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Analyst: games costing $100 million need 5-10 million sales to succeed

Wednesday, 27th March 2013 11:21 GMT By Dave Cook

Square-Enix posted a grim financial revision yesterday, which caused president Yoichi Wada to stand down. The company then called Tomb Raider a failure, despite selling 3.4 million units in just four weeks. Numbers like these are often not enough to cover triple-a development costs, one analyst has said.

In a statement sent to GI.biz, long time industry analyst Billy Pidgeon predicted Wada’s departure would help remedy Square’s situation, and stressed that single-player IP is a contributing factor in the company’s financial woes.

Said Pidgeon, “The AAA market is extremely competitive. Most of Square Enix’s franchises are single player games, which are less popular than multiplayer. Square Enix has been a leader in that sector, but now faces stronger competition from multiple publishers, both large and small, including Bethesda, Capcom, Xseed, Atlus and Level 5.

“Square Enix’s franchises are well established and require ever-higher production budgets to match and surpass past performance. The latest Hitman and Tomb Raider sold in the three million unit range and got Metacritic ratings above 8.

“Those numbers would rate as successful for JRPGs that earn more from vendors as exclusives and have manageable budgets. But for games with development budgets approaching $100 million to be truly profitable, ratings have to be above 8.5 and sales need to be in the five to ten million unit range.”

Meanwhile however, Pidgeon did state that Square’s approach to free-to-play, digital and mobile titles is improving significantly, and will bring additional revenue into the company.

This is a prevalent issue, as the development cost of triple-a console games reaches astronomical levels. Making that money back is becoming harder all the time. What do you make of the situation?

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38 Comments

  1. BULArmy

    This is absolutely insane number and one that can’t be repaid if it not CoD, BF, Fifa and number of series that can be counted on the fingers of both hands.

    And then everybody is excited about next-gen where production cost will be even higher and profit margins even smaller. This will lead to even less innovations and much more annual entries. I expect even to more often GTA games.

    Square make good games(even if they made games like Hitman too mainstream), but like THQ they constantly underperform and even though I don’t see they following the THQ fait.

    #1 1 year ago
  2. DuckNation

    Hmm i wonder if Final Fantasy XIV: A Realm Reborn for the ps3 is going to be f2p or is it going to be subscription based?

    #2 1 year ago
  3. frostquake

    Sorry blaming Single Player games is not a good enough excuse! Budgets for last Gen consoles are way out of control. $100 Million to make a Tomb Raider game?? Really, such a waste! The old adage that it takes that much to figure out the platform, develop a new engine and such don’t hold water anymore with this Gen that is going out!

    What you really have is too many hands in the pie that don’t really belong there! CEO’s and Board Members taking way to much of that Pie and all those ancillary expenses are way out of control, and I mean WAY out of control! It is a HUGE MASSIVE LIE, that they tell consumers, about HOW EXPENSIVE it is to make a game! Yes it is expensive, but not in the ways they lead consumers to believe.

    If we could only have true transparency and look at the data, you would be shocked by what you see!

    #3 1 year ago
  4. FATHASUN

    Tomb Raider is a success to me. I hope for a sequel but this news doesn’t bode well. I am sure they will make one but may cut back the production budget. Possibly affecting the quality of the game.

    #4 1 year ago
  5. silkvg247

    I think this is quite short sighted of their analysts – I’d question their ability to analyse.

    It isn’t just about one game. it’ll continue to get strong sales and I suspect will hit 10M eventually. But that aside it’s about the resurrection of an entire franchise, and where to take it next.

    The big costs have been made, the art style is there, the engine is there. Now they can spend much less to expand the universe further.

    I think one huge mistake they’re making is this other news I read about all DLC being multiplayer? Who gives a turd about multiplayer in Tomb Raider? Whoever made that call I will honestly say needs sacking. So does whoever decided to waste money on putting MP into Tomb Raider in the first place. Clearly people who don’t understand the game or it’s roots are making important decisions where they have no place to be doing so.

    If they need extra cash, all they need to do is release massive “tombs” as DLC for players to explore. The infrastructure for downloadable tombs is already in the game ffs.

    The cinematics and story were nice for the reboot but if that’s where the extra costs are then ditch them for the next one. Make it about tomb raiding, that’ll be more than enough for me.

    #5 1 year ago
  6. Gadzooks!

    #3

    Care to share those figures with us?

    #6 1 year ago
  7. G1GAHURTZ

    That’s not what he said, Dave.

    #7 1 year ago
  8. zersus

    Tomb Raider does not feel like a $100 million game to me. The multiplayer is bad if you ask me, they should have invest the time and money more in the reply ability rather than a multiplayer (nearly) everyone hates. And I think that now, when the first TR is done, the second one will be cheaper. The team is experienced, the engine is done, I bet you can save some money now.

    #8 1 year ago
  9. Dave Cook

    @7 he said, “But for games with development budgets approaching $100 million to be truly profitable, ratings have to be above 8.5 and sales need to be in the five to ten million unit range.”

