Japanese video game developer and publisher Square Enix recently announced extraordinary losses of 22.1 billion yen (approximately $140 million USD) for the fiscal year ending March 2024, leading to the cancellation of multiple titles.
Specifically, Square Enix’s board of directors voted to be more selective and focused in allocating development resources to HD games. After closely re-evaluating the company’s extensive development pipeline under this new strategy, Square Enix determined that 22.1 billion yen worth of “content abandonment losses” were necessary.
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In other words, the extraordinary losses represent the development costs sunk into HD games that have now been cancelled under Square Enix’s more stringent criteria. The company is undergoing a shift to only greenlight titles that meet this revised standard.
The change in direction stands in contrast to Square Enix’s risk-taking culture in earlier eras. During the late 1990s, following the breakout success of Final Fantasy VII, Square pursued numerous ambitious and innovative games. But under the current leadership and Ethics Department, Square Enix now favors safer, established franchises and games with wider mass market appeal.
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While understandable from a business perspective, longtime fans have expressed disappointment at the cancellations. At the same time, the revised pipeline approach means moving away from AA productions to focus resources strictly on AAA blockbusters.
According to reports, the publisher is eager to focus on in-house development for its more well-known titles rather than outsourcing as much work to outside studios in an effort to boost profit margins and quality. Riskier, experimental projects have largely been abandoned under this framework.
A new checking mechanism built into the new development process will enable the company to decide on a game’s quality early in the development process, according to analysts who spoke with Bloomberg Smaller studios may face closure if their pitches don’t align with Square Enix’s narrower goals.
The 22.1 billion yen write-down also forced Square Enix to revise its earnings guidance for fiscal year 2024. Additional losses stemming from further game cancellations or other factors may still occur.
Square Enix now finds itself at a crossroads, forced to restructure its HD game development after a string of costly misfires. While the cancellations made business sense given financial realities, critics feel the company has lost touch with its avant-garde roots. By playing it safe, Square Enix risks alienating fans wishing to see its signature bold creative vision.
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