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Square Enix: Big Franchises And Big Financial Loss

Kingdom Hearts!  Final Fantasy!  Square Enix's game portfolio includes two franchise juggernauts that elicit a rabid frenzy with the mere announcement that the next numerical entry in the series exists.  At E3, a gamer's paradise of newly announced console features and games that requires months of preparation by developers and publishers, Square Enix made headlines with the grand proclamations that simply stated the existence of Kingdom Hearts 3 and Final Fantasy XV.  Yet, Square Enix is in financial trouble that is now well known after the publication of a 6.081 billion yen or $59.8 million dollar operating loss for the fiscal year that ended on March 31, 2013.  Ouch.

This game officially exists...that is all that we know.  We also know that Final Fantasy characters prefer not to button their shirts. 

Wait.  From April 1, 2012 to March 31, the time period of the recent fiscal year that incurred the financial hit, what games did Square Enix publish/develop?  The more well-known games included Sleeping Dogs in August 2012, Hitman: Absolution in November 2012, and Tomb Raider in March 2013 that are three critically acclaimed games with Metacritic scores 80 and above.  Where is the money?  Okay, so maybe development costs overshot profits even with decent to good sales.

Maybe some localization problems but the game was still purchased.  Sound familiar? 

Well, what other potential profits did Square Enix have?  Square Enix localizes the Call Of Duty franchise for Japan.  Yep, none other than Call Of Duty.  Let us include the argument that Japanese gamers do not enjoy Western first person shooters and therefore as an entity with purchasing power Japanese gamers do not buy COD en masse.  Argument stated.  In Japan's first week's sales of Call Of Duty: Black Ops II was the second best-selling game in Japan.  Admittedly, I am no economist and I do not have overall numbers for production costs versus the lifetime sales of the above mentioned released games.  Yet, common knowledge does not account for a $59.8 million hole because that is a really big hole.              

The consequences of the financial loss came swiftly and continue to hit.  Company president Yoicho Wada resigned as did President and CEO of US operations Mike Fischer and staff were laid off in Los Angeles and Europe.  More recently, IO interactive which is known for the Hitman franchise experienced layoffs and project cancellations as the studio was reduced to development solely for the next Hitman entry. 

The past few years taught us gamers that the current fiscal makeup of the console gaming industry supports mainly the AAA studios.  Nearly all other studios are one terrible game or one bad decision away from closure.  38 Studios folded after a business plan that depended on a new IP, Kingdoms Of Amalur: Reckoning, to sustain a MMO development.  THQ over committed to a poor peripheral and the uDraw tablet fiasco could not be overcome without a blockbuster game that never materialized despite the success of Saint's Row: The Third and Darksiders 2.  Junction Point never capitalized on the Mickey Mouse brand and the Epic Mickey franchise simply did not become a money making video game.  Even with the Star Wars license in production with multiple games through Entertainment Art's studios many still mourn the closure of LucasArts.

Any collection named "1.5" is suspiciously missing content.  

With Final Fantasy and Kingdom Hearts Square Enix has AAA franchises that turns gamers into money spending feral beasts.  Yet, the next proper entry in Kingdom Hearts missed an entire console generation.  Rather, we saw numerous portable titles and we will see a sort of console collection with Kingdom Hearts HD 1.5 Remix consisting of Kingdom Hearts 1, Kingdom Hearts Re: Chain Of Memories, and Kingdom Hearts 358/2 Days (most notably missing is Kingdom Hearts 2).

If we accept the concept that fleshed out side stories are required to progress the overall narrative the collection is still missing Kingdom Hearts Re: coded, Kingdom Hearts Birth By Sleep, and Kingdom Hearts 3D: Dream Drop Distance.  The fact that to play the games in totality a gamer requires several different gaming devices does not support the supposed need for a series of side stories in order to properly set up the Kingdom Hearts 3's narrative.  Regardless, Kingdom Hearts 2 released in the United States in 2006 and seven years later Kingdom Hearts 3 was just announced.    

