Square Enix: Disc Based Sales Are Killing Us

Karloff

New member
Oct 19, 2009
6,474
0
0
Square Enix: Disc Based Sales Are Killing Us



Sleeping Dogs, Tomb Raider and Hitman Absolution may have earned critical acclaim, but that's all they earned for Square Enix.

Square Enix's Yosuke Matsuda has some strong words for disc-based HD games sales, in the 2013 Report to Shareholders. He knows that Sleeping Dogs, Tomb Raider and Hitman Absolution were all good games; the critics said as much when they released, but from a financial perspective none of them hit sales targets or made anything like the return Square Enix hoped for. Matsuda believes this isn't just a temporary blip but evidence of an industry-wide problem with the HD games business model. Overheads are just too high with disc-based sales, and increased competition has meant that the big publishers are spending too much cash over too little a share of the marketplace.

The problem isn't just competition, it's the whole disc-based cycle. A publisher will spend years, and millions, developing a title with no prospect of a return until launch - a process that only gets longer as gaming options and devices get more sophisticated - and at the end of it all, it has to deal with a retail network that's becoming more selective about the games it takes on board. Shelf space is at a premium in a crowded marketplace. Aggressive marketing, buy-back and rebate policies, as well as price protection guarantees, all help get those boxes on the shelves, but they also cut deep into the margins made on each box. None of this is news to Matsuda; when the fiscal results for 2013 were published [http://www.escapistmagazine.com/news/view/123943-Square-Enix-Financials-Net-Sales-Up-13-7-Billion-Lost] there were very clear indications that operating income losses - a 99% drop over the previous year - had eaten up any hope of a Digital Entertainment profit. There's a reason why publishers set seemingly unrealistic sales targets, and this is it: in a marketplace where unreasonable costs are incurred, unreasonable targets are the only hope of making cash back.

Matsuda has some thoughts on how to solve the problem. Free to Play has deeply impressed him. "The F2P model is flexible in that earnings are adjustable according to players' demand without any restriction on distribution of game products," says he; a F2P model means Square doesn't have to wait for disc sales to make cash. However the much bigger shift, as he sees it, is that there are so many more ways of enjoying games. You don't have to play on disc any more; HD games are available via all kinds of other media, including the cloud and microconsoles. Why rely on a disc-based business model, if the customers can get the same game without the box?

If Square Enix is to survive, it needs a new skill set. "The environment supporting high-end games is definitely expanding," Matsuda concludes, "and this fact convinces me of the advent of a new age when we can fully demonstrate all the game development capabilities we have accumulated to date."

Source: Square Enix 2013 Report [http://www.hd.square-enix.com/eng/pdf/ar_2013_01en.pdf]


Permalink
 

lacktheknack

Je suis joined jewels.
Jan 19, 2009
19,316
0
0
Aaaaaaand cue millions of tears from the disc-or-die crowd.

I'd really prefer a technological freeze, even if only for a year, but hey, no AAA dev panders to my willingness to have marginally less shiny things.
 

Something Amyss

Aswyng and Amyss
Dec 3, 2008
24,759
0
0
lacktheknack said:
Aaaaaaand cue millions of tears from the disc-or-die crowd.
Considering they're abandoning disc models because Tomb Raider only sold over four million (exact figure? I don't know) yeah, I think tears might be in order.
 

TiberiusEsuriens

New member
Jun 24, 2010
834
0
0
If this is really the case, I feel like Square's problems could be solved with one simple question. "Matsuda, have you heard of digital distribution?"

I mean, Steam, Origin, w/e will have a different player base than traditional disc, but with the new consoles supporting digital so nicely I see their standard customers being covered pretty well. With a little marketing it will be easier to avoid spending millions on mass produced disc.
 

Teoes

Poof, poof, sparkles!
Jun 1, 2010
5,174
0
0
Did Squeenix need to grasp for more things to blame for their games not raking in as much cash as they'd hoped?
 

lacktheknack

Je suis joined jewels.
Jan 19, 2009
19,316
0
0
Zachary Amaranth said:
lacktheknack said:
Aaaaaaand cue millions of tears from the disc-or-die crowd.
Considering they're abandoning disc models because Tomb Raider only sold over four million (exact figure? I don't know) yeah, I think tears might be in order.
That's why I wrote the second half of my post.
 

fix-the-spade

New member
Feb 25, 2008
8,639
0
0
This sums up Squenix's corporate failures rather nicely.

