Square Enix Q3 IR Presentation: Forspoken sales "lackluster", many new small and mid-sized titles below expectations

[Aquamarine]

Taken from Square Enix's Q3 2023 IR presentation held on February 3rd and just translated into English today. This presentation was given by outgoing Square Enix CEO Yosuke Matsuda.


Relevant slide:

Here's the small and mid-sized performance quote. He also mentions weak performances for existing smartphone / browser games:

Net sales declined YoY (-22% YTD) in the HD Games sub-segment, partly because the release of major titles a year earlier had created a challenging YoY hurdle, but also because many of the new small and mid-sized titles we launched this year did not perform as well as we had expected.
Net sales were also down YoY in the MOM sub-segment, in part because we released no new expansion packs this year, as originally planned.
New titles were unable to compensate for weak performances by existing titles in the Games for Smart Devices/PC Browser subsegment, resulting in a YoY decline in net sales.

Here's a full list of games launched by Square Enix over the past 12 months that could have underperformed sales-wise:

Babylon's Fall, Strange of Paradise: Final Fantasy Origin, Chrono Chross: The Radical Dreamers Edition, The Centennial Case: A Shijima Story, Live a Live, Various Daylife, Voice of Cards: The Beasts of Burden, The Diofield Chronicle, Valkyrie Elysium, Vakyrie Profile: Lenneth, Star Ocean: The Divine Force, Harvestella, Tactics Ogre: Reborn, Romancing Saga, Crisis Core: Final Fantasy 7 Reunion, Forspoken, Theatrythm Final Bar Line, Octopath Traveller 2, and Paranormasight: The Seven Mysteries of Honjo.

Thanks to Eurogamer for the list.

Forspoken's performance quote:

Lastly, I would like to discuss our outlook for 4Q FY2023/3 and for the upcoming fiscal year (“FY2024/3”). Reviews of “FORSPOKEN,” which we released on January 24, 2023, have been challenging. However, the game has also received positive feedback on its action features, including its parkour and combat capabilities, so it has yielded results that will lead to improvement of our development capabilities of other games in the future. That said, its sales have been lackluster, and while the performance of new titles with February and March release dates will be the ultimate determinant, we see considerable downside risk to our FY2023/3 earnings.

At our 1H FY2023/3 Financial Results Briefing session, I stated that we were designating FY2023/3 as a year in which to lay the foundations that will enable us to achieve our medium-term objectives, but that we nonetheless intended to pursue YoY growth in sales and profits. In light of current conditions, however, I have to admit that this will not be easy. Meanwhile, our pipeline for FY2024/3 and beyond is extremely strong, including some titles that we have yet to announce. In addition, we believe that the overhauls of our development and publishing structures will for the most part be completed during the remainder of FY2023/3. FY2024/3 is the final year of our current medium-term plan, and to end the plan on the best possible note, we are steadily putting into place a structure that will enable further growth. Please look forward to future developments.

This would correspond to 11 days of tracking for Forspoken, given the meeting was held on Feb 3rd.

I thought it was interesting how candid Square Enix has been about their sales struggles. I wonder if this was a contributing factor that led to Matsuda announcing his imminent resignation.

 

[mkensei]

There’s a steeper drop on mobile / pc browser
HD -7.4B
Mobile/browser -12.1B
MMO -8.3B

 

[fiendcode]

Did this for the Era thread, may as well repost here.


Famitsu Top 30 ltds for SE titles from last year on:

Babylon's Fall (PS4) 2,885
Babylon's Fall (PS5) 2,224

The Centennial Case: A Shijima Story (NSW) 7,529
The Centennial Case: A Shijima Story (PS5) 3,593
The Centennial Case: A Shijima Story (PS4) 3,476

Chocobo GP (NSW) 12,414

Crisis Core: Final Fantasy VII Reunion (NSW) 81,107
Crisis Core: Final Fantasy VII Reunion (PS4) 74,227
Crisis Core: Final Fantasy VII Reunion (PS5) 67,071

The DioField Chronicle (NSW) 6,415
The DioField Chronicle (PS4) 3,057
The DioField Chronicle (PS5) 2,596

Dragon Quest X: Awakening of the Five Tribes Offline (NSW) 262,663
Dragon Quest X: Awakening of the Five Tribes Offline (PS4) 76,649
Dragon Quest X: Awakening of the Five Tribes Offline (PS5) 34,616

Dragon Quest Treasures (NSW) 274,333

Forspoken (PS5) 35,056

Harvestella (NSW) 38,704

Live A Live (NSW) 124,986

NieR: Automata - The End of YoRHa Edition (NSW) 66,459

Octopath Traveler II (NSW) 68,808
Octopath Traveler II (PS4) 18,767
Octopath Traveler II (PS5) 9,792

Star Ocean: The Divine Force (PS4) 34,093
Star Ocean: The Divine Force (PS5) 19,317

Stranger of Paradise: Final Fantasy Origin (PS4) 44,313
Stranger of Paradise: Final Fantasy Origin (PS5) 21,076

Tactics Ogre: Reborn (NSW) 50,051
Tactics Ogre: Reborn (PS4) 15,175
Tactics Ogre: Reborn (PS5) 7,805

Theatrhythm Final Bar Line (NSW) 14,295
Theatrhythm Final Bar Line (PS4) 3,610

Triangle Strategy (NSW) 125,939

Valkyrie Elysium (PS4) 33,098
Valkyrie Elysium (PS5) 21,410


Spain 1st week sales via Gamereactor.

