Square Enix: poor Hitman and Tomb Raider sales reflect 'intrinsic problem' of industry

Sales of Sleeping Dogs, Hitman Absolution and Tomb Raider fell short of Square Enix's expectations, sparking the publisher to launch a costly restructuring. The problem, Squeenix has said in its annual report, is "an intrinsic problem within the HD game business model." It's just not sensible to work on a game for years, losing money, then release it and hope you'll make enough back, you see.

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Sales of Sleeping Dogs, Hitman Absolution and Tomb Raider fell short of Square Enix's expectations, sparking the publisher to launch a costly restructuring. The problem, Squeenix has said in its annual report, but "an intrinsic problem within the HD game business model." It's just not sensible to work on a game for years, losing money, then release it and hope you'll make enough back, it says.

Square Enix says that games were "critically-acclaimed" (which is debatable) and it considers them successful from a development perspective, but the money part was the problem.

The console market is still primarily driven by boxed copies of games on store shelves, it says (noting that digital distribution is "becoming the mainstream" for PC and DLC), but oodles of games are flooding in and retailers are becoming picky about stocking them.

To get attention into the crowded market it offered "considerable incentive programs" to retailers, "such as price protection, back-end rebates, and promotional cooperation costs." While this helped ship boatloads of copies to stores, it lowered the profits on each.

As making a big fancy game takes years, its current model is to spend money all through that then hope it makes it back at the end. Which is a bit of a gamble. "Profit opportunities are almost non-existent during the game development phase," it notes. Other than irritating pre-order campaigns, of course.

One might point to the alpha-funding craze on PC which is letting people play games early and fund development, but it's jolly unlikely any major publisher would venture into that in any serious way.

One might also sneer that Square Enix needn't spend millions and millions of dollars on making games so very fancy, but don't expect that to change. "Titles of large-scale development are our flagship titles, showcasing our technologies, it said. "We will never lower the flag of such titles."

However, having such big and beloved fancy brands realized so lavishly gives it "the potential of diverse content exploitation," it says. Square Enix dreams of using these in "a business model that delivers content in various formats to customers even before the launch of a game."

Unfortunately, it neglects to paint a picture of what this model could include. Small spin-offs and mobile and games, like Ubisoft favors, is one possibility I imagine. However, far more interesting would be ideas like Hitman: Sniper Challenge.

The Hitman: Absolution spin-off used bits of the main murder simulator to create a standalone game focused purely on sniping from a rooftop. Bafflingly, it was offered as a pre-order bonus rather than a paid release. If Square Enix were to start spinning off cheap-to-make snippets of games as standalones, it could both make a little money back and get people excited about the main release.

(Sniper Challenge, by the way, was released free-to-play almost a year later on an obscure online portal--relatively useless for both monetization and marketing.)

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  • reply
    September 10, 2013 2:30 PM

    Alice O'Connor posted a new article, Square Enix: poor Hitman and Tomb Raider sales reflect 'intrinsic problem' of industry.

    Sales of Sleeping Dogs, Hitman Absolution and Tomb Raider fell short of Square Enix's expectations, sparking the publisher to launch a costly restructuring. The problem, Squeenix has said in its annual report, is "an intrinsic problem within the HD game business model." It's just not sensible to work on a game for years, losing money, then release it and hope you'll make enough back, you see.

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      September 10, 2013 2:32 PM

      Tomb Raider was a great game, how many copies did it sell?

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        September 10, 2013 2:38 PM

        Something like 3.4 million copies last I heard.

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          September 10, 2013 2:44 PM

          If you can't be successful with 3.4 million copies sold... then something is intrinsically wrong with your design/project plan. Make a smaller game or make it more efficiently. They should shoot for 1 million to be sold to be successful and everything beyond a million to be gravy. 3+ million is a lot of damn copies. They were not in touch with reality if they were expecting more.

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            September 10, 2013 2:53 PM

            Speculation I've seen is that Squeenix is using these games not selling Call of Duty numbers to cover the fact that other games are selling far worse. The other games are more appealing to (some of) the culture in the company, so they're being preserved at the expense of games that actually are popular and sell.

