Square Enix: ‘Extraordinary Loss’ After ‘Tomb Raider’ & Others Sell Below Expectations

Mar 26, 2013 by  

Square Enix Sales Losses Tomb Raider

From a qualitative standpoint, Square Enix has had a subtle but sterling run of game releases recently. Sleeping Dogs proved a uniquely entertaining Hong Kong crime thriller last August; Agent 47 sleuthed his way back to gaming prominence in November’s Hitman: Absolution; and just this month, Lara Croft was breathtakingly reborn in the most stunning and seminal Tomb Raider adventure to date.

But capturing appeal can be as vital as capturing acclaim. Unfortunately for the publisher, the former hasn’t gone according to plan.

In what it’s calling an “extraordinary loss,” Square Enix revealed in an earnings statement today that it grossly overestimated net profits for its fiscal year ending in March 2013, and that its finances, in reality, are deeply in the red. As a result, longtime president Yoichi Wada has been shown the door, replaced by Yosuke Matsuda, and Square Enix has committed Â¥ 10 billion to initiating “major reforms and restructuring [efforts]” throughout its business.

A second report released by the company highlights the main culprit: sales of Western games.

Tomb Raider Square Enix Sales Profit

Square anticipated selling 14.9 million retail games in North America and Europe between September 2012 and the end of March 2013. Within that period, however, Sleeping Dogs sold 1.75 million units, Hitman: Absolution garrotted 3.6 million, and Tomb Raider accounted for 3.8 million — each worldwide! Adding up to 8.75 million sales (and again, worldwide), and comprising Square’s only significant September-March releases for North American and European audiences, the dissonance between prediction and fruition is “extraordinary” in every sense of the word.

While Square Enix didn’t specify how it plans to “reform” and “restructure” several facets of its operation — what could it mean for current franchises? How might it shape plans for the next generation? — Tomb Raider, with its stellar reviews and new steadfast narrative template, will almost surely play a role. Hopefully that starts with changing the game’s recently announced DLC agenda.

During a recent AMA session on Reddit, Tomb Raider global brand director Karl Stewart declared that all forthcoming Tomb Raider DLC will be “based around the Multiplayer experience for now.” While “for now,” clearly, lends itself to a future addendum, the general impression was that Square Enix and developer Crystal Dynamics were committing to a component that, as far as our review felt, contributes little to Tomb Raider’s rich single-player experience; poor controls, sloppy design and uninspired customization options made it a veritable non-factor.

Tomb Raider Reflections DLC Trademark

Refreshingly, though, Siloconera reported this week that Square Enix Europe filed a trademark for an entity named “Tomb Raider: Reflections.” It’s impossible to say what the name could mean but it sounds deep, it sounds… epilogical, like the kind of story-based experience Lara needs after battering through her stormy crucible on the island of Yamatai. Being in the trademark stage it may well arrive behind three or four map packs and a bundle of character skins. But in any case Square Enix would be playing to its strengths at a time when, well — look at what transpired today — another rebirth story appears in dire need of writing.

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Tomb Raider is available now for Xbox 360, PlayStation 3 and PC.

Follow Brian on Twitter @Brian_Sipple.

Sources: Square Enix 1, 2 [via Eurogamer], Siloconera

38 Comments

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  1. I wonder if these companies are like
    Did it make more then it cost to make ? = SUCCESS
    Do fans love it? = WHO CARES
    did it get high grades = WHO CARES BUY MORE COPIES

    It seems like it when you were over 1 mil sales and that’s a “failure” (>>)

    • There’s a lot that could be said about profit motivation vs. quality motivation. In Square’s case, though, it didn’t just fail to meet initial sales expectations; it’s losing money in droves.

      Not good when you fire your president, claim an “extraordinary loss” and vow to reshape your company after one earnings report.

    • that game made close or more than 2 hundred million in sales, how much did it cost to produce. How much did it cost to produce 5 hundred mil.LOL

      • oops, an edit button would be nice.

  2. yeah b/c 3 million sales in less than 1 month is bad… these CEO f**wits have no clue how to run a business or how to market games.

    • Agreed. These expectations they have are way too high. It’s as if they see other titles sell ridiculously well and believe there is no reason for their games not to do the same especially being cross-platform. Most games won’t sell like Call of Duty, Halo, or Metal Gear Solid. For any game to sell even a million copies soon after launch is impressive. That Tomb Raider has sold nearly 4 million so far is damn good.