Crisis Core: Final Fantasy VII Reunion - 15,000 (7,500 PS4, 4,000 Switch)
Triangle Strategy - 9,000
Live A Live - 6,600
Octopath Traveler II - 6,000 (5,000 Switch)
Tactics Ogre: Reborn - 5,000 (4,000 Switch)
NieR: Automata - The End YoRHa Edition - 4,000
Forspoken - 4,000
Stranger of Paradise: Final Fantasy Origin - 2,000 (1,200 PS5)
Valkyrie Elysium - 1,500
Theathrythm Final Bar Line - 1,050 (800 Switch)
Dragon Quest Treasures - 1,000
Harvestella - under 1,000
Chocobo GP - under 1,000
The DioField Chronicle - under 1,000
Star Ocean: The Divine Force - 500
Babylon's Fall - 50 (PS5 version only)

 

[allan-bh]

If FFXVI underperform, Square Enix will be in a serious problem.

 

[Deckard Cain]

I wonder what their expectations are for the pixel remasters on console. That collection should do quite well in US and Japan.

 

[unkindlynice]

If FFXVI underperform, Square Enix will be in a serious problem.

I really doubt it will but clearly they have a lot to resolve. FF14 is clearly their most important IP. Without that this would have been an even worse year. Don’t see how they can’t expect major changes at the top if they continue like this.

 

[fiendcode]

I wonder what their expectations are for the pixel remasters on console. That collection should do quite well in US and Japan.

I mean, it would do well if they actually supplied it. Square Enix is once again snatching defeat from the jaws of victory.

 

[Deckard Cain]

I mean, it would do well if they actually supplied it. Square Enix is once again snatching defeat from the jaws of victory.

Oh I didn’t realize the physical version was so limited. Square gonna Square I guess. Still can’t believe the PC versions got priority over console. Just bizarre.

 

[nextgeneration]

Apparently, Forspoken cost over $74 million to make.

 

[NediarPT88]

If FFXVI underperform, Square Enix will be in a serious problem.

While not good, I wouldn't go that far since MMO and mobile games are they most consistent money makers.

Obviously AAA games like FFXV, KH3 and FFVIIR also gave them a considerable boost in profits looking at their past earnings, and I'm sure they are counting on FFXVI to do the same, but it's not like they would be in serious trouble if that happened.

Not that I think a game like FFXVI will have trouble breaking even at the very least.

 

[Lord Azrael]

When's the last time SE's even been satisfied with a game's sales

 

[Ishaan]

Final Fantasy should be okay in the years ahead. They've been smart with how they've approached the development of both FF7 and FF16, and I think they're well placed to get their development pipelines for the series under control in the years ahead.

FF7R Part 1 is a linear and contained game with just enough town-like hubs and side quests to give you the sense that you're on an adventure. The dialogue and presentation is what really helps sell it, while the game itself isn't overly large in scope.

Meanwhile, FF16 appears to be a similar case of a more contained game with a focus on interesting combat, intriguing characters, and great presentation. (At least from what we've seen so far.)

However, we know FF7R Part 2 has to be a more open game by virtue of tackling the next part of the FF7 story and I also expect FF17 to be a more open world-esque affair, simply because that's the most straightforward way to sell an audience on your games today. So essentially, both FF7 Part 1 and FF16 are stepping stones toward whatever their respective teams have planned for the future.

 

[Mekanos]

I feel like Square is always seemingly on the verge of bankruptcy, but FF14 seems to keep them going. Wonder how 16 will do.

 

[NediarPT88]

I feel like Square is always seemingly on the verge of bankruptcy, but FF14 seems to keep them going. Wonder how 16 will do.

Nah they are doing pretty good, mostly thanks to their MMOs and mobile games.

Square Enix Q3 FY3/2023 Financial Results

https://www.hd.square-enix.com/eng/ir/pdf/23q3release.pdf In the HD (High-Definition) Game sub-segment, the nine-month period ended December 31, 2022 saw the release of such titles as “CRISIS CORE -FINAL FANTASY VII- REUNION,” “DRAGON QUEST TREASURES,” and “Dragon Quest X.” However, because...

www.installbaseforum.com

You can see yearly comparisons of revenue/operating income in the graphs.

 

[Dakota Joestar]

Square's biggest problem is that they can't manage their budgets well. It's why Eidos kept putting underperformer after underperformer before getting sold off. A new IP like Forespoken should not have cost 75 million.

Hell, fucking Shadow of the Tomb Raider cost an absurd 110 million to make despite having two prequels, where they could have easily reused the tech from them. Not to mention both previous games got the bulk of their sells through Steam/bigger sales. That budget should have never been approved, to begin with.

While FF16's development seems to be pretty well managed at least compared to 12, 13, 14, and 15. I gotta imagine its budget is pretty crazy as well, probably upwards of 60 million at least.

I wouldn't be shocked if these large budgets are a big reason why Square keeps taking timed exclusive deals, I imagine a big reason why games like Rise of the Tomb Raider, FF7 Remake, FF16, Forespoken, and even to some extent the HD2D games were able to release was because the first parties all helped funded their existence.

 

[Kanann]

/s I will be there when Enix bail out.

75m USD, holy....

 

[Mekanos]

Nah they are doing pretty good, mostly thanks to their MMOs and mobile games.

Square Enix Q3 FY3/2023 Financial Results

https://www.hd.square-enix.com/eng/ir/pdf/23q3release.pdf In the HD (High-Definition) Game sub-segment, the nine-month period ended December 31, 2022 saw the release of such titles as “CRISIS CORE -FINAL FANTASY VII- REUNION,” “DRAGON QUEST TREASURES,” and “Dragon Quest X.” However, because...

www.installbaseforum.com

You can see yearly comparisons of revenue/operating income in the graphs.

