A former executive of Square EnixJacob Navok, explained why the sales of Final Fantasy 16 And Final Fantasy 7 Rebirth have been disappointing and how the accusation made against Square Enix of having unrealistic sales estimates is simply absurd.
The context is Square Enix’s latest financial report, in which the company’s president, Takashi Kiryu, spoke of disappointing results for the two games mentioned and Foamstar. All three did not achieve the objectives set. There were no updates on sales, that is, no numbers were revealed, but there was talk of the possibility of Final Fantasy 16 reaching its goals in 18 months.
Kiryu’s statements have revived the old debate about Square Enix’s impossible estimates, i.e. the company’s unreal sales prospects. Navok, who is currently CEO of Genvid Technologies but was in the past director of business development at Square Enix, however tried to clarify the issue, stating in a series of posts on X that “it wasn’t true when I was there and it’s unlikely to be the case today. Sales expectations generally arise from the need to cover development costs plus return on investment.”
“There is a misconception that has been repeated for nearly a decade and a half, that Square Enix sets arbitrarily high sales requirements and then gets angry when those requirements aren’t met.” Navok then explained that if a game costs $100 million to develop over five years, when it comes to market it must do better than a potential stock market investment in the same period: “In the last 5 years before February 2024, the stock market had an average rate of return of 14.5%. Investing that $100 million in the stock market would have given you a return of $201 million, so that’s our benchmark for ROI (Return On Investment).”
Cost problem
The problem with games like the Final Fantasy mentioned is in the production costs very high and in increasingly fierce competition, in particular free-to-play. Furthermore, there is also the problem of the price, that is, out of the 70 dollars of the price of a game in the publisher’s coffers, around 49 dollars arrive.
“Suppose some marketing expenses for $50 million and let’s assume you won’t get the full $49, but an average closer to $40, considering discounts, refunds and other aspects. Now, let’s say in those first three months you sell 3 million copies and receive this net $40 per copy (we’ll ignore the recoveries). Must exceed $254 million to reach goals (that’s $100 million, plus $101 million in base ROI + $50 million in marketing. With 3 million copies of FFXVI sold (the latest figure communicated by Square Enix), the company would have only grossed around $120 million according to these rough estimates. In reality, budgets for AAA games like this are probably over $100 million, so it’s not as if Square Enix’s expectations are unrealistic. These titles simply don’t sell well enough for the amount of money that goes into their production and marketing.”
Navok added that “the crux of the problem is that the budgets were set during a period when it was expected that the public grew“. The decisions for the rebooted FFVII series were made “looking at the period 2015-2022”, when the video game industry was growing rapidly every year (not to mention the huge increase in revenues and number of players during the pandemic ).
Before the gaming explosion free-to-play multiplatform, like Fortnite, Square Enix and other publishers could simply look at their competitors and choose the right release date. It was easier to predict that audiences would have a certain amount of money to spend on a certain number of AAA game releases. Now, though, big-budget single-player games must also compete for player time with free live services like Fortnite, Call of Duty: Warzone, and more.
In short, the market has changed a lot and has not gone in the direction hoped for when assigning a certain budget to these big titles. Even the idea of making them exclusive it was born in a period in which it could still make sense to do so.
What could be the solutions? According to Novak the increase in prices, the reduction of development costs or the growth of the audience. For many players, however, the price of 70 dollars is already too high, while in terms of alternative forms of monetization the companies are already trying them all.
