Square Enix replaces CEO, RIP Square Enix?

[Paelos]

Does that overhead include marketing?

Yes.

[Phred]

Does that overhead include marketing?

Yes.

Judging from the admission of failure in estimating sales sounds like they need to dump the marketing department. Isn't that one of marketing's primary functions; estimating sales projections?

[Paelos]

It actually seems like Squeenix has a bloated SGA salary structure. Almost a quarter of their revenues go to overhead salaries, benefits, and "other". In a business where you actually develop and product a product, it seems ridiculous you spend that much on overhead with their sales structure.

[Morat20]

Judging from the admission of failure in estimating sales sounds like they need to dump the marketing department. Isn't that one of marketing's primary functions; estimating sales projections?

I blame WoW. WoW was an anomaly. But it caused executives massive money boners.

And you know how guys are with money boners -- they stop thinking rationally and begin taking giant, stupid risks. They begin to believe shit like "bare minimum, we will move 4 million copies" or "We will have a million users at launch, and it we don't need to load test the servers". Because money boners, like real boners, bring the stupid out.

And executives and marketing people are cocky optimists by nature. They are Type A people who firmly believe they are always in charge, always the smartest guy in the room, and that they can never, ever fail. So add money boners, and you get triple distilled stupid.

Now, sure, triple-A games cost a shit-ton to make which means you need to sell a lot more copies. But let's face it -- they only get a shit-ton budget because of money boners out the back end.

it all boils down to unrealistic expectations.

I mean, yeah, there's probably a whole lot of business-side stuff that can be done better -- but in the end, it's money boners. These people see World of Warcraft or even Angry Birds, and believe that's the new normal. And so they develop thinking that's something that can realistically be attained, as opposed to being a solid game that hit fluke circumstances and went crazy.

Which is, you know, pretty much WoW and Angry Birds and any other top-selling game. It's a solid, fun game -- that due to one unusual circumstance or crazy coincidence or lucky timing managed to hit some wave and get catapulted from 'solid seller' to 'WTF'.

[calapine]

oh my. I just spent 5 minutes snickering and imagining these genius-managers taking over a drug cartel and...running it into the ground...

'We need to stop selling crack...we are losing money on it!"   

[Margalis]

This just in, they aren't losing money on the operational costs to create the games, smartass. It's an overhead issue, and it's ridiculous.

This just in: I know roughly a million times more about the particulars of this subject than you or anyone else in this thread. It's not an overhead issue.

Tomb Raider cost a lot more than Stalker to produce. That's not taking overhead into account, just the cost of developing the game. What is a success in sales for Stalker is not a success in sales for Tomb Raider.

The idea that 2 million in sales should be a hit for any game is ridiculous. For some games 2 million in sales is success beyond wildest expectations, for some games 2 million in sales in abject failure. This is a familiar concept - for a comedy spoof that cost 8 million to make 30 million at the BO is a good hit, not so much for Avatar. 2 million in sales wouldn't even cover the marketing costs of some games.

Almost a quarter of their revenues go to overhead salaries, benefits, and "other".

A lot of things that can get stuck in "other" are not really overhead in the sense that you are thinking, and a lot of salaries not tied to particular games can be tied to things like aborted projects.

[Paelos]

The idea that 2 million in sales should be a hit for any game is ridiculous.

The idea that 2 million in sales should be a failure is ridiculous.

If that happens, it means you completely fucked up your projections, fucked up your budgets, and in general have no idea how run a business.

Think about this, you have $100-120 million coming in for revenue, and your operations are so bloated that your break even point on producing entertainment can't consider that enough? We're not talking about a span of 20 years and reforming expectations. We're talking about a game comparison in the market 5 years ago.

[Margalis]

The idea that 2 million in sales should be a hit for any game is ridiculous.

The idea that 2 million in sales should be a failure is ridiculous.

If you spent enough on development and marketing such that 2 million in sales doesn't cover those costs 2 million in sales is obviously a failure.

There's no magic absolute sales number that is a success in any context. Why is it that 2 million in sales should be enough for anyone? Because that number sounds big and impressive?

The Avengers made 1.5 billion at the global box office. That's 150 million tickets sold. 150 is a lot more than 2, and I'm pretty sure 2 would be considered a massive failure in that context.

Think about this, you have $100-120 million coming in for revenue, and your operations are so bloated that your break even point on producing entertainment can't consider that enough? We're not talking about a span of 20 years and reforming expectations. We're talking about a game comparison in the market 5 years ago.