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              September 10, 2013 3:09 PM

              That's probably it but why the hell did they buy Eidos if they don't like those kinds of games?

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                September 10, 2013 3:15 PM

                It's not about disliking the games per se. I'm thinking it has more to do with a pride/shame thing with the Japanese games failing. It's culturally unacceptable to admit that the Japanese games are failing, so they blame the Western games as both a financial and cultural cover.

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            September 10, 2013 3:28 PM

            Tomb Raider sold more than any other tomb raider in it's history. The problem was the fucktards that thought it was going to sell gangbusters.

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            September 10, 2013 4:41 PM

            Shareholders are probably crying because they aren't putting up CoD and Warcraft-like profit numbers which are anomolies to begin with.

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              September 10, 2013 4:53 PM

              Exactly, the business guys don't understand why every game can't just sell CoD numbers. Obviously a failure!

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              September 10, 2013 6:30 PM

              In some ways publicly traded companies are fundamentally flawed. They always go with the assumption that revenues will always increase when that isn't feasible. There's always a plateau. Either it's hit and that's what the company makes annually or the company continues to grow until it implodes and dies.

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                September 10, 2013 6:35 PM

                That's not a flaw though. That's how we get constant innovation and growth.

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                September 10, 2013 6:36 PM

                It's actually worse than that. The people running the company are obliged to increase shareholder value. Shareholders only hold on to their shares for an average of about 7 months. Things that "increase shareholder value" in that time frame are going to tend to be short-term benefits at best, and may actually be detrimental to the company as a whole.

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            September 10, 2013 6:25 PM

            Especially given that they're making probably around $25 per copy. If you can't be successful pulling in $85 million then there's really something wrong. 100 people pulling in $80k for 4 years is $32 million in salary (that would be a pretty large and reasonably paid team in the industry around here at least). So where is the remaining $53 million going? Obviously there's fixed expenses (building lease, etc), but I can't help but feel that there's something fundamentally wrong if selling 3.4 million copies isn't enough anymore.

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        September 10, 2013 2:39 PM

        It sold 3.4m but not enough for SE

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          September 10, 2013 2:40 PM

          "Why are these games not all the next Halo? WTF?!"

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      September 10, 2013 2:41 PM

      Hitman was a total letdown, no wonder it sold badly. Tomb Raider however, was a solid game, and sold like one, but the budget was huge.

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      September 10, 2013 2:41 PM

      Shouldn't have fucked up Hitman!

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      September 10, 2013 2:50 PM

      How the fuck did either of these games sell poorly? S.E.'s expectations are just unrealistic.

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      September 10, 2013 2:54 PM

      More like they didn't sell the metric ton they needed to cover crap like FF14. Why aren't they dragging the square games through the mud that didn't perform?

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        September 10, 2013 3:04 PM

        Because they're idiots.

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          September 10, 2013 3:07 PM

          The worst part is that their suits will probably cancel some of the good franchises (Sleeping Dogs, Tomb Raider, Hitman, Deus Ex) because of this. Honestly Square Enix has been one of my favorite devs over the past couple of years, their games have been mostly solid....

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            September 10, 2013 3:30 PM

            Considering how good Tomb Raider and DX:HR turned out, it would make me really sad if those series got taken out behind the shed.

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      September 10, 2013 2:58 PM

      Translation: "We need even more sales of Western made games bcs our Japanese made ones aren't covering their costs."

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        September 10, 2013 3:33 PM

        Problem with FFXIV is they are throwing good money out with bad.

        FFXIV was by any standard measure an absolute failure.

        As much as I like the FF series they really lost their way IMHO after FFX. I heard 12 was good but I just couldn't get past the fact that you no longer are playing the game the way FF games were played. The current system would be GREAT if it was used in a game where you were controlling multiple small parties rather than 1 multi person party.

        Any,TR is a great game (I'm about 3 hours in) and I would be pissed if they killed the franchise...and this is coming from a guy who never liked TR games of old.

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      September 10, 2013 3:36 PM

      Hitman wasn't exactly a turd, but it definitely wasn't anything special.

