The lights are on
In its recently issued 2013 annual report, Square Enix has shone the spotlight on the home console market as a primary reason for its financial failure. The report calls out Tomb Raider, Sleeping Dogs, and Hitman: Absolution as both game development successes, but commercial failures.
The report states, "In the HD games category, we delivered three major titles in the fiscal year under review, primarily in Europe and North America. These titles—Sleeping Dogs, Hitman: Absolution, and Tomb Raider—failed to reach their respective targets, and resulted in financially unsatisfactory consequences, whereas the HD business in Japan remained strong through sales of the Nintendo 3DS version of Dragon Quest VII: Eden no Senshitachi” (Warriors of Eden) and others."
The report continues to pin the blame for financial failure partially on incentive programs for retailers, including "price protection, back-end rebates, and promotional cooperation costs." The document also identifies competition on store shelves, but seems to attribute that phenomenon to physical media exclusively, because of competition and the related, aforementioned retailer incentives.
One proposed solution in the report is to find ways to monetize and deliver content prior to a game's release. No examples are provided.
2013 saw a precipitous drop in Square Enix revenue. The company finished the period with ¥6,081 million ($61.08 million) operating loss as compared to ¥10,713 million ($107.6 million) operating income in 2012. The financial results led to the resignation of former president and CEO Yoichi Wada, who has been replaced by Yosuke Matsuda.
[Source: Square Enix]
Our TakeThat Square Enix recognizes the critical success of the three titles in question is a step in the right direction (before they just labeled the titles as commercial failures). We already know we're getting a next-generation Tomb Raider sequel, and my fingers are crossed that the other two series get additional entries.
What is surprising here is that Square Enix seems to have been caught off guard by the competition at retail, which has ramped up significantly at the end of the generation. Rapid retail price drops have been a reality for years now, and co-marketing isn't a new phenomenon this generation, let alone this year.
The remainder of the report hints at an increase in free-to-play titles and exploration of other business models. How those might affect franchises that are traditionally an up-front purchase remains to be seen. Let's just hope this doesn't mark the introduction of microtransactions into all of Square Enix's traditional offerings.