Why would you compare Stalker to Tomb Raider? Would you compare The Avengers to Burt Wonderstone? 2 million in sales is great for Stalker, would be pretty good for Sleeping Dogs, would be poor for Tomb Raider and awful for Madden or COD. Games that cost more to make need to sell more - what about this is hard to grasp?

Also 2 million in sales is not 100-120 million in revenue. Not that the number really matters as what matters is the cost of development and marketing relative to that number, but if you think 2 million copies sold amounts to $120 million in revenue you have a fundamental misunderstanding of how video game sales works.

[KallDrexx]

If you spent enough on development and marketing such that 2 million in sales doesn't cover those costs 2 million in sales is obviously a failure.

There's no magic absolute sales number that is a success in any context. Why is it that 2 million in sales should be enough for anyone? Because that number sounds big and impressive?

The Avengers made 1.5 billion at the global box office. That's 150 million tickets sold. 150 is a lot more than 2, and I'm pretty sure 2 would be considered a massive failure in that context.
[/quote]

His point is that if you look at the games market and spend too much in developing a game that 2 million in sales doesn't even break even, then you ran your development studio like shit and can't run a business properly.

Most games (especially single player games) don't sell that much more than 2-3 million, the ones that do are outliers, and budgeting for an outlier is terrible business.

[Paelos]

5m in sales puts you on a list of best selling games of all time.

If you can't make 2m work, your margin for error is pretty damn slim, and that's terrible business.

[schild]

5m in sales puts you on a list of best selling games of all time.

Only if its 5M exclusively on the current generation of shit consoles. Across all platforms (assuming a multiplatform game), 5M doesn't even tick the box required to hit an actual list like that.

[Paelos]

It's a $16B a year industry, so the pie can get divided up however many ways. Let's say 400 games got released across all platforms in 2012.

If they all sold the same, that would mean the average was $40M in sales. So if a product can't make 3x the average in the market and make money? That's a cause for concern.

[Margalis]

The games did not sell as well as expected. Either expectations were too high or the games were poorly promoted, or both. That SE screwed up is a total non-point - no shit. That's why this thread exists at all.

The statement I took issue with was this:

So, 2 million copies sold is called a runaway international success, but the same 2 million is toted as a massive failure only what, 5 years later?

2 million copies sold is a runaway success for Stalker and a failure for other games because those other games are not Stalker and don't have Stalker's budget. There's no magic sales number that is great for any game. 2 million sales of the next COD would cause a total re-org at Activision. 2 million sales of the next WayForward game would get someone a big promotion.

2 million in sales is still a big success for Stalker-style games. Just not for "AAA" titles.

[Paelos]

If using ATVI as an example, they could have sold ~24m fewer units last year and still broken even. (They made almost $1.5B in profits)

That's the point, they have a realistic handle on their model. Their margins make sense.

I understand your point that for every product 2m wouldn't make money. That to me says if you set your sights on targets that high, and you fell so far off target that you hit a failure point at $100M in revenue, then something in your business was horribly wrong.

[Sir T]

The blurb didn't say "Its sold 2 million which with our development costs and the cut taken by the Bosses Mum..." It said "IT SOLD 2 MILLION BEAT THAT BIATCH!"

And seriously what were the huuuuge development costs on Tomb Raider going to anyway, making sure her hair swishes right?

[calapine]

And seriously what were the huuuuge development costs on Tomb Raider going to anyway, making sure her hair swishes right?

TRESSFX HAIR: A NEW FRONTIER OF REALISM IN PC GAMING

Through painstaking collaboration between software developers at AMD and Crystal Dynamics, Tomb Raider proudly features the world’s first real-time hair rendering technology in a playable game: TressFX Hair.

[Paelos]

That's absolutely hilarious. 

[Margalis]

If using ATVI as an example, they could have sold ~24m fewer units last year and still broken even. (They made almost $1.5B in profits)

That's the point, they have a realistic handle on their model. Their margins make sense.

Activision is the most successful publisher right now, mostly because through luck or savvy they've had a string of mega-hits. Anyone's margins are going to look good under those conditions. I'm not sure what that says about their model - their model is to bank on mega-hits, which is that same model every publisher uses these days. The difference is they actually produce those mega-hits regularly. There's very little difference in high-level strategy - it's like the difference between Disney releasing The Avengers and Universal releasing Battleship.

I understand your point that for every product 2m wouldn't make money. That to me says if you set your sights on targets that high, and you fell so far off target that you hit a failure point at $100M in revenue, then something in your business was horribly wrong.

