Analyst: Single Player IPs Will Cause Problems for Square Enix in the Year Ahead

Veteran analyst Billy Pidgeon says that games like Tomb Raider need 5 – 10 million sales to be successful for Square Enix and that IPs that cost hundreds of millions of dollars need a minimum Metacritic scores of 8.5 and the aforementioned range of sales. Pidgeon sees a difficult year ahead for Square Enix, who predicted earlier this week a very tough year of losses despite decent sales of its latest Hitman title and the new Tomb Raider game.

"On the positive side, the company has made investments in online, social and mobile games including free-to-play games," said Pidgeon in a note passed to GII. "Many of these, such as the browser based games, won't bring in significant income for a year or more."

"Some of these have done well in Korea, which is a very competitive and mature market, but Square Enix's micro-transaction-based role playing and collectible card games haven't performed well in Japan or in the West," he added.

Pidgeon says that the current console market is extremely competitive especially with games that don't offer a multiplayer component because the sector faces strong competition from competitors like Bethesda, Capcom, Xseed, Atlus and Level 5.

Finally he says that newer iterations of Square Enix's popular franchises require larger budgets, which in turn means they have to have sales larger than what would normally be considered a successful sales target.

"But for games with development budgets approaching $100 million to be truly profitable, [Metacritic] ratings have to be above 8.5 and sales need to be in the five to ten million unit range."

Source: GII


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  1. 0
    Infophile says:

    It's amazing how SE can look at all the same numbers as me and come to the exact opposite conclusion. As I see it, the problem isn't that they aren't selling enough games (the only RPG franchise that's sells more than Final Fantasy these days is Pokemon), the problem is that they're spending too damn much on making their games.

    Let's go back to the example of Pokemon, and ask just why Pikachu is kicking Lightning's ass. First, some numbers: Pokemon Black and White sold a combined ~14 million copies worldwide, Final Fantasy XIII sold ~6 million. Their respective sequels sold about half as many copies each. Adjusting for their relative price-points, Pokemon B&W made about 1.5 times as much money in total as FFXIII.

    What about the cost of production? Well, these numbers are harder to come by, but SE is complaining about costs of hundreds of millions of dollars here, so let's estimate that FFXIII cost $200 million to produce (if anyone has a better number, feel free to chime in). At $60 a copy sold, and estimating a profit (after distribution costs) of $50 per copy, that comes to a $100 million in profit, though this could be much lower or negative, depending on what the cost of production actually was.

    It's harder to estimate how much Pokemon B/W cost, but it's almost certainly a ton less – in the tens of millions at the most. It's for the same system as Pokemon Diamond/Pearl/Platinum, and came with only modest graphical upgrades. The engine didn't have to be built from the bottom up. So in the end, it probably cost around a tenth as much to make as FFXIII, while bringing in more money.

    But let's look at the sales from another perspective. There are 152 million Nintendo DS systems sold worldwide, so roughly 1 in 10 DS owners bought Pokemon B/W. There are about 70 million PS3 owners worldwide, so again, roughly 1 in 10 bought FFXIII. From this perspective, the games are equally successful at attracting prospective buyers. The big difference is in cost of production. Nintendo turns a huge profit at the same rate of sales/consoles, whereas SE is lucky to break even.

    The lesson to be learned: SE needs to cut costs, not sell more games. Pokemon is far more successful while having far-outdated graphics (it's not even full 3D yet); RPG fans obviously don't consider graphics the biggest factor in whether or not to buy a game. SE just needs to stop making it the biggest factor in designing a game.

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