      Tomb Raider, on the other hand... I thought Tom Raider was one of the better games of the year. It was sort of a blend of Uncharted, Batman: Arkham City, and Far Cry 3. I also liked that it didn't really ever blow its load in terms of plot. I also think Tomb Raider would have sold even better than it did if gamers weren't particularly sensitive to reboots and franchising. I think we all expected it to be nothing special.

      Also, if they want to talk about intrinsic problems, they should mention the multiplayer. Is multiplayer really important for a game like Tomb Raider. Did people overwhelmingly ask for or play it? How much extra did it cost to develop that component of the game?

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      September 10, 2013 3:37 PM

      Solution: cease development on garbage and make more Deus Ex.

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      September 10, 2013 4:03 PM

      Poor Hitman sales were a result of Hitman being mediocre you schlubs.

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      September 10, 2013 4:56 PM

      They just have completely unrealistic expectations. When has 3+ million sales EVER been seen as unsuccessful in the industry? Just because you give a game a huge budget doesn't mean there are going to be more people that want to buy it.

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      September 10, 2013 5:03 PM

      Wouldn't 3.4 million sold = at least 170,000,000 in revenues? There has to be a way to make a profit off of that.

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        September 10, 2013 6:08 PM

        Not even close. B&M retailers take ~60% of of box cost.

        Furthermore, it depends on your development budget. Then you have manufacturing, distribution, and marketing costs.

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          September 10, 2013 6:13 PM

          3,400,000 sold * $60 each = $204,000,000
          40% of that is still $81,600,000. And I'm thinking that 3.4 million is sales at retail only, not digital sales.

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          September 10, 2013 6:24 PM

          B&M retailers don't get even close to that. When I worked at Gamestop, we got *maybe* 10% of new game retail price.

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            September 10, 2013 6:34 PM

            Pretty much this. But, a lot of it had to do with seller/distributor markup to protect them against the retailers' demands of co-op funds, price protections, returns, etc.

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          September 10, 2013 6:28 PM

          lol retailers don't even get anything close to that, more like 5-10%. That's why used games are such a big deal for them.

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          September 10, 2013 6:33 PM

          Brick and mortar are lucky to make $5-10 on a new release.

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          September 10, 2013 6:36 PM

          what? stealthhawk... please come back and answer.. what?

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          September 10, 2013 6:55 PM

          [deleted]

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            September 10, 2013 7:04 PM

            That still leaves in the vicinity of $80m in revenue with sales that would typically be considered good to very good. The fact that Squeenix considers this a failure suggests a disconnect with reality somewhere.

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        September 10, 2013 10:13 PM

        When I watch the credits roll, and more than 600 people are listed, I'm amazed any game ever makes a profit.

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      September 10, 2013 6:38 PM

      In case you guys didn't know there's a decent length of a supply chain involved to get a boxed game on to the shelf at Walmart.

      Developer > Publisher > Marketer > Distributor > Retailer

      Sometimes there's overlap, but even the big guys will use someone in the middle on some steps or at least with some accounts. That's a lot of hands in the pie so the profit back to the developer can be a pretty small percentage, and even then the publisher will want to recover any up-front money they feed the developer before giving them any cut of profits. Depending on the business arrangements all along the way, even a some what decent selling game can still cause the developer to close if not enough profits are able to flow to them.

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        September 10, 2013 10:03 PM

        This is the publisher complaining though, not the developer.

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      September 12, 2013 3:52 AM

      They didn't sell poorly, you just made ridiculous forecasts.

      Its an intrinsic failure of your management not the games or the developers or the public or the wider industry!

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      September 14, 2013 2:22 AM

      I loved all three of those games. But I only bought them when they were on sale. Just not in a position to pay full price for the last few years. I think the spin-off suggestion is a good one. I definitely agree with comments about their forecasts being stupid, rather than the games not selling well.

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      September 15, 2013 9:15 AM

      Tomb Raider & Hitman were fantastic games.

      The lack of PC Collector's Editions hurt sales a bit, I'm sure however.

      I bought the Tomb Raider CE for PS3 on release.

      I would have bought the Hitman CE on PC, but there wasn't one, thus I waited until it was on sale and paid about $7 for it.

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