Final Fantasy witnessed multiple rereleases of previous games and the release of the Final Fantasy XIII trilogy that has stretched a polarized fan base with three games until the next proper release.  Announced at E3 is a rerelease of Final Fantasy XIV, an MMO and exclusive to the Playstation 3 and 4, and Final Fantasy XV, a next generation title.  The takeaway is that with only Final Fantasy XIII and the original release of the MMO Final Fantasy XIV the franchise is not a defining gaming experience this console generation.   Past generations' Final Fantasy games remain so beloved the rereleases continue to sell in order for fans to replay their favorite entries on any chosen device.        

Ouch, I can only imagine how the mood in the room was when this slide popped up. 

Yet, Square Enix is blaming their $59.8 million loss at the North American and European markets with accusations of "Weak sales of big console titles in NA [North America] and EU [Europe]" because "Despite the high critical acclaim, failed to meet each target" as spelled out in their English briefing document.      

What did sell?  Strategy smartphone games.  Yep, I know.  We are all thinking: How is that possible?

Smartphone games are the future...I'm scared. 

According to Square Enix's financial disclosure, in April 2012 Sengoku IXA launched a smartphone version the original PC online game running since August 2010.  The port attracted more than 450,000 registered users but how the game is monetized is unclear.  Similarly, Million Arthur, a card game "based" on the Arthurian legends is a "megahit title" in Japan and Korea with more than 1 million registered users within two months.  Million Arthur is a free to play game that was released on iOS then ported to Android and to the Playstation Vita.  Million Arthur is a "megahit" whereas Tomb Raider "failed to meet" its targets.  Wow.

Little wonder that Square Enix is testing the Western market with a smartphone game of the beloved Deus Ex franchise that had a widely acclaimed console game in 2011 with Deus Ex: Human Revolution.  But the Western market is howling in protest of a smartphone game announced as the next major installment of a favorite franchise.

Square Enix may not be entirely off base about the future profitability of console based games on iOS and Android.  This past week Firaxis ported XCOM Enemy Unknown, the full console game minus the basic multiplayer that will be available free to download in the future, to iOS and priced the game at $20.  The price point is extraordinarily high for a smartphone/tablet game but the game released on the consoles at $60 less than one year ago.  How well the iOS port sells will set a new standard in the next wave of iOS and Android releases.  Important to note is that Million Arthur and XCOM are strategy games that interact well with touchscreen controls.  Previews of Deus Ex: The Fall as a smartphone game target the difficulties mimicking dual stick controls on the touchscreen.      

Suddenly, Eidos Montreal's development of the next generation game Thief is weighed down with expectations of proving a studio's financial stability.  Recently, Eidos Montreal declared that Thief which was one of the first next generation game announced will be both a next and current generation release.  We all respect recouping profit but this late announcement compelled suspicions of which generation was the game built for more so than with games that included in their original announcement that the game was a dual generation release. 

Incomplete and vague box art but we are ecstatic.  

The red flags are waving for Square Enix and in video game development restructuring and layoffs are closely followed by closure if a studio saving game does not release soon.   Square Enix holds many treasured franchises but has not dropped a must play gaming experience that is a hallmark of this console generation.  In a generation defined by first person shooters Square Enix developed third person strategic shooters and largely contributed to the few games that highlighted woman protagonists with Lightening in the Final Fantasy XIII trilogy and Lara Croft's reboot in Tomb Raider.      

I will not believe this is real until the game is actually for sale. 

Still, the company's E3 announcements that Kingdom Hearts 3 and Final Fantasy XV will one day be released overtook the internet with a gamer frenzy that few games can match and with headlines that unseated even the new console announcements.  The mobile market is ripe for innovation that brings in more in-depth games and Square Enix holds two of the most anticipated games for next generation but will it be enough to fix a $59.8 million problem?      

Thank you for reading, your viewership is much appreciated.  This week I am at a work conference and came my closest to miss my weekly blog so to those who read, I say thanks.

Am I off base?  Are you concerned or not so much about Square Enix's future?

Are Final Fantasy XV or Kingdom Hearts 3 day one purchases for you?

What are your predictions for how far into the next generation will we be before Final Fantasy XV or Kingdom Hearts 3 actually releases?  

 

 

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