Jacob Navok, former Director of Business Development at Square Enix and current CEO of Genvid Technologies, recently shared insights into why the latest Square Enix games have not met sales expectations. According to news from a Bloomberg article, Square Enix's president, Takashi Kiryu, acknowledged that titles such as Final Fantasy XVI, Foamstars, and Final Fantasy VII Rebirth have underperformed. Kiryu mentioned that Final Fantasy XVI could still achieve its sales goal within 18 months.
Navok explained that sales expectations are based on covering development costs and ensuring a return on investment (ROI). He provided an example: if a game costs $100 million to develop over five years, it needs to exceed a potential $201 million return from investing the same amount in the stock market to be considered viable. Marketing expenses for such a game can be around $50 million, and after platform fees and discounts, the net revenue per sold game is closer to $40. For Final Fantasy XVI, which sold 3 million copies (last officially communicated figure by Square Enix), the revenue would be approximately $120 million, falling short of the $251 million required to meet expectations.
"There's a misunderstanding that has been repeated for nearly a decade and a half that Square Enix sets arbitrarily high sales requirements then gets upset when its arbitrarily high sales requirements fail to be met.This was not true when I was there and is unlikely to be true today."
Navok pointed out that budgets were established during a time of rapid industry growth, especially amidst the COVID-19 pandemic. The rise of massive free-to-play games like Fortnite has changed market dynamics, making it more challenging for single-player games to compete. Navok commented:
"The Fortnite-ization of the industry was not entirely predictable in 2015 when budgets were being planned"
To address these challenges, publishers are considering various strategies, such as decreasing development costs, increasing game prices, or expanding the audience size. Navok suggested that increasing platform revenue could help mitigate price hikes. Square Enix has announced plans to "aggressively pursue a multiplatform strategy" by releasing its AAA titles on PC, PlayStation, Xbox, and Nintendo Switch, as exclusive deals are becoming less attractive due to potential sales loss from platform exclusivity.
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