Yeah, but the atmosphere in Square discussion and financials always has a Nintendoomed vibe. Probably just after-effects of the Enix merger. I do think the bigger issue is they are bad at managing their budgets and development.

 

[Chris1964]

Here's a full list of games launched by Square Enix over the past 12 months that could have underperformed sales-wise:

Babylon's Fall, Strange of Paradise: Final Fantasy Origin, Chrono Chross: The Radical Dreamers Edition, The Centennial Case: A Shijima Story, Live a Live, Various Daylife, Voice of Cards: The Beasts of Burden, The Diofield Chronicle, Valkyrie Elysium, Vakyrie Profile: Lenneth, Star Ocean: The Divine Force, Harvestella, Tactics Ogre: Reborn, Romancing Saga, Crisis Core: Final Fantasy 7 Reunion, Forspoken, Theatrythm Final Bar Line, Octopath Traveller 2, and Paranormasight: The Seven Mysteries of Honjo.

Thanks to Eurogamer for the list.

Working at Eurogamer and not knowing basic info like what Fiscal Year means should be considered surprise for mainstream media but has become the expected.

 

[Lelouch0612]

Yeah, but the atmosphere in Square discussion and financials always has a Nintendoomed vibe. Probably just after-effects of the Enix merger. I do think the bigger issue is they are bad at managing their budgets and development.

Probably a fault on our part, since gaming discussion is mostly focused about PC/consoles rather than mobile.

Same happened with Konami which was "doomed" despite healthy financials.

When you compare their HD segment trajectory vs Capcom for instance, you understand they are struggling to an extent. However, they have big hits elsewhere (which Capcom to take the same example never managed to have).

 

[enpleinjour]

Square Enix is doing better than ever, and these are the lull years, before SE releases its big next gen hits, FF16, FF7R, KH4, DQ12, Nier. FF16 especially could be a breakout hit and I think FF14 only has potential to grow.

That being said, as I have mentioned through most of last year, SW flooding the market with 10-12 AA games, many of them of questionable quality is bad planning.

They should cut down on quantity and focus on far fewer AA games (but with bigger budget and scope) and space them out.

 

[Oregano]

Is fewer games but bigger budget really the smartest play when the losses from Forspoken probably significantly outweigh whatever those smaller games lost?

 

[Celestial]

do you think it’s likely that Square Enix will entirely abandon the AA space now? Or is there a chance will they try again even with the new CEO whose past is more intertwined with metaverse and NFT stuff?

Tri-ace needs more work, you know

 

[ArkhamFantasy]

When's the last time SE's even been satisfied with a game's sales

Just out of curiosity, your perception of this company was formed primarily through a headline that you read 10 years and 3 console generations ago right? It's absolutely insane how much power and influence thread titles and headlines get, very shortly after they made that statement they also made a statement talking about how happy they were about Bravely Default selling 250k, but that wasn't the headline grabber so people ignored it.

SE isn't anymore unrealistic about their games than your typical 3rd party AAA publisher.

 

[Chris1964]

do you think it’s likely that Square Enix will entirely abandon the AA space now? Or is there a chance will they try again even with the new CEO whose past is more intertwined with metaverse and NFT stuff?

Tri-ace needs more work, you know

The biggest bombs that made Square bleed and forced mass reconstruction in the company didn't come from AA but from AAA scene.

 

[KR_EP]

do you think it’s likely that Square Enix will entirely abandon the AA space now? Or is there a chance will they try again even with the new CEO whose past is more intertwined with metaverse and NFT stuff?

Tri-ace needs more work, you know

While not specific to tri-Ace & whether or not it has another project with Square Enix (as Game Studio does with Infinity Strash: Dragon Quest The Adventure of Dai) got some news on NJ Holdings I'm currently preparing for the Output Strategy thread (update: its live!). See no reason for Square Enix to give up on mid-budget games when most are made by contracted developers, so they can always reduce the overall number green-lit at any one time and/or spread them out more going forward. The main issue is reviewing its internal console/PC development pipeline.

Nah they are doing pretty good, mostly thanks to their MMOs and mobile games.

Square Enix Q3 FY3/2023 Financial Results

https://www.hd.square-enix.com/eng/ir/pdf/23q3release.pdf In the HD (High-Definition) Game sub-segment, the nine-month period ended December 31, 2022 saw the release of such titles as “CRISIS CORE -FINAL FANTASY VII- REUNION,” “DRAGON QUEST TREASURES,” and “Dragon Quest X.” However, because...

www.installbaseforum.com

You can see yearly comparisons of revenue/operating income in the graphs.

Worth reminding people of the following slide from the Square Enix 2023/3 Q1-Q3 Financial Report (which covers April - December 2022) is how Japanese sales went up overall due to an increase in retail from 0.83 to 1.84 million, despite a reduction in download sales. The major drops were NA/EU plus downloads in Asia (retail went up). So we're seeing an increase in retail in Japan & Asia year on year, despite the efforts being to focus on North America & Europe with titles like Forspoken. Of course the overall number of units sold is lower but its more stable & reliable for its console/PC line up than chasing after the 'AAA' blockbuster market in North America & Europe. Going forward, would advise the new CEO / management look at two publishers:

• CAPCOM - fewer releases spread out more, place a greater emphasis on back catalogue sales digitally to reverse the major decline in download sales (e.g. promotional sale timed with CAPCOM spotlight).​
• Koei Tecmo - focus its overall console/PC line up on domestic & especially on growing in Asian markets where audiences will be more receptive towards its artistic choices & its line up stands out more.​

Source: Square Enix 2023/3 Q1-Q3 Financial Report, page 5 ENG (page 14 JPN).