      • I agree with you thats not bad at all but sleeping dogs isn’t very impressive sales wise its a great game tho

    • It’s not Tomb Raider alone, it’s just a combination of sales within the September 2012 – March 2013 time period. Didn’t meet their expectations. I don’t know how much other games typically sale.

      • Oh believe me I get that. However, even with three games combined selling 9 to 10 million copies that is nothing to complain about especially considering that those games will likely continue to sell. I know Tomb Raider will probably break 5 million itself before the summer even hits. I don’t buy this story Square is tossing out. As someone else pointed out, it almost sounds like an official excuse to start canning people. I’m not one to get into conspiracy theories and I hate to sound like one of THOSE people but I can’t even begin to imagine that these games didn’t end up making Square a fair profit. If Square Enix didn’t walk away with about 300 million in profit so far off those three games then there is some serious bloat and overhead somewhere.

    • I wish people understood finance. 3 Million units sold doesn’t mean a thing if it requires 5 million units sold just to recoup the money you put into making the product.

      That said, MAYBE Square shouldn’t have expected Holiday season level sales in the “western market” in the middle of March. I know this might sound crazy, but March isn’t exactly a money splurging period. I don’t remember Easter and March Madness being huge gift-giving periods of the year, but I could be wrong…

      • SO you’re saying it cost over $216 million to make that Tomb Raider game?

        Really?

        Does Lara come out of the TV and smack you with her breasts?

      • I wish you did. Gamestop gets about two bucks on each unit sold, that is probably standard for every re-seller (or at least in that neighborhood). Crystal Dynamics doesn’t get a piece of each game sold, they get a flat fee, then if the game does well critically they may get a bonus, and after certain milestones are met (10 million units sold) they may start getting a piece of each game. Being extremely liberal with publishing fee’s you could say Square gets about $40.00 for every game sold, as profit. There is no place where 3.8 million X 40 = less than a games budget. That place does not exist. Maybe TR cost 20 million to make, and maybe another 20 to market and ship. The game has still brought in (and this is a conservative number) 152 MILLION DOLLARS. That’s blockbuster success for movies and their budgets tend to be much higher. Square is about to make some sort of move, and they are using the “unexpectedly low sales” as an excuse. What that move is, is anyone’s guess.

        • Actually, I do. I have a degree in finance. First, Throwing out random numbers isn’t an argument if you don’t have a source to back any of them up.

          Second, Tomb Raider didn’t cost $20 Million dollars to make. Grand Theft Auto IV costs $100 Million dollars to make over the course of it’s four years production period and it released in 2008. (http://www.shacknews.com/article/52464/gta-4s-production-budget-estimated)(http://www.eurogamer.net/articles/gta-iv-is-most-expensive-game-ever-made) [<-That's how you back up your numbers]Games only cost MORE now thanks to inflation and other financial factors and Crystal Dynamics really worked to put the best visuals they could forward.

          Add to that the fact that the production numbers are only a part of the costs. Marketing and Distribution costs are not included in that number. Actor/Director Kevin Smith has stated on numerous occasions that movie studios will spend two to three times the money it costs to make a movie to advertising it. (Search though his podcasts on his podcast network to find the conversations if you want to here for yourself) That means for a movie that costs $20 Million the advertising for it will be between $40 to $60 Million. Video games cost MORE then movies to make. Movies like the Avengers are rare exceptions to the rule.

          Let's just say for one second that the numbers holds true for Tomb Raider (and I'm willing to argue it does since I live in L.A. and many of the billboards and buses I see have Tomb Raider #reborn banners on them). The marketing on this game would estimate at $200 Million dollars. We are already getting close to $300 Million and we still haven't talked packaging and distribution. But the marketing isn't likely THAT high. That's say that since games cost WAY more to make than most movies, the ratio is 1:1 means that each dollor spent on production, a dollar is spent on marketing. The game is still at $200 Million so far.

