Square Enix: long development periods are "dishonest" - and unprofitable

Following a disappointing FY2013 punctuated by an "extraordinary loss", Square Enix has announced plans to dramatically alter the way it approaches games development.

"One could go as far as to say that in today’s times, making customers wait for years with little to no information is being dishonest to them. We’re no longer in an age where customers are left in the dark until a product is completed. We need to shift to a businessmodel where we frequently interact with our customers for our products that are in‐development and/or prior to being sold, have our customers understand games under development, and finally make sure we develop games that meet their expectations."

In a financial briefing session, senior executive managing director Yosuke Matsuda reminded investors that major releases like Sleeping Dogs, Hitman: Absolution and Tomb Raider did not meet sales targets. He said that there were a number of factors which caused the lower than expected sales, but said these occurrences are indicative of a broader trend which the publisher cannot ignore.

"I believe that this situation is not a one‐time event for the fiscal year ended March 2013, but is a structural issue within the packaged product sales model. As a result, I believe it is difficult to guarantee an appropriate return on our investments within the revenue model of purely packaged software," he said.

"It is important to consider how to change business models in light of rigidity fromthe perspective of pricing, and I believe that the transformation to online titles and the diversification of profit opportunities is the key. While we have stated this before, we intend to pursue this with further intensity going forward."

Matsuda said the publisher has three major reforms in mind, and the first of these is to back away from its traditional development model, which has developers beavering away at games in secrecy for years before a profit is made.

"Poor asset turnover means that we have little contact with customers during several years of development of a game title," he added.

"In a model where a game is developed without customers knowing what it's like for many years, the product is presented to customers only after it has been finished, and all investment is recovered at one time, customers are forced to wait for too long, and opportunities for profit are passed up.

"One could go as far as to say that in today's times, making customers wait for years with little to no information is being dishonest to them. We're no longer in an age where customers are left in the dark until a product is completed. We need to shift to a businessmodel where we frequently interact with our customers for our products that are in‐development and/or prior to being sold, have our customers understand games under development, and finally make sure we develop games that meet their expectations."

Matsuda then cited Kickstarter, Steam Greenlight and Steam Early Access as good examples of the kind of business he means, in that all allow potential customers to get a good idea of a product early on and provide feedback to its creators.

"This is what I would like to realize with respect to long‐term, large‐scale developments. It is not an easy task, but I believe that it has become quite possible under the current environment," he concluded.

As for the remaining two initiatives, Matsuda said Square Enix will begin producing new, console-quality games for smart devices instead of using them as dumping grounds for ports and social games, and that it will stop trying to develop universally appealing games for a global market - instead focusing on region-specific titles.

The full briefing is fascinating reading - especially if you think of Square Enix as a bit of a lumbering old guard dinosaur. A translated PDF is available.

Thanks, Siliconera.