On January 1, 2015, Square Enix has released the annual report, which covers financial and corporate details from the past year and then toward 2015 plans.  Due to a large amount of text, this article particularly focuses on Mr. Yosuke Matsuda (Square Enix President) and his interpretation and evaluation on the company’s standing on pages 3 to 9. To start off, the he explains that the  net sales during the fiscal year (totaling up to $1,506,252 thousands of USA dollars) has ended in March 2014, while operating income was $102,441 (thousands of USA dollars) and net income amounted to $64,112 (thousands of USA dollars). These positive results were from the concentrated efforts to recover from the financial disaster and negative results for the fiscal year that ended in March 2013.

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High Definition Games poses challenges.

Apart from the financial results, Mr. Matsuda has stated that sales of console game titles, including Final Fantasy X/X-2 HD RemasterThief (Europe and North America only) and Tomb Raider: Definitive Edition were better than originally anticipated. Despite the successful sales, the president has restated that serious structural flaws still continue to exist in the disc sales models that currently defines the HD game business. How to deal with significant issue posses a challenge. 

“HD game business is showing signs of evolving away from the conventional disc-based sellout model for game consoles. The sellout model itself is rapidly shifting from disc-sales to full game downloads, and game sales are entering into an era of full-scale digital distribution. We see this change as a huge opportunity for us, and will endeavor to further expand the HD game business.” (pg 6)

In the previous year’s annual report, he also mentioned that low asset turnover (the equivalence of Sales or Revenues/Total Assets) is another major issue for HD game development. The question is how to properly deal with increasingly protracted development periods. In addition, Square Enix needs to research technological aspects such as game engines and development tools, face several business model issues of how to provide customers with additional content both before and after game launch, and learn how to introduce new development initiatives such as derivative product and episodic models like Life is Strange.

Three major MMO title reigns. 

“Three major MMO titles—“FINAL FANTASY XIV: A REALM REBORN,” which began operation last August, “DRAGON QUEST X,” which was launched in August 2012, and “FINAL FANTASY XI,” which has entered its thirteenth year of operation—maintain nearly 1,000,000 paying subscribers all together, and have established a solid revenue base.” (pg 4)

Square Enix Merchandise is considered important.

 “The Merchandising segment is steadily generating sales and profit. While its sales are relatively small, this segment is considered important from the perspective of enhancing our IP offerings, which include original pieces. We therefore shall maintain this steady profit-generation.” (pg 4)

Smartphones and Tablets are not game consoles.

Square Enix has accelerated their efforts to game development and services for smart devices. Their Japanese studio is leading the way with major hits like Dragon Quest Monsters: Super Light and School Girl Strikers. Yet, the global market for smart device games is showing remarkable growth, particularly in China and other Asian markets. 

“Asia isn’t the only region to demonstrate remarkable growth. The Indian and South American game markets are also growing at astounding rates, and smart device games hold the key to capturing these growth markets. It’s quite true that, as the economies of developing regions grow, demands for entertainment grow as well. In such regions, people use smartphones or tablets as the device for enjoying entertainment content. Making our content available on these devices will create huge business opportunities for us. We shall establish a foothold of entry into those fast-growing markets through the fiscal year ending March 2015.” (pg. 7)

Indie game developers and more breaks regional barriers and large-scale funding.

Admittedly, the series of activities in the games business process—procure funding, prepare the development environment, develop games, distribute and sell the finished games—has previously been possible only for major publishers with large-scale funding. Now, that single path has been disruptive by three growing trends used by indie game companies: a) open source, low cost game development tools such as RPG maker, Engine001, etc.; b) fundraising projects through crowd-funding websites; and c) direct sales via downloads. Meaning, large-scale funding is no longer necessary.

This has created a situation where independent developers are appearing one after another, and a large number of new games are being produced all over the world. As seen above, not only the gaming environments, but also the games themselves are increasingly becoming more diverse and decentralized on a world-wide basis, and we therefore recognize that it has become difficult to simply lump the game market together under the term “global.” (pg. 8)

To fix this problem, Mr. Matsuda believes the key is to focus on customer reviews, so they can focus on their strengths and specialties that their creators are best at. For example, many customers love JRPGs (Japanese Role-Playing Games) worldwide. By focusing on JRPGs tailored to these customers and offering the ultimate games, Square Enix will win acclaim from the world. Well, that’s what the president thinks is the reality of the modern digital content business. After all, it’s hard to pinpoint regional boundaries when there’s none in the virtual world.

“In the current world of digital entertainment, physical borders and boundaries are no longer meaningful. The world is fully connected by the Internet, and content is disseminated to the whole world simultaneously. In this context, “regional” refers to customer diversity, not physical regions. ” (pg. 8)

For more information, please read the annual report.


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