Square Enix’s three-step plan to recovery

New Square Enix president Yosuke Matsuda has outlined three initiatives to reform the publisher’s triple-A game development business.

Speaking in a financial results briefing, Matsuda said the company would look to overhaul its operations and large-scale development by improving the turnover of game releases, targeting smartphones and tablets and creating titles tailored for specific regions.

The move is part of Square Enix’s plan to improve its sales performance after it recently reported “extraordinary losses” of £88 million.

The publisher also claimed that it had missed a number of sales forecasts for games including Tomb Raider, Hitman: Absolution and Sleeping Dogs, with Tomb Raider only managing to sell 3.4 million units from a target of up to six million.

The first step outlined by Matsuda in Square Enix’s road to recovery is an overhaul of its development model for triple-A games.

As we reported yesterday, Matsuda expressed concerns over the increasingly long periods of time between investing in a game, its development, and sales. He said that he wanted the publisher to improve user engagement during the intervals between game releases, and used the examples of Kickstarter and Steam Early Access as potential ways to achieve this.

The second step relates to the development of more content for smartphones and tablets. Matsuda said that although it is an obvious claim, these devices had evolved “at a striking pace”, and that their specs were more than sufficient to create games for.

He said that rather than remaking old titles and franchises into social games, going forward he wanted the publisher to also create brand new content specifically for the platforms.

He remains cautious however on the challenges of developing for such platforms, given the different business models compared to the traditional pay-up-front pricing structure of triple-A console titles.

“The most difficult part here is the earnings model. The prior packaged software sales model was a simple world calculated by quantity times price,” said Matsuda.

“The optimal business structure for this world involved separating development from sales and marketing, and having each specialize in their particular function. From now, we need to move toward a more flexible business structure.

“Therefore, it is not enough to simply develop a ‘good game’, we have to think about what kind of game we want to present to our customers, how our customers will enjoy the game, and how we will receive compensation from our customers, which requires development, marketing and sales to unite in the creation of our games. Even in cases where the business model is a simple pay‐per‐download, we have to think of how to expand.

“It is critical to provide new titles where various revenue models such as pay‐per‐download, F2P, PDLC, and hybrids of them, are unified with the game design.”

The third initiative is regionality, in which Matsuda is looking to create a game portfolio tailored for specific regional tastes.

He said Square Enix has in the past made the mistake of assuming its major titles would sell well worldwide, a proposition he claimed had been difficult to achieve, despite setting its development budgets in anticipation of global sales and success.

He added that many of the titles the publisher has decided to cancel or re-examine for fiscal year ending March 2013 had been based on this premise.

“As the sheer amount of and diversification of game and entertainment products is increasing, I believe it is difficult to move forward on the assumption that many products can cover the tastes of the entire world, and sell across the entire world,” said Matsuda.

“Of course, we will continue to invest in flagship titles that showcase our technological prowess, pursuing high‐end game quality, and which can earn profits on a global basis. Regarding a number of these types of titles, we will share information with everyone at this year’s E3.

“That said, we cannot reasonably finance this direction for every single title, and we have to think about our entire product portfolio.”

Matsuda went on to say that, going forward, Square Enix would have to review the definition of a triple-A title, and would need to pursue a new type of blockbuster title, in addition to those matching the traditional definition.

He suggested this could come in the form of a PC, browser, smartphone or tablet game.

“Our customers’ tastes throughout the globe are as varied as the regions in which they live, and as we think about our product portfolio in various regions, we need to develop our games appropriately,” he said.

“We have only just started reforming along the three points I mentioned above, so at this point, I can’t speak about specific titles. But we are determined to solidly implement these initiatives.”