all the waste. There's the pub fight, the shooting gallery place, the buy your suit level, the wrestling match etc etc. It's like IO interactive got a big budget and just went crazy