Square Enix recently revealed that, despite being major hits, Tomb Raider, Hitman Absolution and Sleeping Dogs failed to meet their sales forecasts. In a financial results briefing, Soon-to-be Square Enix president Yosuke Matsuda explained the problem in more detail.
“These titles were lauded by the industry from a creative perspective, achieved very high levels of quality, and I believe that we achieved our primary goal of both reinvigorating existing IPs and creating new IPs,” Matsuda says. However, he adds, profits are where the aforementioned games failed to deliver as per expectations. One of the problems was that their actual sales to customers—not shipments to retailers—slowed down too quickly.
While the plan was to sell these games across a long-term period, competition from other titles on the market tightened up sales opportunities and this caused “a critical increase in advertisement spend to lift initial shipments”.
This isn’t one-time problem, Matsuda feels. It’s a structural issue with how major, big-budget games are developed. You spend several years working on a game, and don’t see a penny of the profits until it’s been released to consumers. Once it’s out there, it competes with other major hits for the spotlight, and in an age where consumers are becoming increasingly selective, this makes it difficult to guarantee sufficient returns on investment.
So, what would Matsuda like to change about the way Square Enix handle their console games? Matsuda says he’s interested in a form of business popularized by Kickstarter—where profits are made both during development and after release, and where developers continually remain in touch with their audience, frequently providing them with information on how things are coming along.
“In a model where a game is developed without customers knowing what it’s like for many years, the product is presented to customers only after it has been finished, and all investment is recovered at one time, customers are forced to wait for too long, and opportunities for profit are passed up,” Matsuda feels.
Matsuda elaborates: “We’re no longer in an age where customers are left in the dark until a product is completed. We need to shift to a business model where we frequently interact with our customers for our products that are in‐development and/or prior to being sold, have our customers understand games under development, and finally make sure we develop games that meet their expectations.”
This is where Matsuda feels Square Enix have something to learn from both Kickstarter and Valve’s Steam Greenlight and Early Access programs.
Says Matsuda: “There is a crowdfunding website called ‘Kickstarter,’ which does not only serve as a method of financing for developers, but I believe should also be seen as a way to unite marketing and development together by allowing us to interact with customers while a game is in development. Valve’s Steam Greenlight and Early Access, are also very interesting, in that they raise the frequency by which we interact with customers, increasing their engagement and reflecting customer needs. We are also looking at what initiatives are possible from this perspective. ”
So, what does Matsuda feel Kickstarter and Steam can teach Square Enix?
“What should we present to our customers before a game is finished, how can our customers enjoy this, and how do we connect this to profitability, is something we are thinking about implementing, and which can improve our asset turnover in the process,” Matsuda says.