Square Enix: Western Expansion to Blame for Fiscal Failures

Wada departure symbolic of Western expansion failure.

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Square Enix: Western Expansion to Blame for Fiscal Failures
Square Enix has revealed that former president Yoichi Wada's initiative to embrace Western development (read all about that here, here, here and here), including the acquisition of Eidos, has led to its current financial crisis.

In today's financial report, the Japanese publisher revealed that Tomb Raider has sold 3.4 million copies in a space of four weeks. Hitman Absolution sold 3.6 million units since release, and Sleeping Dogs 1.75 million since August.

While the numbers sound impressive, all three titles have been highlighted as games that have "failed to meet each [sales] target," with "slow sales of major console game titles in North American and European markets" also contributing to a colossal drop in operating income.

Although one could wonder exactly how many copies Square Enix was hoping to sell - the publisher did not disclose its sales expectations for any game - the better question to ask is why Square Enix needed to sell such an extraordinary amount of units at all. And the answer is written between the lines.

The announcement of president Yoichi Wada's resignation suggests that the executive's dream of producing more Western titles is one that is effectively bleeding the company dry. It is taking a very substantial hit on its overall operating revenue to accommodate a sweeping reorganisation - not exactly something you do if you have confidence in your company's direction.

Ironically, a closer look at the document's charts reveals that Square Enix's Digital Entertainment division is expecting an increase in net sales - 87 billion yen compared to 71.9 billion yen in 2012 - which correlates with the relative chart successes of Hitman Absolution, Tomb Raider and Sleeping Dogs.

It's just not expecting to make any money from any of those sales - revised projections for the Digital Entertainment division's operating income has plummeted to a mere 1 billion yen (from 12.6 billion yen in 2012). The publisher also pointed to a lack of sales momentum in North America, with an "ineffective sales force" resulting in two thirds of the number of units sold in Europe.

While the company's Western focus failed to bear fruit, Square Enix adds that the Japanese side of the business is performing adequately. In particular, major social gaming and other networked titles in the region are "growing steadily" and has seen some success in Korea too.

However, the entire fiscal year has passed without any significant Japanese-developed console titles seeing an international release. Indeed, it is only now that we are hearing of HD remasters of Final Fantasy X/X-2 and Kingdom Hearts - games that perhaps would have saved the company a lot of hassle had it boarded the HD Remasters trend sooner.

Source: Square Enix Financial Report
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