An interesting source has shared insight on what is going on at Square Enix, as they have recently revealed their shift towards making a smaller number of AAA games, that will also be multiplatform.
Jacob Navok, who is now CEO of video game company Genvid, was previously a business director for Square Enix, as we can verify in this Polygon interview with him from back in 2013. He went on quite a thread explaining what is going on with his former employer. If you have the time, you can read the full thread on Twitter starting here, but we’ll share a summary below.
So, the main reason for this thread is Jacob wanted to dispel the popular notion that Square Enix sets unreasonable sales targets for their projects, in comparison to what the game is and how much it took to make them.
Using publicly available data (and he does share links), Jacob explains that sales targets are based on both the cost of development and projecting a return on investment. He then gives an example: for a game that was made for $ 100 million in five years, the game needs to make more money than what Square Enix would have made if it stayed in the stock market instead.
For every copy sold at $ 70, the company really only makes $ 40. The $ 30 takes into account platform fees, marketing, discounts, etc that Square incurs to sell copies. If this game was started in 2024, it would need to make $ 201 million, based on stock market performance. With marketing and those other costs added in, it would need to make $ 234 million to break even.
If the $ 70 game sold 3 million copies, Square Enix only made $ 120 million. And where did Jacob get that 3 million number? Well, that’s how many copies of Final Fantasy XVI were sold in its first week.
Navok then goes on to explain another problem Square Enix, and every other major game company, is facing in parallel to this situation. Because of the evergreen nature of live service games like Fortnite and Roblox, most of the money made in video games is coming to these games, instead of being spread more equitably across different kinds of games.
Square Enix does have a live service game of its own, of course, in Final Fantasy XIV, and their success in that title is probably the reason we aren’t seeing them file for bankruptcy and auction off their assets today.
But let’s not get mixed up here; regardless of the business of making video games, it is good for everyone if video games come to more platforms. While there is value in a game studio making guaranteed income by making an exclusive, that is what’s good for the studio, not for the consumers.
Still, it is refreshing to get an informed explanation of where the industry is at the moment. The crisis the industry faces is near existential; if video game companies can make more money not making games, than why would they still make games?
This is the reason Sony, Microsoft, Square Enix are chasing various tailwinds, such as going multiplatform, cloud gaming, VR, AI, etc. Until the industry comes up with something new that won’t have some detrimental side effect, they will all continue looking.