The last point I'd make is Square Enix ought to consider (aside from my suggestions of making Taito a sub-label) licensed work, ideally using its in-house manga division to create games either after they've become popular or at the same time. Of course that was attempted with Infinity Strash: Dragon Quest The Adventure of Dai however its still unreleased despite the lengthy TV show (based on a popular manga) having come & gone. Any new cross-media push requires a post-mortem review, plus learning from the problems Level 5 had in recent years.

Working at Eurogamer and not knowing basic info like what Fiscal Year means should be considered surprise for mainstream media but has become the expected.

Know I've got a lot to learn on covering financial reports but if I were in their position, having colleagues at gamesindustry.biz means it'd make sense to run it past them before publishing. Drawing on that experience with reporting on company finances would be a good idea, even if you had relevant qualifications as you could hear different viewpoints to aid your analysis.

 

[BassForever]

do you think it’s likely that Square Enix will entirely abandon the AA space now? Or is there a chance will they try again even with the new CEO whose past is more intertwined with metaverse and NFT stuff?

Tri-ace needs more work, you know

Probably not, whichever among the games in question underperformed (Diofield, SO6, VE, Treasure, Harvestella, etc) combined likely didn't lose as much money as Forspoken did single handedly. Those AA titles are also more likely to pass into the green within the next year thanks to continued catalogue sales on digital store fronts.

Without knowing specific numbers for how any of the games did vs SE's expectations, it's hard to know what changes they could make in the AA space. Perhaps they green light less, or better space them out, perhaps they don't green light AA games unless they target Switch, or maybe they make more of these Switch focused games multiplat at launch.

We also don't know which of the games DID meet sales expectations, and how that might further factor into future decisions. There's just far too many unknowns to speculate in good faith. The only thing we know for certain is that Forspoken is a massive bomb.

 

[Gotdatmoney]

Know I've got a lot to learn on covering financial reports but if I were in their position, having colleagues at gamesindustry.biz means it'd make sense to run it past them before publishing. Drawing on that experience with reporting on company finances would be a good idea, even if you had relevant qualifications as you could hear different viewpoints to aid your analysis.

Financial statement analysis is pretty complex. I would generally agree you would want to run your position across different colleagues to see what they are thinking. But honestly, in statement analysis, its more about making sure you are not clearly interpreting thimgs wrong than it is about having the "correct" interpretation. I'm still pretty basic at it from the courses I have taken (I'm not really interested in finance as a career) but one thing I've come to note is, you really can make your valuations and your viewpoint say anything you want. Most big firms are trying to express an opinion for profits more than give a minimal bias view.

For the target audience of Eurogamer articles, they probably don't need or want to be thorough or detailed. Mixing up FY and calender year is pretty amateur though.

Anyway, based off the posts I've seen from you in finance thread you have a pretty good base imo. Unless you start taking classes, reading textbooks and doing exercises, it's really hard to get into the nitty gritty. I'm more confused about the depths financial statements after taking classes than before

Is fewer games but bigger budget really the smartest play when the losses from Forspoken probably significantly outweigh whatever those smaller games lost?

Do we expect them to keep releasing bombs on the level of Forspoken though? There comes a point where small productions can't support the weight of the organizational structure above them. If the AA games are all Octopath Traveler selling 2-4m units then sure. But on average if games take 3 to 5 years to make, we're getting far past the point where organizations with $5B+ market caps can shy away from trying to release hits.

The market is different than 10 to 20 years ago. Single titles can swallow up hundreds of hours of a person's time. Industry revenue is strongly concentrated on tentpole releases. Organizations have to be fiscally responsible but in any creative business, titles will flop. If 1 big flop dissuades you from making more ambitious projects because it hurts your position that much, you're finance department wasn't doing their job.

 

[NediarPT88]

Worth reminding people of the following slide from the Square Enix 2023/3 Q1-Q3 Financial Report (which covers April - December 2022) is how Japanese sales went up overall due to an increase in retail from 0.83 to 1.84 million, despite a reduction in download sales. The major drops were NA/EU plus downloads in Asia (retail went up). So we're seeing an increase in retail in Japan & Asia year on year, despite the efforts being to focus on North America & Europe with titles like Forspoken. Of course the overall number of units sold is lower but its more stable & reliable for its console/PC line up than chasing after the 'AAA' blockbuster market in North America & Europe.

Don't forget that SE sold their western studios, which is the reason for that massive drop in the west:

Sales volume declined sharply YoY, primarily due to the exclusion of sales from IP sold in the divesture of select overseas studios and IP, which were included in sales volume figures through FY2022/3.

Increased in retail in Japan it's also explained when you look at the games they released this FY just in that region, like the DQ games (X offline and Treasures, which sold like 600k+ mostly on Switch).

 

[EnergyDrink]

do you think it’s likely that Square Enix will entirely abandon the AA space now? Or is there a chance will they try again even with the new CEO whose past is more intertwined with metaverse and NFT stuff?

Tri-ace needs more work, you know

What? The AA games probably brings in some money, while the AAA games bleed money.

 

[Oregano]

Do we expect them to keep releasing bombs on the level of Forspoken though? There comes a point where small productions can't support the weight of the organizational structure above them. If the AA games are all Octopath Traveler selling 2-4m units then sure. But on average if games take 3 to 5 years to make, we're getting far past the point where organizations with $5B+ market caps can shy away from trying to release hits.