    If I’ve missed something please let me know. I mean that sincerely.

    #9 1 year ago
  10. zersus

    Thumbs up for #5

    #10 1 year ago
  11. Dave Cook

    @7 Wait, I see it. Edited. Thanks mate it’s insane over here right now, ugh.

    #11 1 year ago
  12. Gheritt White

    @3: You are Talking. Out Of. Your Arse.

    TR was in development for five years. You think keeping a 200+ man team going for that long is cheap?

    #12 1 year ago
  13. frostquake

    @ #6 would love to, but that would put so many hookers and strippers lives in danger, it would cause a shortage of hookers and strippers. wink wink

    #13 1 year ago
  14. UuBuU

    $100 million is a stupid amount to spend on a game. I don’t care if its good ~ there are hundreds of far FAR better games out there that cost a fraction of that amount.

    These companies are far too big for their own good ~ and for the good of gaming.

    #14 1 year ago
  15. Digital Bamboo

    This is a disturbing trend, the way that AAA games must sell XX million units IMMEDIATELTY and score X.X on fucking Metacritic in order to be considered a success. Tomb Raider looks great, I plan to get it, just not yet. 5-10 million minimum is crazy, even megahits like Batman & GoW games don’t reach that. What game has sold 10 fucking million this gen?

    @16 *Ok, should have added for PS360 and wasn’t a pack-in, in which case, the answer is 1. ONE fucking game has sold over 10 million this gen (exluding Wii, iOS & PC)

    #15 1 year ago
  16. JB

    http://en.wikipedia.org/wiki/List_of_best-selling_video_games

    http://en.wikipedia.org/wiki/List_of_best-selling_Xbox_360_video_games

    http://en.wikipedia.org/wiki/List_of_best-selling_video_game_franchises

    #16 1 year ago
  17. zersus

    @15 CoD crap may be? I’m not owning a single one, but they sell as hell.

    #17 1 year ago
  18. Jet Black

    I wonder how much money could have been saved without the addition of multiplayer? As others have mentioned I feel it was very unnecessary & was only implemented for what seemed for business reasons, looks like that didn’t work out then.

    #18 1 year ago
  19. Demigod

    Games really need better management and fixed targets. Its a pity that such a creative medium needs it but they don’t exist in a bubble. they need to set the game to the budget of both time and money. As hard as that is, and there will be compromises not every game is blessed with CODs surprising success.

    In this economy sales projections should be set lower, much lower, and budgets should be set with that in mind. Tomb raider is never going to sell 5 million in its first month. 3 million is a success but if the budget makes it a failure that is a management a budget problem not a game one. Would it have sold as well with a smaller more constrained budget we will never know but we will have to find out as prices cant go up as people simply cant afford to pay a quarter of the price of a new console for every game.

    #19 1 year ago
  20. G1GAHURTZ

    @11:

    No problem, geezer!

    #20 1 year ago
  21. Jet Black

    Christ it gets worse, I suppose they have to make their money somehow…

    http://store.steampowered.com/dlc/203160/

    #21 1 year ago
  22. SameeR_Fisher

    hmmmm, Can’t we wait for Tomb Raider a month or two ?!, I mean in 1month it sold 3.4Million, that is amazing, in 2 more months it may -maybe not- cross the 4million mark, TR is an amazing game, but the expectation of sales is way high.

    Do analyst keep in mind how every month there is at least 2 strong games coming out, seriously how many good games came out in March ?!, let’s see:

    Tomb Raider
    God of War: Ascension
    BioShock Infinite

    How can a game sell 5millions or more in such a month ?!, I for one can’t buy the 3 games, I end up only buying one, Feb had a couple of strong games, same with Jan, it is like that every month, no wonder the sales are deciling, the consumer can’t keep up with so many games every month, not everyone is setting on a bank you know

    #22 1 year ago
  23. Digital Bamboo

    Hm, can’t re-edit my original comment but in my frothing rant stage I failed to answer my own question correctly: The answer is CoD. One SERIES (2 games) has reached 10M sales this gen. un. uno. hana.

    #23 1 year ago
  24. silkvg247

    I just went to try TR multiplayer for a laugh and couldn’t find a single game..

    #24 1 year ago
  25. manamana

    “Most of Square Enix’s franchises are single player games, which are less popular than multiplayer”

    So! Wrong!

    Nobody asks for a Tomb Raider Multiplayer and yet they are developing it and need servers to run it. That is where your calculation went down the toilet Square-Enix. Just bring a great SP experience and save some money and you will see – nothing wrong with that.

    How many gamers are playing TR MP anyhow?!

    #25 1 year ago
  26. silkvg247

    Erm none.. unless I am missing something. It just creates an empty lobby for me.

    #26 1 year ago
  27. DrDamn

    @15
    Eh? Combined totals on PS360 all of the CoD’s from MW have, GTA IV has, a couple of the Assassin’s Creed titles have, Halo 3 has, Skyrim has, Battlefield 3 has, RDR has, FIFA12 & 13 have.