          NOW on to packaging and distribution. Let's say that Digital sales for Tomb Raider were… 25% of all sales of the game. I think that is a reasonable estimate considering the growing popularity of digital distribution. Not too low, not too high. The remaining 75% of the distribution requires Square to contract with a company to burn millions of copies of the game, print high quality labels (a.k.a. not that print and paste garbage we all do at home) to millions of said disks, pay for game boxes to print millions of labels to put into the front cover of said game boxes and then have them assemble the entire thing into millions of complete boxes ready to sell. They have to do this for Xbox, PS3 and PC and also pay to have those millions of copies shipped around the world. Let's say that comes in at $20 million.

          At this point, we're likely close to about $220 Million. THEN we throw on the Platform royalty the company has to pay the system manufacture for the right to publish the game to their console. They get roughly 10% for each game sold. let's tack on other $20 Million. Then there is the retailer margin. The game stores actually make closer to 25%. Make that about $50 Million to be conservative. We're close to that $300 Million again.

          Now that I've broken down the numbers for you, here's a graph how the $60 you pay for a game is split.(http://latimesblogs.latimes.com/entertainmentnewsbuzz/2010/02/anatomy-of-a-60-dollar-video-game.html)

          $15 goes to the retailer, $4 for packaging and distribution, and $7 dollars to the console maker plus another $7 in unsold goods. That means the company gets about $27 dollars per game and from THAT money, they have to remake the money they put out to remake all the production costs for the game. That means that at 2.85 million units (Taking out the 25% of digital sales) at $27 per disk, they make roughly $77 Million dollars, and from THAT money they have to make up the cost of the game.

          THERE is why they lost money.

          • Most multi-platform games cost, on average, less than $30 million to make. Grand Theft Auto costing $100 million is an extreme case as was The Old Republic costing EA several hundreds of millions for a game that was only on the PC. The cost to develop games are certainly increasing but in most cases a game that sells at least a million copies would have already made the company back the money they spent if not close to it.

            Unless we know the costs to develop those three games it’s safe to assume they’re in the ballpark of costing an average amount of money. Maybe slightly higher. Hitman and Tomb Raider almost certainly ended up as profit for Square while Sleeping Dogs probably just broke even for them. Both Hitman and Sleeping Dogs probably won’t sell much more than they already have considering they’ve been out for a little while now but Tomb Raider hasn’t even been out for a month yet. We’re likely to see that game continue to sell for another couple months before sales simply trickle in.

            My estimate of 300 million in profit was too high but I’m sure that enough profit was made that Square is sensationalizing a story here. They’re in trouble but I seriously doubt what happened with these three games is anything anyone should focus on when it comes to why Square is currently having its issues. For one thing, we should be focusing on why they wanted such high sales out of three games that they should have known were not going to sell that many copies and what has put them in a position to be desperate up to this point.

            We could start by exploring the reasons why Final Fantasy XIV ever launched in the state it was in and why they insist on making three games for a Final Fantasy sub-franchise (XIII) that hasn’t gained traction with the fans since the first title. They could also help themselves by not talking about games they seem to have no intention of completing and stop teasing fans about a Final Fantasy VII remake. You want profit? Remake that title and watch your bank account flood.

            http://www.develop-online.net/news/33625/Study-Average-dev-cost-as-high-as-28m

          • I think we can all agree Tomb Raider is a big series but think of all the unknown games. According to your made up figures then the only games that would ever be released are triple AAA titles such as COD, and then it is a stretch that these games will manage to make a measly profit? I don’t claim to be an expert but 17 year old me does not need a degree in finance to see that you obviously don’t understand this industry

          • Hey I could say I have a PHD in finance and throw a bunch of lies on the screen too. You live in LA, that is not the real world. LA and New York is where the majority of the marketing dollars go. You picked one of the biggest, bloated games made in recent years and called that an “average” of what games cost to make? It isn’t so. Do you even know who Crystal Dynamics is? The core dev team is like 5 guys. Sorry, the game did not cost 100 mil to make. I was being generous with the 20 million number. You may have your degree in “finance” but you don’t know a damn thing about games. And no, I am not going to post links that you can find in 5 minutes of Google searching. If you’re not smart enough to figure this out for yourself, me posting links your not going to click on isn’t going to change your mind.

  3. How much did Tomb Raider cost to make? Surely not enough that 4 million units sold is losing them money.

  4. Well, here’s hoping that the future of Tomb Raider and Sleeping Dogs have bright futures, as they’re two of the only games I truly enjoyed from last year, as far as I can remember.

    • Eurgh, redundant sentence phrasing is redundant.

