First, I’ve seen several questions about how to build games cheaper or set budgets based on smaller sales figures.It’s important to understand that game budgeting is an art rather than a science. I have very rarely seen a game stick to its budget. Through the creative process you may go back into pre-production three times, or throw out entire game directions, or find that the gameplay sucks, or that testing means that you need to completely rewrite the game mode you are working on. This is how games like Helldivers 2 go from an estimated 3 years of development to 7+ years.
Linear paths do not exist for any game except an incremental Madden release (and even those sometimes go haywire if the engine needs updating). Making a game is not like painting a picture with Bob Ross or like making a movie (which, btw, go well over time and budget all the time).My old boss, Yoichi Wada, who ran Square Enix for over a decade, used to say that games are the most complex form of mass-consumer software. Most consumer software like Word or Slack can run only on a CPU or even in a browser. Only games require GPUs, a specialized complex piece of hardware, to be able to run. There’s a reason that Apple showed off their iPhone 15 last year by promoting games like Resident Evil and Death Stranding being able to run on them.
(Today, ChatGPT and other LLMs can probably lay claim to being more complex than games (again, in terms of mass consumer software) given that they require huge numbers of even more complex GPUs than consoles run. But the point that I am making is that games are exceptional relative to most other forms of software.)
In sum, games are technically complex pieces of software that, unlike most other software, also require significant investments in story, art, interactive design, and network design. And dev will always go wrong before it goes right.
When a producer comes to you and says “Sorry, this isn’t working, we’re going to need twelve more months to redo then retest half the game” you can’t say, “Sorry you are over budget, ship it as it is” at a publisher like Square Enix. A 10% additional investment in time or budget will be the difference between a 5/10 game and a 9/10 game, and generates millions of units more sold. And there is no world where everything in a creative product always goes the way it is intended.
FF12 and FF15 both had a change of director (Matsuno, Tabata) during development. FF15 famously took a decade to make and started off as an FF13 spinoff. You cannot dictate “devs, be more efficient," you have to be able to know which creatives to give control, when to cut your losses and to have the cash reserves to pivot.
And as technology changes, games tend to change. There are huge technology strides in just two to three years in our industry, forget five years.The 1990s FF7 had as many myriad things to do as FF16, and also pushed the edge of computer graphics (taking up nearly all of the CGI capacity of Japan at that time, a story its developers loved to repeat to me over drinks.) FF7 was done faster because the technology was simpler and the bleeding edge of graphics at a far lower fidelity. Engineers have not gotten less skilled, and artists have not gotten worse at their craft in the ensuing decades. Everyone has gotten BETTER. It is the bar that is set higher because of what it takes to achieve fidelity.
To that end, you cannot make an 20 hour, AA Final Fantasy and have it still be Final Fantasy. You can make amazing 100 hour AA game like Octopath, or you can make an incredible 20 hour AAA game like Alan Wake II (which btw did not recoup its dev costs on launch.
But the FF brand is supposed to be an incredible, 100+ hour AAA journey. That is what the brand means, anything less will get terrible reaction from consumers, so if you want to make cheaper, shorter, lower quality products you need to use a different brand.
Square Enix attempted shorter, lower, cheaper new brands. That is how you got successes like the aforementioned Octopath (though no where near the revenue rate of an FF), and failures like Balan Wonderland, as well as mid-tiers like Foamstars. It’s hard to create new IP, to empower creators, to try new things. Many times there are failures. But we should not accuse Square Enix of not trying; they made many attempts and they should be lauded for all their attempts, and instead they were shamed.
If every game needs to be a 9/10 for you to buy it, the problem is going to be exacerbated. When you purchase 6/10 games or 7/10 games from a new IP, you help a publisher justify its investment into a better version of the next title. But the wallet voting here has been clear: people aren’t buying the 6/10 games, Square Enix shouldn’t try to make smaller, cheaper games unless they're 9/10 quality or greater, and it turns out quality is really expensive, even for a "smaller" game like Alan Wake II.
If a game costs $100m to make, and takes 5 years, then you have to beat, as an example, what the business could have returned investing $100m into the stock market over that period.
Can the game net a return higher than this after marketing, platform fees, and discounts are factored in?
