Square Enix to Revamp Business, Adopt Lessons from Kickstarter

Square Enix infamously revealed that despite selling millions of copies, Tomb Raider, Hitman Absolution and Sleeping Dogs failed to meet their sales forecasts (via Siliconera). This is all in spite of Tomb Raider being the most successful entry in the franchise, to date. The company’s failure to meet its goals prompted Yoichi Wada to resign as CEO and president of Square Enix this past March.

Senior Executive Managing Director Yosuke Matsuda, who’s soon to be president of the company, explained the company’s problem in detail, stating that long development periods are both “dishonest” and “unprofitable.” He made his comments during a financial briefing session.

“I believe that this situation is not a one‐time event for the fiscal year ended March 2013, but is a structural issue within the packaged product sales model. As a result, I believe it is difficult to guarantee an appropriate return on our investments within the revenue model of purely packaged software,” he said.

“It is important to consider how to change business models in light of rigidity fromthe perspective of pricing, and I believe that the transformation to online titles and the diversification of profit opportunities is the key. While we have stated this before, we intend to pursue this with further intensity going forward.”

Matsuda says that the company has three reforms in mind, the first of which is to back away from its traditional development model of long development periods in secrecy.

“Poor asset turnover means that we have little contact with customers during several years of development of a game title,” he said.

“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.

“One could go as far as to say that in today’s times, making customers wait for years with little to no information is being dishonest to them. 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.”

Matsuda says that Square Enix has much to learn from the models embraced by indie developers on Kickstarter and Valve’s Greenlight and Early Access programs.

“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 said that for the two remaining initiatives, Square Enix is to begin producing new, console-quality games for mobile devices instead of releasing shovelware. Last, but not least, the company will stop releasing games for the global market and instead focus on region-specific titles without watering down the content for mass marketability.

Source: Square Enix.

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3 Comments on Square Enix to Revamp Business, Adopt Lessons from Kickstarter

Mike

On May 27, 2013 at 8:04 pm

Hmmm, seems like a sound business strategy, the only part I keep getting a bad feeling on is the focus on region specific titles, where I can see the games that are released in Japan but don’t always make it across the Pacific (like Dragon Quest, e.g.) being even less likely to make it to America in favor for something they feel is more “Americanized”.

jlkawaii

On May 28, 2013 at 4:35 am

@Mike:
+1

i’m on the same wavelength….

R.J.

On May 28, 2013 at 1:55 pm

It’s certainly good to see that more interaction with customers is a focus, though this can also be misleading since interaction typically means having heavily edited trailers and showing people very polished, but very small, segments of a game. It’s better than no information, but it also is something that can be tailored to look better than it is.

I’m a bit concerned by the apparent idea that the long dev cycles themselves are to blame. Sure, spending years and millions of dollars isn’t profitable if the game is a dud, and it does get harder to make a profit as more time and money go into a game, even if it turns out decent, but I worry that it would lead to the conclusion that, “more sequels, more often” is the way to go.