    #27 1 year ago
  28. Jet Black

    @26 silkvg247

    Same for me (PC/PS3), no chance in getting those trophy’s then…

    #28 1 year ago
  29. anik_lc

    @Dave, the game didn’t sale 3.4m units in four weeks. It was expected to sale 3.4m units excluding digital downloads in four weeks at the end of FY13 (March 31) but the actual sales is not 3.4m units, its much less than that. :)

    #29 1 year ago
  30. irem31

    Just wondering how big Bioshock Infinite’s “failure” will be in one month.
    Another (very) big budget single-player AAA title, admittedly with a higher (sigh) metacritic rating.
    To simply expect these kind of numbers nowadays, just begs for a major reality-check.

    #30 1 year ago
  31. Digital Bamboo

    #27 I guess I was looking at the wrong charts, and failed to combine the totals for a few games. You’re right, GTAIV & Halo 3 def have passed 10M, can’t confirm the others tho. Sloppy research aside, the number is very few, and the expectation that most AAA games, even great ones, can hit those goals is totally unrealistic.

    #31 1 year ago
  32. salarta

    Once again, I see Tomb Raider listed as having sold $3.4 million to date, when I have not seen anything that definitively states what “expected units sold” is meant to be. How much it’s sold so far? How much the company EXPECTED the game to sell? While admittedly the more I think about the numbers, the more I can see it being the former, I haven’t seen anything that concretely says which one it is.

    As for Squeenix and the single player experience, the past decade has seen quality of that experience corrode significantly. Before 2003, Squeenix and the companies they now own used to put a lot into telling grand stories or taking the player on exciting adventures. Today, the higher-ups are far more obsessed with forcing in whatever gimmicks and popular trends they think will boost sales, and the actual dev teams on high-profile games care more about putting their personal fantasies into official products than about making great games that fit the franchises they work on. This has turned franchises that used to inspire and wow people into franchises that divide people, some blindly praising any new game, some mindlessly bashing any new game, and many in the middle.

    Basically, the core drama should be in the actual game, not what kind of arguments and hostilities the game spawns among consumers. It says a lot when the controversy a game spawns among consumers provides a more involved and interesting story than the actual game. I don’t think we’ll see Squeenix improve any time soon. But recent games turning out to be failures gives at least some hope of a light at the end of the tunnel, that perhaps the company and the IPs they hold can salvage the messes made of them and return to their former greatness.

    #32 1 year ago
  33. OlderGamer

    Geez on a roll today Silk +1

    #33 1 year ago
  34. DrDamn

    @31
    Well you are also picking the top end figure too. Expand that out to games which have sold 5m+ and the list gets much larger. It is a problem, but one the big publishers have to address themselves. Episodic content, lower budget mid tier releases before ramping up for sequels, generally reducing the number of titles they spend this much on. All good things for the future of the industry.

    #34 1 year ago
  35. Night Hunter

    “despite selling 3.4 million units in just four weeks.”

    Which they didn’t. Those were the sales forecast, and they were not met. On all the sites people are making the same mistake. If they sold those numbers they would have been okay.

    Aside from that very few people speak about the fact that SE is trying to cover it’s budget holes caused by FF vs XIII and XIV, as well as the Crystal Engine. There is plenty of blame to pass around, not only the “disappointing” sales numbers of the Eidos games.

    #35 1 year ago
  36. Ballisticon

    The math doesn’t really add up.

    Cost: 100M, let’s say 200M because of marketing
    Units sold: 5M
    Price: $55 (split between $60 for console and $50 for PC…we all know consoles sell way more but I’ll split just for simplicity)
    Total sales on 5M: $275M

    Now, let’s remove another 50M just because: $225M

    So, 25M ‘profit’, and that is saying 100M in marketing (which is BS) and another $25M removed because of ‘whatever’. that also does not include all of the on-disc DLC and other DLC that is cut from the final version to milk sales after the fact (and which costs are included in the original 200M).

    TR is a smashing success and almost any other company would love to have those type of sales, even with the 100M budget. After all is said and done they could make 100M on that game at a minimum.

    Saying 10M in sales is needed to cover a 100M game (when the game costs $55) borders on incompetence.

    #36 1 year ago
  37. ActionGameKing

    Square Enix is woefully mis-managed. What sales were they expecting? Release Versus 13, announce Kingdom Hearts 3 and FF7:Remake. All financial problems solved. Duh!

    Yoichi Wada, you had this coming.

    #37 1 year ago
  38. DSB

    @36 Lousy economy is lousy. Manufacture costs money, delivery costs money, and you best believe retail takes a cut.

    At most a publishers return in a brick and mortar store will be around 22 dollars worth of profit on every 55 dollar game sold, and online that goes up to 38. On consoles you also have the disc license, which further eats up those 22 dollars.

    That only gives you the revenue.

    Now subtract the money you’re spending on design, production and global marketing, and subtract from that a proportion of the money you’re spending on management and RnD.

    I’m not saying that the average publisher isn’t woefully inefficient, but getting the math wrong doesn’t serve anyone in proving that.

    #38 1 year ago

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