This is actually a very hard equation though it seems simple; the $70 that the consumer pays only returns $49 after 30% platform fees, and the platforms will generally get a recoup on any funds spent on exclusivity meaning until they are paid back, they will keep that cash. Plus, discounts start almost immediately.
To that end, FF as a brand cannot simply get smaller, be made better, be made cheaper, and still be FF. And frankly speaking, the lesson from my prior thread isn’t being learned in responses that say FF specifically should be smaller or cheaper.Cost is not the problem, sale price and market size are the problem. We need to admit that a larger portion of players today prefer service games and are voting with their wallets and time, playing titles like Genshin Impact instead.It is plausible that if Sony released the numbers publicly, the lifetime revenue of Fortnite, WarZone and GTA5’s online mode on PS5 would dwarf the combined totals of the titles after them. Today, even first party titles like The Last Of Us are fodder to get you to buy a PS5 so that your service game of choice is played on a PS instead of an Xbox. Fixed-price AAA titles that don’t belong to the platform holder are going to be for smaller audiences and for those niche audiences to get the same level of quality they need to justify the purchase, prices for third party publishers will have to go up.
We also should not expect publicly traded AAA publishers to become AA publishers. Square Enix’s efforts with Balan were to build new IP but these new IP were never being counted on to be the main driver of returns because new IP and lower price point titles can’t incrementally move the needle enough for a company at Square Enix's size. They were seeds for the future that failed to bloom.Public game publishers will thus continue to place their main bets on the side of the market they can influence the most (AAA) while gamers should look to Indies and smaller publishers for their AA hits because expectations from consumers and investors are different between the two. (The real puzzle to me, which I hinted at in the previous thread, is why someone other than SQEX made Genshin Impact; that should have been their market to capture. Expect creating a similar title to be a major focus the next few years.)
A public company, unless its mission statement is otherwise, has a fiduciary duty to its shareholders. This includes Japanese firms. There was a time where some Japanese public companies cared less about share price in the name of employment but the lifetime employment system broke down after the bubble collapsed in the 1990s.Square Enix’s shareholders include Enix founder Fukushima-san, several major Japanese banks, Vanguard (my own company’s 401k), JP Morgan Chase, and the Public Investment Fund (PIF) of Saudi Arabia and many more.
When a bank like JP Morgan gives you interest on your savings account, it does so from the profits it receives by holding shares in companies like Square Enix. Similarly, when Japanese banks invest into Square Enix they do so with the deposits of their customers. Financial systems are deeply intertwined.It is the responsibility of the company to generate the best return it can in order to fulfill its obligations to its shareholders. By definition, many companies will not surpass the average rate of return of the stock market. And by definition, many companies do surpass. The better the company performs, the higher its shares go, the more it can afford to reinvest.If a public company intentionally set its budgets to underperform stock market returns, it would have a harder time raising money, servicing debt, and in turn, sustaining its employees. This does not mean that the company will hit its financial goals, but it does mean that in general public companies must seek better returns (the company may alternatively focus on growth, or dividends or other financial goals as fits the business and its sector).
Additionally, shareholders elect board members who control the budgets and can hire and fire the CEO. In other words, the CEO of Square Enix reports to its board, who reports to its shareholders, who seek greater returns on investment. This is the case for many public companies without alternative mission statements.That does not mean that their games aren’t art, or creativity aren’t important to their businesses. It does mean that public companies, be it Electronic Arts, Take-2, Capcom, Nexon or otherwise generally build games to generate returns on investment. (Note that beating the stock market on a per-dollar basis was only an example of a way to determine a baseline, conservative return on investment. In fact most times the return on investment for a publisher like a Take-2 needs to be substantially higher than just stock market return baselines.)There are of course non-public game publishers. Valve is one. Epic is another. You also have studios like Larian which have been able to remain independent. These companies can determine what’s important for their returns their own way without the same pressures of public companies. They produce a lot of amazing products. Public companies cannot behave the same way as private companies.
