SquareEnix post record losses after gambling on westernization

SE 2013 eng

SquareEnix will keep the delicacies in the fridge this year. Despite a 15% rise in revenues (148 billion yens), operating profit dives 160% to -6 billions yens. Profits crashed 300% and the firm ends up with a 14 billion loss. The delicacies might have been sold already… 

Unexpectedly, the game division is profitable but the margin is nil : 44 millions yens only on 89 billions revenues. Only Dragon Quest X on Wii and smartphone games are mentioned as having had a positive effect. But let’s review the other departments first.

Arcade game business was flat and lost half a billion. Books (SquareEnix publishes numerous manga like FMA) profited 2.5 billion yens, character goods 700 millions. Those three represent only one third of the company’s total business, games remaining the biggest part.

Considering the figures I just gave, you could wonder where the losses come from (0 – 0,5 + 2,5 +0,7 > 0). The accounts mention «adjustments» of 9 billions, without much precision, sort of spin to hide the fact that the initial budget was awfully flawed. The balance sheet changes little, so the explanation lies in the income (actually, loss) statement. Cost of sales have risen quicker than the revenues, killing the margin to begin with. While there’s no detail of it, the reason may very well be the insane investment that was put in the development of SE’s western titles. Impossible not to smile at the «advertising» line, the figure of which rose by 70%. Not so long ago, this company was relying on the quality of their games to succeed, now it relies on hype and mass advertising to brainwash people into buying anything it throws at them. Financial troubles continues with an exceptional loss of 11 billion : SE registered accounting losses on canceled project and badwill on IPs.

The truth, everyone knows it already : as I foresaw last year, the westernization that SquareEnix embraced this year lead it to absolute collapse. Their western titles are financial black holes. Despite high metacritic scores and the hypocrite support of the press, those games didn’t sell better than your average AAA release, whereas the publisher expected off-the-chart sales figures. They targeted 6 millions copies for Tomb Raider, which sold sold roughly 2 millions to date. They stuffed the channels with more than 3 millions and the remaining ones are currently collecting dust on shelves, the price tanking on the top of that. You can’t magically transform ageing series into smash hits just with metacritic scores and subservient journalists. Gamers are not going to throw all their other games to the bin just by seeing a few advertisements. Even a monkey would have drawn a better business plan! While the public was asking for Final Fantasy Type-0 or Bravery Default, SquareEnix kept hammering Hitman and Sleeping Dogs. I’m not saying that those localizations would have saved the day, but the publisher did NOTHING to address its historical fans and purposely ignored them for months. SquareEnix must stand on both of its feet or it will collapse. It is unacceptable, foolish and sickening to go conquer a saturated market when letting existing fans starving for games! There was no way FF fans would support the firm and in such an atmosphere. I myself haven’t bought a SquareEnix for 1 year and a half. In 2011, I bought six.

Like a child who tries to fix the blunder he has just done, SquareEnix greenlit a series of Japanese games such as Kingdom Hearts 1.5HD, Final Fantasy X/X-2 and Lightning Returns to give fans some guarantee. Adding to that VersusXIII (probably) for PS4 and Drakengard 3 in Japan, it’s clear that SE acknowledges the problem. 

se plans

The trouble is that their future plans are rather worrying. The first line most probably mean they’re gonna ensure more frequent releases, which is crucial to secure enough revenue. I imagine this will be translated in shorter development cycles, given that time mechanically reduces profitability at some point. The second line hints at an acceleration in IOS shovelware/recycleware, which is hard to believe when you think that they put a teaser site every 2 or 3 month to announce this kind of crap. But the most serious issue is the third line. The publisher intends to divide its portfolio of licenses between regions. Roughly what they’ve been doing this entire year in abandoning the localization of Type-0 or letting Bravery Default rot in a drawer until Nintendo took it. Needless to say, translation for Dragon Quest VII or Drakengard 3 doesn’t like very likely. This old-fashioned thinking by which markets would be more performing better closed to each other is wrong, disgusting and recessive. Hadn’t SquareEnix launched Final Fantasy in the West, it wouldn’t be a global player today. If it weren’t publishing Call of Duty in Japan, its revenues wouldn’t be the same. It’s a solid NO! Gamers don’t want to see the borders closing again. Markets are not composed with ever identical clones with the same interests. There is such thing as cultural diversity, which drives society forward and leads to certain doom when denied.

Let’s therefore hope that SquareEnix will shed some light on that particular issue during E3. Meanwhile, the company has to achieve some balance in its releases. It is already under way : KH1.5HD, FFX/X-2HD, Lightning Returns, Drakengard 3, VersusXIII, Thief 4, the new Crystal Dynamics, etc. SquareEnix must inspire confidence to trigger purchase. It means addressing both publics without favoring one over the other, by quality rather than publicity.  

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