Oligopolistic Console Market Hinders Square Enix Sales

Oligopolistic console market is to blame for sluggish sales says Square Enix Report.

After the underperformance of games like Tomb Raider, Hitman: Absolution and Sleeping Dogs, Square Enix confirmed the “Extraordinary loss” on its consolidated financial results.

According to the document, the “oligopolistic” console market in North America and Europe has hindered sales of major AAA titles resulting in a net loss of 13 million yen; the “extraordinary loss” appears in the form of organizational reforms due to a fast-paced environment where developers are moving away from the traditional business model into Free-to-Play and shifting from the console market into the Mobile market.

As a result of the restructuring efforts President Yoichi Wada has resigned (or has been fired, you never know).

Regarding content on platforms such as browser and smartphones Square Enix reports that social games are continuously contributing profits resulting in a 24% increase in net sales year-over-year thanks to the success of games like Sengoku Ixa, Kaku-San-Sei Million Arthur and Final Fantasy Brigade in the Japanese and Korean markets.

“The business environment surrounding the Group is in the midst of major changes, where smart devices such as smartphones and tablet PCs are spreading rapidly, while the console game markets in North America and Europe are increasingly competitive and oligopolistic.”

Square Enix forecasts a net profit between 3 and 6 billion by March 31 2014.

On the subject of Market Share in the console market, PS3 has 51% of market share, Wii 13% and Xbox 360 35% as of May 4, 2013. In the handheld market 48.8% of the market belongs to Nintendo DS and 51.2% is under Sony’s control as a result of PSP sales.

Blaming the “oligopolistic” console markets in North America and Europe sounds like the easy way out; it seems like Square Enix had a serious problem with its organizational model and now they are trying to transform their structure into an ad-hoc model due to the volatility in the video game industry, the uncertainty produced by the end of the current consoles’ life cycle, the luring characteristics of “new” business models such as free-to-play and the success of mobile and “casual” games.

In terms of sales, games such as Hitman, Tomb Raider and Sleeping Dogs did very well, yet their performance was considered underwhelming because they failed to reach sales target, and that generates questions--if 3.4 million units sold are not enough to make a game profitable, perhaps Square Enix wasn't efficient in the production process. Perhaps the problem is not in sales or market concentration but in costs.

Take-two earnings are now public, and according to them Bioshock Infinite has sold 3.7 million units. Let’s see if they consider this performance “underwhelming”.

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Published May. 14th 2013

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