  5. Unfortunate, these are great, quality games. Hopefully they get good sequels. I can’t say whether those expectations were ridiculously high, I don’t have access to their accounts.

    This also could be a reason publishers fight so hard against piracy and used games, as well as implementing so much DLC.

    Unfortunate…

  6. I wonder if the loss would feel less dire if they cut the cost of multiplayer and DLC. DLC especially should be something you consider adding on only after you’re certain that the game has done well enough to warrant it’s cost.

    It’s getting ridiculous how many gaming companies are developing this “too big to fail” attitude, and are then shocked when everything crumbles around them.

    It’s starting to make sense why we’re seeing so many seasoned and high profile developers just up and quitting these days.

  7. SLeeping Dogs was effectively a new IP so they shouldn’t have expected it to sell well, like Kindgoms of Amalur. However it shifted an impressive 1.75 million copies, that is a lot of fans. Hitman came back with a pretty solid 3.6 million copies. Tomb raider may be the continuation of a series but fans were wary of this game, I know that because I sat worried that my beloved tomb raider was dead through the first hour of that game. It was therefore a risky purchase in my opinion. 3.8 million sales though are a lot, and well done to each and every one of those games that clearly established a large fan base. Want to save money SE? Don’t be paying for an entire stuio to work on multiplayer for games like tomb raider

  8. Tomb Raider didn’t lose them money, it just isn’t selling as well as expected. Sometimes in companies money expected to be earned and not, is the same as lost. If they thought TR was going to sell 6 million copies, then that 2 million not sold is money lost to them. In no stretch of the imagination is TR costing them money. They made their money back and then some on it.

  9. If they would just ducking release kingdom hearts 3 all their financial problems would be gone.

    • Sadly, I doubt it would matter at this point. It’s been a full console generation since the last main entry in Kingdom Hearts came out, and KH is a console game, so interest in the series is likely at an old time low. They’ll have to work pretty damn hard to bring KH back to the forefront in the gaming market after this long.

      Unlike PC games, such as StarCraft, you can only wait so long on consoles before gamers say, “How care any more?” Hell, they had to reboot Tomb Raider to get it back into the spotlight in any meaningful way.

      • I wouldn’t say interest is low. The 3DS game “Dream Drop Distance” has the level of quality of a full console titles (more mechanics packed into it than all the previous games put together) so fans (including myself) were likely to buy it. Also, it would cool if the first Kingdom Hearts PC game came out along with a released on the NEXT generation of consoles. With the similar architecture between a PC and PS4, that might be feasible with minimal overhead (whereas Cell and x86/x64 are two very different beasts).

        Anyway, it’s very strange when a company releases a game, it’s REALLY darn good, yet somehow considered a failure financially. Maybe games just cost too much to make? I’d hate to see Square-Enix devolve into un-interesting free to play MMO’s and cell phone game releases only.

  10. Time to knock the dust off an HD remake of FF7. Give the fans what they want

    • I would love to see that too although I think they could improve some areas rather than copy the game verbatim. For example, Chocobo breeding could be a LOT less annoying than it currently is (i.e. not exclusively based on luck and therefore requiring numerous save reloads to get the result you want). Also, for the love of god, get RID of Cait Sith’s “Face, Face, Bar” limit break slot combination (for those that don’t know, it’s an instant game over).

  11. I like how some guys just pull numbers and theories out of their asses then suddenly make judgements about Square Enix. I don’t think ANY of us have any right to say whether Square Enix is right or wrong. None of us are on the inside but yet so many of us gamers act like we know it all. We’re all analysts now!

    All this: Gamestop makes this, release this hd remake and you’ll be set, their expectations were too high, bla bla bla. Know what I haven’t heard anyone mention? Salaries, bonuses, benefits. All of that still has to be paid before and after production. Companies make cuts BEFORE going into the RED, and trust me, Square Enix’s president knows what he signed up for. He saw this coming from a mile away.

    Only “theory” I respect so far is Red’s.

    • Square profited on these games. That shouldn’t even be doubted. Unless someone really wants to try and convince me that those three games making almost 600 million dollars to date couldn’t net Square any profit after everyone took their slice. The bigger picture is that Square was hoping that somehow these three games would save their collective butts and it wasn’t going to happen. That company has been mismanaged for a little while now. They’re trying to pin their misfortune on recent ‘bad predictions’ when there is a lot more to it than that.