The resulting industry:
1. Publicly traded AAA game publishers will focus on fewer titles, with a combination of live service (microtransaction; e.g. an FF version of Genshin) and a higher price point fixed-price (CoD, GTA, FF) in the $70-$150 range
2. The mid-tier is the domain of independent developers and smaller publishers at the $30-$60 price point
3. Live service titles will increasingly platform-tize and offer UGC tools (expect this to be a big part of GTA)
Linear paths do not exist for any game except an incremental Madden release (and even those sometimes go haywire if the engine needs updating). Making a game is not like painting a picture with Bob Ross or like making a movie (which, btw, go well over time and budget all the time).My old boss, Yoichi Wada, who ran Square Enix for over a decade, used to say that games are the most complex form of mass-consumer software. Most consumer software like Word or Slack can run only on a CPU or even in a browser. Only games require GPUs, a specialized complex piece of hardware, to be able to run. There’s a reason that Apple showed off their iPhone 15 last year by promoting games like Resident Evil and Death Stranding being able to run on them.
(Today, ChatGPT and other LLMs can probably lay claim to being more complex than games (again, in terms of mass consumer software) given that they require huge numbers of even more complex GPUs than consoles run. But the point that I am making is that games are exceptional relative to most other forms of software.)
In sum, games are technically complex pieces of software that, unlike most other software, also require significant investments in story, art, interactive design, and network design. And dev will always go wrong before it goes right.
When a producer comes to you and says “Sorry, this isn’t working, we’re going to need twelve more months to redo then retest half the game” you can’t say, “Sorry you are over budget, ship it as it is” at a publisher like Square Enix. A 10% additional investment in time or budget will be the difference between a 5/10 game and a 9/10 game, and generates millions of units more sold. And there is no world where everything in a creative product always goes the way it is intended.
FF12 and FF15 both had a change of director (Matsuno, Tabata) during development. FF15 famously took a decade to make and started off as an FF13 spinoff. You cannot dictate “devs, be more efficient," you have to be able to know which creatives to give control, when to cut your losses and to have the cash reserves to pivot.
And as technology changes, games tend to change. There are huge technology strides in just two to three years in our industry, forget five years.The 1990s FF7 had as many myriad things to do as FF16, and also pushed the edge of computer graphics (taking up nearly all of the CGI capacity of Japan at that time, a story its developers loved to repeat to me over drinks.) FF7 was done faster because the technology was simpler and the bleeding edge of graphics at a far lower fidelity. Engineers have not gotten less skilled, and artists have not gotten worse at their craft in the ensuing decades. Everyone has gotten BETTER. It is the bar that is set higher because of what it takes to achieve fidelity.
To that end, you cannot make an 20 hour, AA Final Fantasy and have it still be Final Fantasy. You can make amazing 100 hour AA game like Octopath, or you can make an incredible 20 hour AAA game like Alan Wake II (which btw did not recoup its dev costs on launch.
But the FF brand is supposed to be an incredible, 100+ hour AAA journey. That is what the brand means, anything less will get terrible reaction from consumers, so if you want to make cheaper, shorter, lower quality products you need to use a different brand.
Square Enix attempted shorter, lower, cheaper new brands. That is how you got successes like the aforementioned Octopath (though no where near the revenue rate of an FF), and failures like Balan Wonderland, as well as mid-tiers like Foamstars. It’s hard to create new IP, to empower creators, to try new things. Many times there are failures. But we should not accuse Square Enix of not trying; they made many attempts and they should be lauded for all their attempts, and instead they were shamed.
If every game needs to be a 9/10 for you to buy it, the problem is going to be exacerbated. When you purchase 6/10 games or 7/10 games from a new IP, you help a publisher justify its investment into a better version of the next title. But the wallet voting here has been clear: people aren’t buying the 6/10 games, Square Enix shouldn’t try to make smaller, cheaper games unless they're 9/10 quality or greater, and it turns out quality is really expensive, even for a "smaller" game like Alan Wake II.
If a game costs $100m to make, and takes 5 years, then you have to beat, as an example, what the business could have returned investing $100m into the stock market over that period.
Can the game net a return higher than this after marketing, platform fees, and discounts are factored in?
This is actually a very hard equation though it seems simple; the $70 that the consumer pays only returns $49 after 30% platform fees, and the platforms will generally get a recoup on any funds spent on exclusivity meaning until they are paid back, they will keep that cash. Plus, discounts start almost immediately.
