Square Enix: Disc Based Sales Are Killing Us

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Square Enix: Disc Based Sales Are Killing Us

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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 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

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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.

Did you mean Sleeping Dogs instead of Watch Dogs?

lacktheknack:
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.

"It's simple. Kill the discman."

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.

Wow...

Let's totally blame the retailers for the faults of game sales and success shall we? I'm actually bloody well tempted to fly down to Japan, and with my grade-school equivalency of Japanese, tell the bugger off and make him watch the Jimquisition episode (among the other videos that state the same) so that some day they might understand the unnecessarily high budgeting for jack squat is the issue here.

In ONE month, it sold roughly 3.4 million copies. ONE FRAKKEN MONTH! And they decided that was an absolute failure. What game sells more than that in the span of a single month (Call of Duty being the exception here)? Within 48 hours it had a million sales easy. It had, bar none, one of the strongest launches a game could have. Yet because it didn't hit 5 million, it was a flop to them, and to boot now they are arguing that its all the physical media's fault.

Let me repeat what I said... Wow.

Did Squeenix need to grasp for more things to blame for their games not raking in as much cash as they'd hoped?

Squares problems are multifold really and a lot of it has to do with Square shooting its self in the foot over and over. First off we have the train wreck that was FF 14. Nothing like having to remake what may as well amount to an entire fucking game . . . . after launch. A game no less that was supposed to have a subscription model in place to support it. I'm sure having to completely remake FF14 while not getting dime one in subscription fees didn't hurt them at all.

Of course let's not forget their strategy when it comes to the mobile market. A strategy that sees them pricing their games 3 to 4 times higher than what people are typically comfortable spending on mobile games. Final Fantasy Dimensions is twenty dollars. I don't know how many people are lining up to spend twenty dollars on a mobile game but I have to think the answer is somewhere around not very fucking many.

Finally, and this could just be crazy talk but maybe, if they aren't selling enough copies to justify what they are spending to make these games then maybe they ought cut back on how much they are spending to make them. I'm sure Tomb Raider sold well. Hitman Absolution, I can't say. I know I got it recently for free on PSN+ and I really liked it and I've not heard too many bad things said about it so I imagine that it's sales weren't garbage. Same with Sleeping Dogs. It's a legitimately good game. If it had been a little longer it would have easily been my favorite game the year it came out. The fact is these games ARE selling well. It's the amount of money they are spending to make them that's the problem.

Zachary Amaranth:

lacktheknack:
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.

Zachary Amaranth:
Did you mean Sleeping Dogs instead of Watch Dogs?

Ouch. My bad. Adjusted.

Stop making expensive games then.

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?

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)).

Translation: Our business model is such a failure that we must strip away your property rights and milk you with Fee To Pay crap in order to survive.

lacktheknack:

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:
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.

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").

Zachary Amaranth:

lacktheknack:

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.

Atmos Duality:
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.

Zachary Amaranth:

lacktheknack:

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:

TiberiusEsuriens:
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.

lacktheknack:
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.

Thats because people are like the Kat: "THIS is my shinny thing, and if you try and take it off me I may have to eat you."

lacktheknack:

Atmos Duality:
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.

Oh I know.
It's a business where Tit-for-Tat is the default strategy when shit starts going south, even when it doesn't work.

Their over-emphasis on mega-Blockbusters is just the latest long term failure.
F2P will also work initially and then slowly erode.

As for F2P itself; I admit no small bias against it, primarily because it requires multiplayer centric gameplay to function, and that by itself eliminates so many possible game types. More importantly, it eliminates most of what Square-Enix is best known for (single player RPGS). While their MMOs are a very mixed bag.

But since they seem willing to let the indie crowd come in and eat their "niche lunch", more power to them to focus on MMOs in the future.

*Facepalm*

Square, it's not Discs that are the problem, it's your budgets. If you cannot afford to make games like Hitman, Sleeping Dogs or Tomb Raider, then either don't make them or budget your game and make them cheaper, so that you can make them. Don't blame Discs for your idiocy.

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.

Yeah, but didn't Square Enix have completely outlandish sales targets for all of those games?

So let me get this straight: Squeenix is blaming disks for the fact it's games did not make the sales figures they hoped?

My head hurts.