Just as major publishers are starting to look away from F2P and as the F2P market steadily bleeds off it's momentum, Squenix is out in it's typically myopic fashion, shouting to all and sundry how much it impresses them.

Sooner or later they are going to have to stand up and admit that they spend too much on unnecessary features (like proprietary game engines) and they spend far too much on Final Fantasy games that make very little in the way of measurable returns. If they don't the gaming press will point it out for them, probably in an article titled Why Square Enix went bust.

But of course Mr Matsuda, the real problem is not your own spending, it's not your unrealistic goals, it's those hoorible people who buy your games new, we all knew that right?
 

carpathic

New member
Oct 5, 2009
1,287
0
0
I have no problem with a digital future per se, but I expect a heck of a discount if I don't have a disc that I can hold. I also expect the whole damn game if I pay the whole damn posted price. None of this parting out business.

As for F2P, I play simpsons tapped out on my ipod and the game is moderately fun. Except that it is designed to frustrate you into buying donuts - which are ludicrously priced. Seriously $100 for 2000 donuts, which won't even let you buy the stuff you necessarily want (the springfield sign alone is like 300 donuts, and the volcano lair is another 300 donuts (no, I don't remember the actual prices and I don't much care)).
 

Something Amyss

Aswyng and Amyss
Dec 3, 2008
24,759
0
0
lacktheknack said:
That's why I wrote the second half of my post.
I'm not sure it has anything to do with that, though. I still think they're looking for scapegoats for an existing shitty business strategy. I'm not sure a tech freeze would change that.

TiberiusEsuriens said:
If this is really the case, I feel like Square's problems could be solved with one simple question. "Matsuda, have you heard of digital distribution?"
All three of the listed titles have been marketed heavily on DD services. I'ma guess they have.

I'm also going to guess they don't feel it's a solution here.
 

Atmos Duality

New member
Mar 3, 2010
8,473
0
0
Hear that? It's the sound of a hyper-conservative business model struggling to justify its own failings without actually addressing them.

Notice how Matsuda completely dodges the option "Reduce insane overhead cost" or "try more digital distribution instead of mainly physical" and instead jumps straight into F2P (which is less "digital distribution" and more "online cattle ranch").
 

lacktheknack

Je suis joined jewels.
Jan 19, 2009
19,316
0
0
Zachary Amaranth said:
lacktheknack said:
That's why I wrote the second half of my post.
I'm not sure it has anything to do with that, though. I still think they're looking for scapegoats for an existing shitty business strategy. I'm not sure a tech freeze would change that.
It may be scapegoating, but that doesn't mean it's wrong.

What a tech freeze would do is allow us to actually optimize the stuff we currently have, allowing us to reduce time spent implementing features, move some money to open-source software, and most importantly, deflate AAA budgets.

Then they don't need to set their goals so high.
 

lacktheknack

Je suis joined jewels.
Jan 19, 2009
19,316
0
0
Atmos Duality said:
Notice how Matsuda completely dodges the option "Reduce insane overhead cost"

how do

or "try more digital distribution instead of mainly physical" and instead jumps straight into F2P (which is less "digital distribution" and more "online cattle ranch").
If they're in trouble, they'll jump at the safest bet.

Guess what the safest bet is.
 

TiberiusEsuriens

New member
Jun 24, 2010
834
0
0
Zachary Amaranth said:
lacktheknack said:
That's why I wrote the second half of my post.
I'm not sure it has anything to do with that, though. I still think they're looking for scapegoats for an existing shitty business strategy. I'm not sure a tech freeze would change that.
I agree, it doesn't matter how optimized something is, there will always be people who misuse/mismanage it. If they kept their current financial team while having an optimized product that is 50% cheaper to use, they would simply decide to add 50% more content leading them into the same problems.

Zachary Amaranth said:
TiberiusEsuriens said:
If this is really the case, I feel like Square's problems could be solved with one simple question. "Matsuda, have you heard of digital distribution?"
All three of the listed titles have been marketed heavily on DD services. I'ma guess they have.

I'm also going to guess they don't feel it's a solution here.
Yeah. The way the current market is, even with a heavy emphasis on digital Square's heavily console based titles will have a hard time. This is a problem Sony and MS are trying to fix with next gen. Digital has been embraced heavily by PC for ten or so years now, but console users traditionally DEMAND discs, as Microsoft discovered the hard way. Their big challenge next gen is to educate console consumers on digital as much as possible, to which they have already started marketing campaigns. Until that plan comes to fruition I don't expect Square to stop pointing fingers. Hopefully they learn and replace their budgets or budgeting teams.