To that end, FF as a brand cannot simply get smaller, be made better, be made cheaper, and still be FF. And frankly speaking, the lesson from my prior thread isn’t being learned in responses that say FF specifically should be smaller or cheaper.Cost is not the problem, sale price and market size are the problem. We need to admit that a larger portion of players today prefer service games and are voting with their wallets and time, playing titles like Genshin Impact instead.It is plausible that if Sony released the numbers publicly, the lifetime revenue of Fortnite, WarZone and GTA5’s online mode on PS5 would dwarf the combined totals of the titles after them. Today, even first party titles like The Last Of Us are fodder to get you to buy a PS5 so that your service game of choice is played on a PS instead of an Xbox. Fixed-price AAA titles that don’t belong to the platform holder are going to be for smaller audiences and for those niche audiences to get the same level of quality they need to justify the purchase, prices for third party publishers will have to go up.
We also should not expect publicly traded AAA publishers to become AA publishers. Square Enix’s efforts with Balan were to build new IP but these new IP were never being counted on to be the main driver of returns because new IP and lower price point titles can’t incrementally move the needle enough for a company at Square Enix's size. They were seeds for the future that failed to bloom.Public game publishers will thus continue to place their main bets on the side of the market they can influence the most (AAA) while gamers should look to Indies and smaller publishers for their AA hits because expectations from consumers and investors are different between the two. (The real puzzle to me, which I hinted at in the previous thread, is why someone other than SQEX made Genshin Impact; that should have been their market to capture. Expect creating a similar title to be a major focus the next few years.)
A public company, unless its mission statement is otherwise, has a fiduciary duty to its shareholders. This includes Japanese firms. There was a time where some Japanese public companies cared less about share price in the name of employment but the lifetime employment system broke down after the bubble collapsed in the 1990s.Square Enix’s shareholders include Enix founder Fukushima-san, several major Japanese banks, Vanguard (my own company’s 401k), JP Morgan Chase, and the Public Investment Fund (PIF) of Saudi Arabia and many more.
When a bank like JP Morgan gives you interest on your savings account, it does so from the profits it receives by holding shares in companies like Square Enix. Similarly, when Japanese banks invest into Square Enix they do so with the deposits of their customers. Financial systems are deeply intertwined.It is the responsibility of the company to generate the best return it can in order to fulfill its obligations to its shareholders. By definition, many companies will not surpass the average rate of return of the stock market. And by definition, many companies do surpass. The better the company performs, the higher its shares go, the more it can afford to reinvest.If a public company intentionally set its budgets to underperform stock market returns, it would have a harder time raising money, servicing debt, and in turn, sustaining its employees. This does not mean that the company will hit its financial goals, but it does mean that in general public companies must seek better returns (the company may alternatively focus on growth, or dividends or other financial goals as fits the business and its sector).
Additionally, shareholders elect board members who control the budgets and can hire and fire the CEO. In other words, the CEO of Square Enix reports to its board, who reports to its shareholders, who seek greater returns on investment. This is the case for many public companies without alternative mission statements.That does not mean that their games aren’t art, or creativity aren’t important to their businesses. It does mean that public companies, be it Electronic Arts, Take-2, Capcom, Nexon or otherwise generally build games to generate returns on investment. (Note that beating the stock market on a per-dollar basis was only an example of a way to determine a baseline, conservative return on investment. In fact most times the return on investment for a publisher like a Take-2 needs to be substantially higher than just stock market return baselines.)There are of course non-public game publishers. Valve is one. Epic is another. You also have studios like Larian which have been able to remain independent. These companies can determine what’s important for their returns their own way without the same pressures of public companies. They produce a lot of amazing products. Public companies cannot behave the same way as private companies.
The resulting industry:
1. Publicly traded AAA game publishers will focus on fewer titles, with a combination of live service (microtransaction; e.g. an FF version of Genshin) and a higher price point fixed-price (CoD, GTA, FF) in the $70-$150 range
2. The mid-tier is the domain of independent developers and smaller publishers at the $30-$60 price point
3. Live service titles will increasingly platform-tize and offer UGC tools (expect this to be a big part of GTA)
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