    • No ones pulling numbers out of their ass. The numbers are out there for you to see. Go down to Gamestop and ask the manager how much money they make off of new game sales. Go online and look at articles about how much it cost to make and market games. Then go to Crystal Dynamics website and look at how small their team is. Sorry, this game didnt cost more than 20 or 30 million to make, and that is being generous. Now, take the cost of each unit (59.99) subtract the money that goes to the retailer (about 1 or 2 dollars) then subtract a little more for shipping, production and misc cost, and just a little more to be generous, and your looking at $40.00 profit per unit. Do the math 3.8 X 40 and you end up with 152 MILLION dollars. If you think that is not profit what your telling me is that this game cost more then making Gladiator and 300 combined. Not even in the wildest stretches of the imagination is that possible.

  12. They have to make up cost of EVERYTHING (not just development) and then some, to keep paying these guys and put out high quality sequels. These three games were very high quality and have been in production for some time, which costs even more, so they are considered “risky” in this business. Square Enix took a risk and it just didn’t pay off, happens a lot. Which is why we see so many generic shooters and sequels. Stick with the tried and true and you won’t have to make cuts, or “reform” and “restructure”.

  13. Tomb Raider is a great game, and I’ve never been a fan of the series or character. I hope maybe with word of mouth that sales will pick up. It’ll be a crying shame if a game like Halo will sell like crazy everywhere while a great game like Tomb Raider will underperform, even if it’s selling well…

  14. The new Tomb Raider game did a good job of rebooting the series but I can see why it’s not the business Square had hoped it would do. For starters there’s no replay value whatsoever. The MP is a total dud. The single player campaign, while thrilling in parts, just has no “spirit”…it’s not engaging. Lara was the only character I found interesting and I was only slightly intrigued by the “mystery of the island”.

    Even though it was obvious in parts where Square was trying to appeal to the Uncharted fans with this game it just made it so much more evident that Naughty Dog has cornered the “Adventure Game” market with Uncharted and that series is still a step above this new Tomb Raider game.

    So, reading this about Tomb Raider doesn’t shock me at all….The die hard fans may have be purchasing this game but it’s really not bringing in any new fans.

    • @the real nathan drake

      It’s apparent from your name that you’re an Uncharted fanboy, so sorry if this offends you or whatever, but before you start claiming this Tomb Raider copied from Uncharted, remember that Uncharted pretty much copied from the old Tomb Raiders… And I’ve played Uncharted, while the voice acting is awesome and the cinematics are pretty good, honestly, I was never too motivated to play them to the end. Mainly because the actual gameplay is VERY monotonous.

      It’s fun in the beginning, but seriously, I can only take so many climbing on walls sequences before I get REALLY annoyed by them. And it’s very linear, and the encounters with enemies are really predictable. It kind of suffers from the Gears of War syndrome where whenever you encounter a space with a bunch of conveniently placed waist-high walls or other objects, you know when you walk forward bad guys will start pouring in. You take cover, shoot some people, take cover, shoot more people, rinse and repeat…

      I kind of wish you can skip the gameplay and just watch it like an animated movie while playing it, because the cutscenes are pretty much the only parts that I find enjoyable…

      Anyway, different strokes for different folks… :-)

    • Oh and I have to add, I hated it when in Uncharted 2 they added the FN FAL as a weapon you could use, awesome, but they modeled the weapon backwards… Seriously?? I put down the controller in anger when I saw that, lol.

    • @the real nathan drake

      Geez, I forgot to comment on your last sentence. I was never a fan of Tomb Raider, the games, movies, or character. I only got this game because it’s much more interesting and the character feels very real unlike the previous games. And I’m loving it so far…

  15. It costs money to shove the crappy destruction of a good franchise down everybody’s throats. They paid for so much advertising, hyping and reviews but that’s still not enough for people to SEE what crap they turned Tomb Raider and Lara Croft into…

    Lara Croft is no longer the badass, sophisticated, confident woman she once was and is now a weak, whiny, ditzy Hunger Games looking angst who falls into holes and gets tortured. And the environment looks more like industrial than ancient ruins. Not to mention they replaced her signature pistols with a bow and arrow…

    As for gameplay, the puzzles are pretty much non existent, just push forward to climb and half of the time the game plays itself…

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