The market is different than 10 to 20 years ago. Single titles can swallow up hundreds of hours of a person's time. Industry revenue is strongly concentrated on tentpole releases. Organizations have to be fiscally responsible but in any creative business, titles will flop. If 1 big flop dissuades you from making more ambitious projects because it hurts your position that much, you're finance department wasn't doing their job.

My point was more the opposite. Not that they shouldn't do big games, but that they shouldn't be put off in general on doing AA/mid-budget if some don't hit because fundamentally big games can fail to and the damage there is even more significant. Especially when you're talking about contract games vs internal development.

There's also the question if we take Star Ocean(probably second biggest budget of the FY?) how much do you need to pump up that budget before the increase in sales outstrips the rising budget itself. Same with something like Dragon Quest Treasures(a project that spun off from development hell on Monsters).

 

[NediarPT88]

What? The AA games probably brings in some money, while the AAA games bleed money.

With the exception of Forspoken, the AAA games from the japanese side made them a good amount of money.

 

[Lord Azrael]

Just out of curiosity, your perception of this company was formed primarily through a headline that you read 10 years and 3 console generations ago right? It's absolutely insane how much power and influence thread titles and headlines get, very shortly after they made that statement they also made a statement talking about how happy they were about Bravely Default selling 250k, but that wasn't the headline grabber so people ignored it.

SE isn't anymore unrealistic about their games than your typical 3rd party AAA publisher.

That was far from the only time and you know it. Recently and infamously they said NEO TWEWY did not meet sales expectations, which gee who could've guessed when they threw it out to die. And now this, where anyone could've told them that dumping a couple dozen low budget games all in a short span of time with poor marketing was not gonna shake out well. I'm sure I could scrounge up some other examples for you. They are easily the most egregious culprit

 

[Gotdatmoney]

My point was more the opposite. Not that they shouldn't do big games, but that they shouldn't be put off in general on doing AA/mid-budget if some don't hit because fundamentally big games can fail to and the damage there is even more significant. Especially when you're talking about contract games vs internal development.

There's also the question if we take Star Ocean(probably second biggest budget of the FY?) how much do you need to pump up that budget before the increase in sales outstrips the rising budget itself. Same with something like Dragon Quest Treasures(a project that spun off from development hell on Monsters).

Oh, well in that case I'd say I don't expect them to pare back smaller titles unless they are outright bombing. They still need to release volumes. Having a portfolio of developers and titles is important for revenue, talent acquisition and catalog fill.

SE aint exactly the most trustworthy of publishers to not do dumb shit but I doubt they pare it back over 1 year of underperformers

 

[mariodk18]

Was SE always this bad at marketing? What happened to the Square that advertised (edit) the original FF7 in the west?

Edit 2: all right yes I remember now that square Enix had the help of Sony back in the day. So I guess they were never good at marketing their own games maybe outside of dragon quest and kingdom hearts?

 

[Xbro]

Was SE always this bad at marketing? What happened to the Square that advertised FF7 in the west?

They're still trying to advertise FF7

 

[Oregano]

Was SE always this bad at marketing? What happened to the Square that advertised (edit) the original FF7 in the west?

FF7 was published and marketed by Sony Computer Entertainment outside of Japan.

 

[DCSales]

Was SE always this bad at marketing? What happened to the Square that advertised (edit) the original FF7 in the west?

That game was published and marketed by Sony outside of Japan.

Square never published anything outside Japan themselves throughout the PS1 era, it was all done by Sony and EA (under the Square Electronic Arts initiative). Prior to the S-E merger, the only games that were ever published by Square themselves outside Japan were Final Fantasy 4 (2 USA), Mystic Quest, Secret of Mana, Final Fantasy 6 (3 USA) and Chrono Trigger. That's it. The rest were published by Nintendo/Sony, or by Square EA when that company was founded.

Oh, and Square never published a single game in Europe at all. NOE published all of Square's games for Game Boy & SNES (of which, we only got a small fraction of what the US got), while Sony and Square EA took on EU publishing duties from FF7 onwards (the first numbered FF game that Europe ever got), until S-E was founded.

Square have always been terrible at marketing and publishing their own games and their history is characterised by needing help from a 3rd party outside Japan.

 

[mariodk18]

FF7 was published and marketed by Sony Computer Entertainment outside of Japan.

Oh shoot you’re right, how could I have forgotten lmao

 

[Celestial]

What? The AA games probably brings in some money, while the AAA games bleed money.

AAA usually has higher ROI *if* the game in question hits the jackpot. The opportunity costs favor AAA which is why Activision and EA and Sony and Ubisoft have consolidated their resources around few huge mega blockbusters and scrapped the midsized productions entirely.

This is also why it was refreshing to see Square Enix do a barrage of AA releases last year. I hope they don’t quit on that.

 

[DCSales]

As far as the AAA side of productions go? The ones that could potentially reach 10+ million sales WW? The truth is that S-E only have two IPs that can actually compete in this sector (Final Fantasy and Kingdom Hearts), and honestly? I’m doubtful that either of them really have that level of brand power anymore.

Pivoting the company around mid-tier productions is a far more sensible strategy than continuing to chase the ever dwindling AAA dragon, and S-E has seen some pretty nice success within this category (particularly with Team Asano’s titles). The ones that aren’t big hits aren’t going to really harm the company either, thanks to their modest budgets and sensible production structure.