They are impressed by F2P... oh joy.

Look it's amazing how stupid AAA. Stop devoting your development to shiny (or should I say muddy brown) graphics and start putting better gameplay elements in your titles. Geez! Cut down the over blown budgets reduce your asking prices. Seriously, you can't keep charging 60 for a game, that's gonna bump a considerable chunk of your market out right there...

Or, Square, you could, you know, not sink so much money into these titles that four million sales doesn't make back as much as you wanted.

Or, better yet, you could actually give a toss about what your fanbase wants from your in-house sector and do things like localize games people might want in other sections of the world.

As long as Final Fantasy XV and Kingdom Hearts III are available on physical formats, Square Enix can do whatever the hell they want. After those are out, I think I'll have a hard time caring about anything Square does anymore without the involvement of Tetsuya Nomura or Eidos. Especially if they're going to start turning main Final Fantasy or Kingdom Hearts titles into Free-to-Play games.

"Matsuda has some thoughts on how to solve the problem. Free to Play has deeply impressed him."

I initially read this as "Free to Play has deeply depressed him."

Then I read the rest of the article, and became deeply depressed.

So instead of blaming themselves for spending too much money on their games they blame discs?
If they continue doing this and not learn from their mistakes they'll eventually go bankrupt.

lacktheknack:

It may be scapegoating, but that doesn't mean it's wrong.

They've basically put all their failures on three titles. Two of which cleared the four million mark, one which the Western head of the company has called a success due to a long-term strategy.

It quite likely is wrong, because the odds that these three games are the entire downfall for a corporation that had problems well before their release is about nil.

Come on Square, just be blunt and blame Gamestop like everyone else does. I know you want to.

Well good news square enix all you need to do is finish final fantasy XV and what ever happens, happens.

This is just my opinion (as that is his opinion), but the money invested into those games is what hurt it, not the disc based model. No one is going deny that digital releases are cheaper, but you still need to spend the same amount on advertising. Those games all had bloated budgets, regardless of the format. Sleeping Dogs was by far the best out of those games. I played them all, but I really only enjoyed that particular game. Tomb Raider was interesting, but about halfway through I started feeling like it was wearing out it's welcome, and Hitman was simply an OK game. The fact that the millions of units moved total was insufficient for them speaks volumes about their terrible budgeting and inability to even remotely anticipate market needs. With the exception of sleeping dogs, they were basically sequels or relaunches of games that were in many ways very different from the most current iterations. They can't sink millions into reformatting a game and then be put off by the fact they all needed to move 6 Million+ units while simultaneously alienating the original fanbase.

I've said my piece. That is my opinion, not any sort of fact. I just think they, like many Triple-A publishers want to blame a single thing that is not their fault when the culpability still lies with them for the most part.

Square Enix launched Sleeping Dogs in August 2012 and has sold approximately 1.75 million copies of United Front Games' open-world crime thriller. Since Hitman: Absolution's release in November 2012, Square Enix has sold about 3.6 million units. And Tomb Raider, which launched three weeks ago, has already racked up approximately 3.4 million units in sales. (The numbers only take retail sales into account, not digital purchases.)

Source

If you are selling that much in retail alone then maybe it isn't disk based sales that is the issue. How high are their sales expectations anyway?

He isn't actually talking about disc-based games, but generally about big, AAA single-player games.

It's kinda sad, really. Tomb Raider was awesome (I still have to play Sleeping Dogs) and I'd like to see more games like this instead of all the F2P bullshit.

But, if it's needed that 10 millions people buy a game in order to make a profit, well there's a problem I guess.

As nintendo said at E3 'make better games' but i guess that is cruel, Tomb Raider was pretty darn good.

Um hard to comment on this as there is no clear answer, economic times are tough at the moment jobs are thin on the ground (at least in the UK) and world wide I get the same impression that its much the same. So yea monies not just there to spend. The matter of disks is a little odd to me, I like physical things it why we still use paper money, but saying that i frequently use steam, but it'll make me sad if I got myself a ps4 and had to download all the games as i hold some distrust of total digital distribution(ubisoft is the key example pain in the ass in this).

Anyhow give me a sequel to Tomb Raider please!!! I'll get it on steam anyhow if that pleases you :)

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