Following the Enix way of making games (small internal teams leading projects developed primarily by outside studios) has proven to be far more successful than the Square way (massive 5+ year productions handled primarily in-house). And even a “disappointing” release like Octopath Traveller 2 is going to well outsell the AAA behemoth that is Forspoken, on a tiny fraction of the budget. Even though not everything is going to be a hit, it’s a far more sensible strategy to cast a wider net than to throw everything into one basket. Yes, they probably should be spacing their releases out a bit better, and should be learning from their missteps with games like Octopath Traveller 2 (should’ve been a Nintendo published Switch exclusive) and Chocobo GP (Should’ve just been a straightforward retail release without the F2P junk), but their success in this sector far outweighs their failure.

Why on Earth would anyone advocate for more Forspokens?

 

[Kmds]

As far as the AAA side of productions go? The ones that could potentially reach 10+ million sales WW? The truth is that S-E only have two IPs that can actually compete in this sector (Final Fantasy and Kingdom Hearts), and honestly? I’m doubtful that either of them really have that level of brand power anymore.

Pivoting the company around mid-tier productions is a far more sensible strategy than continuing to chase the ever dwindling AAA dragon, and S-E has seen some pretty nice success within this category (particularly with Team Asano’s titles). The ones that aren’t big hits aren’t going to really harm the company either, thanks to their modest budgets and sensible production structure.

Following the Enix way of making games (small internal teams leading projects developed primarily by outside studios) has proven to be far more successful than the Square way (massive 5+ year productions handled primarily in-house). And even a “disappointing” release like Octopath Traveller 2 is going to well outsell the AAA behemoth that is Forspoken, on a tiny fraction of the budget. Even though not everything is going to be a hit, it’s a far more sensible strategy to cast a wider net than to throw everything into one basket. Yes, they probably should be spacing their releases out a bit better, and should be learning from their missteps with games like Octopath Traveller 2 (should’ve been a Nintendo published Switch exclusive) and Chocobo GP (Should’ve just been a straightforward retail release without the F2P junk), but their success in this sector far outweighs their failure.

Why on Earth would anyone advocate for more Forspokens?

Dragon Quest XII if handled correctly will be around a 10 million seller and could outsell Final Fantasy and Kingdom Hearts.

People might not think this is a fair comparison as FF16 is exclusive to PS5 and will come PC later with Xbox and Nintendo being question marks, but I believe Dragon Quest 12 if it's still the same Dragon Quest but obvs high quality and all platforms will outsell FF16.

A mainline Dragon Quest outselling a mainline Final Fantasy would be a surreal and just unbelievable outcome before but it's most likely going to happen now. The rest I agree with what you said.

 

[NediarPT88]

Dragon Quest XII if handled correctly will be around a 10 million seller and could outsell Final Fantasy and Kingdom Hearts.

People might not think this is a fair comparison as FF16 is exclusive to PS5 and will come PC later with Xbox and Nintendo being question marks, but I believe Dragon Quest 12 if it's still the same Dragon Quest but obvs high quality and all platforms will outsell FF16.

A mainline Dragon Quest outselling a mainline Final Fantasy would be a surreal and just unbelievable outcome before but it's most likely going to happen now. The rest I agree with what you said.

For DQXII to hit those numbers it would need to perform really well in the west.

And unless they significantly change the game compared to previous entries, that's not going to happen.

 

[DCSales]

For DQXII to hit those numbers it would need to perform really well in the west.

And unless they significantly change the game compared to previous entries, that's not going to happen.

Not to mention that a Gritty Hollywood Reboot for DQ12 would end up alienating the Japanese audience, so the west would have to basically carry the game by itself.

Not gonna happen.

 

[ArkhamFantasy]

As far as the AAA side of productions go? The ones that could potentially reach 10+ million sales WW? The truth is that S-E only have two IPs that can actually compete in this sector (Final Fantasy and Kingdom Hearts), and honestly? I’m doubtful that either of them really have that level of brand power anymore.

Pivoting the company around mid-tier productions is a far more sensible strategy than continuing to chase the ever dwindling AAA dragon, and S-E has seen some pretty nice success within this category (particularly with Team Asano’s titles). The ones that aren’t big hits aren’t going to really harm the company either, thanks to their modest budgets and sensible production structure.

Following the Enix way of making games (small internal teams leading projects developed primarily by outside studios) has proven to be far more successful than the Square way (massive 5+ year productions handled primarily in-house). And even a “disappointing” release like Octopath Traveller 2 is going to well outsell the AAA behemoth that is Forspoken, on a tiny fraction of the budget. Even though not everything is going to be a hit, it’s a far more sensible strategy to cast a wider net than to throw everything into one basket. Yes, they probably should be spacing their releases out a bit better, and should be learning from their missteps with games like Octopath Traveller 2 (should’ve been a Nintendo published Switch exclusive) and Chocobo GP (Should’ve just been a straightforward retail release without the F2P junk), but their success in this sector far outweighs their failure.

Why on Earth would anyone advocate for more Forspokens?

Forspoken is SE's first AAA disappointment to come out of their japanese studios since XIV 1.0, they released like 20 mid budget games in the last 12 months and only a handful were moderately successful, the only obvious conclusion to make from this is that investing in AAA new IP may be too risky, not to abandon franchises and strategies that have been reliable for decades.

Thankfully they don't have to choose, they can do both big budget games and medium budget games.

 

[Flakster99]

AAA usually has higher ROI *if* the game in question hits the jackpot. The opportunity costs favor AAA which is why Activision and EA and Sony and Ubisoft have consolidated their resources around few huge mega blockbusters and scrapped the midsized productions entirely.

This is also why it was refreshing to see Square Enix do a barrage of AA releases last year. I hope they don’t quit on that.

I agree with you, especially the bolded. I do truly hope SE does a better job in the future because they have a A-AA portfolio that is unmatched.

They definitely need to be better at planning their release schedule, to spread out their A-AA games during the year where there are no major releases. Some games should have been given a larger budget, perhaps a little more time to develop/ cook. They definitely should work on building a consistent console brand, cut back on money hats, their console release continuity sucks.

Their new CEO has a lot of work ahead of him that's for sure.

 

[Kmds]

For DQXII to hit those numbers it would need to perform really well in the west.

And unless they significantly change the game compared to previous entries, that's not going to happen.

I think it'll have much higher Japanese sales than 11 and also it'll perform considerably better in the West and Asia. It may not reach 10 million but I think done correctly (with same pricing, marketing and push) by Square Enix and Nintendo then DQ12 would outsell FF16.

 

[Lelouch0612]

AAA usually has higher ROI *if* the game in question hits the jackpot. The opportunity costs favor AAA which is why Activision and EA and Sony and Ubisoft have consolidated their resources around few huge mega blockbusters and scrapped the midsized productions entirely.

This is also why it was refreshing to see Square Enix do a barrage of AA releases last year. I hope they don’t quit on that.

To me more accurate, AAA usually generates more profit when they are successful, but the highest ROI often comes from successful AA games.

 

[bladestrikex]

When's the last time SE's even been satisfied with a game's sales

Just going by reports SE had said FFXV, Nier Automata, Octopath Travellers, Trials of Mana remake and DQ11 had exceeded sales expectations.

Apparently, Forspoken cost over $74 million to make.

That seems like it's on the lower end of what "AAA" budgets are. Don't know how much Forspoken has sold right now but if its anywhere between 1.5m and 2m then the game would have already broke even. If its below 1.5m then it's gonna have to crawl to break even, and that is before it's price gets slashed will will probably start happening later this month. This report is dated February 3th so it's only factored in 10 days of Forspoken sales but even then it had already started dropping lower in sales rankings by Feb.

 

[Lelouch0612]

Just going by reports SE had said FFXV, Nier Automata, Octopath Travellers, Trials of Mana remake and DQ11 had exceeded sales expectations.

Yeah they mentionned several success in the past.

Do you have a source for DQXI ? All I remember is that the JP launch sales were in the low-end of their expectations.

 

[KR_EP]

Appreciate the feedback & advice @Gotdatmoney - a case of being able to spot key pieces of information buried in lengthy reports that would be of interest to a general audience. On the subject of Forspoken, its most recent patch is worth a look. New Forspoken update available now: here’s what’s included, Takeshi Aramaki, Director (Forspoken) - Square Enix. Cannot help wonder if they had invited Digital Foundry (something I mentioned last September along with my pipe dream of an inFamous Second Son tie in) they could have received constructive feedback with enough time to address. Although why Luminous Productions & Square Enix failed to spot these issues before launch, despite multiple delays is something that needs to be internally reviewed ahead of Final Fantasy XVI. Time to publish a lengthy trailer compiling all improvements in the link above, with plenty of new footage from its story add-on included with the season pass.

Don't forget that SE sold their western studios, which is the reason for that massive drop in the west:

'Sales volume declined sharply YoY, primarily due to the exclusion of sales from IP sold in the divesture of select overseas studios and IP, which were included in sales volume figures through FY2022/3.'

Increased in retail in Japan it's also explained when you look at the games they released this FY just in that region, like the DQ games (X offline and Treasures, which sold like 600k+ mostly on Switch).

The mention of Dragon Quest X Offline (which like its MMO counterpart has no release in North America or Europe) adds to my point about focusing on domestic audiences which are more reliable, looking towards Asian markets that are more receptive. As opposed to alarm caused by vague statements on the direction of Dragon Quest XII without footage to contextualise. Worldwide launch of Dragon Quest Treasures came & went however its domestic shipment & sell-through numbers have been discussed at length in Media Create threads.

Had a couple paragraphs on Eidos but choose to hold onto it for the end of Financial Year but on second thought, might as well post it in response to the above, plus a few thoughts on the section of the report you quoted. Short answer being - yes & no. While I take your point @NediarPT88 about it being mentioned in the highlighted passage as the primary reason, it doesn't tell the whole story. Not least because Square Enix reported major declines in downloads for North America/Europe in FY2022/3 Q1-Q3, down from 25.75 to 17.93 million units sold. (edit: typos)

Left: Financial Results Briefing Session, Nine‐Month Period Ended December 31, 2021, Q1-Q3 slide 14
Right: Financial Results Briefing Session, Nine‐Month Period Ended December 30, 2020, Q1-Q3 slide 11

Side note: FY2021/3 is really interesting because of a change in account for downloads to include those released prior to the previous FY. While not exact as there are revisions to Disc sales which may also be the case digitally, the change in accounting for downloads units means its possible to work out back catalogue sales for FY2021/3 Q1-Q3 on a per region basis.

Japan: 2.95 - 1.48 = 1.47
North America/Europe 25.75 - 5.68 = 20.07
Asia, etc. 3.59 - 0.58 = 3.01

Snapshot of the large numbers of digital downloads of games older than one Financial Year being sold in North America / Europe. This could well be Eidos Interactive catalog titles being sold in high volumes at low prices on Steam/GOG/PSN. But again, overall download figures were falling year-on-year already before Square Enix divested Eidos to Embracer Group, which extended to declines in net sales. On that subject: 'Targeting net sales of ¥400–500 billion and operating income of ¥60–75 billion'. (Annual Report 2021, page 9) is a mid-term goal:

In the HD (High-Definition) Game sub-segment, the fiscal year ended March 31, 2022 saw the release of such titles as “OUTRIDERS,” “NieR Replicant ver.1.22474487139...,” and “Marvel’s Guardians of the Galaxy,” but net sales declined versus the previous year, which had seen the launch of such titles as “FINAL FANTASY VII REMAKE” and “Marvel’s Avengers.”

Source: Square Enix Annual Report 2022, page 12

Page 6 states a lack of major HD titles this current FY is part of its 'Medium-Term Earnings Targets and Business Strategy', year two building up to year 3 when major titles will release. Annual Report 2022, page 7-8 goes over the decision to divest is the contradiction inherent in the decision to sell, pursuing global sales while balking at the costs involved in running global studios capable of producing them. Quite frankly, the less said about the eye rolling spin of Crystal Dynamics & Eidos Montreal cannibalising sales the better. Petty Office Politics!

Nothing is preventing Square Enix from breaking out the exact numbers to show the impact (or lack thereof) by the sale of Eidos Interactive to Embracer Group, either in terms of units sold or revenue as they did when showing the overall cost of running the studios around the time it was announced. However we can look at the Embracer Group reports for more insight:

'During the quarter, we were happy to welcome the development studios Crystal Dynamics, Eidos-Montréal and Square Enix Montréal to the Group, together with 1,100 talented employees and an exciting catalog of IPs including Tomb Raider, Deus Ex, Thief, Legacy of Kain, Championship Manager and more than 50 back-catalog games. The transaction is expected to close soon and is an important contribution to our PC/Console Games segment.'

EMBRACER GROUP PUBLISHES INTERIM REPORT Q1, APRIL-JUNE 2022: NET SALES INCREASED BY 107% TO SEK 7,118 MILLION, page 3 on the full Q1 April - June 2022 financial report (published 18/08/22)

Notable how, on Q1 April - June 2022 page 14, the studios are not included in its initial forecast for the financial year ending 31/03/23 (confirmed by not being included as a business group at the bottom of page 19). It is only in the second quarter that Crystal Dynamics & Eidos Montreal appears as the 7th group (Q1 July - September 2022, page 7). Square Enix could have booked some back catalogue sales from the companies before the deal was completed, August 26th 2022 (Embracer Group PR statement). As such, any (fire)sales would have been in the Square Enix Q1 & part of Q2 reports depending on whether or not the cut off date was different from the public announcement by Embracer Group of the completion of the deal.

'It also reflects a deliberate shift from co-publishing and work-for-hire projects towards internal development projects for certain operative groups, as well as the operative group Crystal Dynamics – Eidos being consolidated for its first full quarter.'

EMBRACER GROUP PUBLISHES INTERIM REPORT Q3 OCTOBER-DECEMBER 2022 (16/02/23), Q3 September - December 2022, page 10

Nor does it include the Square Enix Europe & Square Enix Collective line ups, Outriders Worldslayer, PowerWash Simulator (PC/Xbox) last summer, Life is Strange Remastered on Switch or any IP retained such as Just Cause. None of the games developed or published by Crystal Dynamics & Eidos Montreal are included in its top 10 back catalog revenue drivers (Q3 September - December 2022, page 9) for its first three months as part of Embracer Group. However they may not be regarded as such by Embracer Group, either way, there's no mention of selling older Eidos Interactive titles as making a significant contribution to its quarterly revenue. Without an exact breakdown for Square Enix NA/EU sales or Embracer Group post-divestment, we cannot be certain but I think scepticism is warranted towards Square Enix when it discusses these studios & IP. One minute they're an liability, the next a valuable asset.

'The top-10 back catalog revenue drivers (including platform deals) included Deep Rock Galac- tic, Hot Wheels: Unleashed, Welcome to Bloxburg, Insurgency: Sandstorm, SnowRunner, Star Trek Online, Neverwinter Online, Metro: Exodus, Chivalry 2 and Borderlands 3. The Season 3 update for Deep Rock Galactic was successful, driving a meaningful contribution to a strong quarter for Coffee Stain, which had two titles in the top-10 list, including the recently acquired Welcome to Bloxburg.'

Ultimately, it was a decision by Square Enix to sell, meaning it chose to move on from whatever back catalogue sales it made from those studios & IP. If they were that important to its overall financial health they wouldn't have done so for a pittance (or spent years throwing shade on the financial performance of major releases, including both Marvel licensed titles).

Even if it was the primary reason (whatever that means in practice, 51% rather than 49%?) it cannot it be the only reason why there were such major drops. Square Enix Japan had a jam-packed line up throughout the financial year up from April - December 2022 to make up for it plus the aforementioned Square Enix Europe & Collective releases. Two of which are mentioned in the slides over Japanese titles. Must have kept some of its North American & European line up for a reason. PowerWash Simulator has been well received, it continues to receive support, free DLC & ports for PS4/PS5/Switch 31/01/23 to watch for in Q4. Someways off but People Can Fly has Project Gemini in development for Square Enix (full line up here).

We can still compare overall sales per region while accounting for the above. It'll feed into discussing where the company goes from here, post Eidos, with new management (my thoughts on company restructuring & the reasons behind them can be found here). Didn't plan on getting bogged down in the details before the end of FY but its been a useful exercise all the same.