Most AAA games can reasonably expect to sell more than 2 million copies. Tomb Raider and Hitman both sold substantially more than that. Imagine if Skylanders and COD both made $100M in revenue - heads would roll and that 1.5B in profit would be wiped out. If you capped all of Activision's releases at $100M in revenue Activision would be failing as badly as anyone else.

The strength of Activision is not that they would still do fine if they made at most $100M a game, the strength of Activision is that some of their games make MUCH MORE than that. At $100M a game Activision would be fucked. That wouldn't even pay for the marketing of COD.

Let me say that again: $100M in sales of COD would not pay for the marketing of COD let alone the cost of developing the game or any company overhead.

Edit: Most publishers have the same strategy, the difference with Activision is execution. Sales are very top heavy and everyone wants to be in the 1%. If you want an example of a publisher with a different strategy you want to look at someone like Atlus.

[Paelos]

The simple fact is this: If 2m was a failure for any game, you probably budgeted for that game to sell about 5-6m copies. So, in essence that company was so far off target they missed their sales projections by 60%. They totally fucked up their sales projections, and that killed their bottom line. That means the business did a bad job.

If a company knows they are going to sell 2m units, and they still can't turn a profit on that known projection? That means their cost structure is wildly out of control and mismanaged. That means the business did a bad job.

EITHER WAY, the business did a bad job because they couldn't make money on 2m in sales.

[Sir T]

And seriously what were the huuuuge development costs on Tomb Raider going to anyway, making sure her hair swishes right?

TRESSFX HAIR: A NEW FRONTIER OF REALISM IN PC GAMING

Through painstaking collaboration between software developers at AMD and Crystal Dynamics, Tomb Raider proudly features the world’s first real-time hair rendering technology in a playable game: TressFX Hair.

I was kidding. Motheruck. 

[Velorath]

The simple fact is this: If 2m was a failure for any game, you probably budgeted for that game to sell about 5-6m copies. So, in essence that company was so far off target they missed their sales projections by 60%. They totally fucked up their sales projections, and that killed their bottom line. That means the business did a bad job.

If a company knows they are going to sell 2m units, and they still can't turn a profit on that known projection? That means their cost structure is wildly out of control and mismanaged. That means the business did a bad job.

EITHER WAY, the business did a bad job because they couldn't make money on 2m in sales.

It's especially bad because Square Enix released a chart of sales for each game in the Tomb Raider franchise a few years back and the last one to sell 5 million was the fourth game back in '99.  Since then the top seller was 3.6 million with most of them closer to 2.

[UnSub]

Sidenote: since STALKER is being held up as the example of sales success, it should also be remembered that it emerged from development hell and was probably only successful because the development costs were lowered by its Ukranian-based studio. Who were shut down in 2011.

Also: published by THQ, who were likely responsible for the closure of GSC Game World (STALKER's studio) during one of its purges.

So 2m in sales? Great. At what unit price and what was the development cost?

[Lakov_Sanite]

The simple fact is this: If 2m was a failure for any game, you probably budgeted for that game to sell about 5-6m copies. So, in essence that company was so far off target they missed their sales projections by 60%. They totally fucked up their sales projections, and that killed their bottom line. That means the business did a bad job.

If a company knows they are going to sell 2m units, and they still can't turn a profit on that known projection? That means their cost structure is wildly out of control and mismanaged. That means the business did a bad job.

EITHER WAY, the business did a bad job because they couldn't make money on 2m in sales.

It's especially bad because Square Enix released a chart of sales for each game in the Tomb Raider franchise a few years back and the last one to sell 5 million was the fourth game back in '99.  Since then the top seller was 3.6 million with most of them closer to 2.

I'm pretty sure it didn't cost $60 in '99 and the ecomony was a lot better too so they really should have adjusted their numbers a bit.  Plus is that 5mil all time or in the first month? Also:Gamestop, there are a lot of people in the "wait and see" camp for tomb raider and that means a lot of secondary sales the company doesn't get a piece of.

[Jeff Kelly]

I can still remember a time not so long ago when the 800.000 copies a AAA PC title sold was considered a runaway success. Now people can't even manage to turn a profit on 2 M sales.

[Sky]

Also:Gamestop, there are a lot of people in the "wait and see" camp for tomb raider and that means a lot of secondary sales the company doesn't get a piece of.

While I'm no tgr, I do boggle at the shit companies will throw at pc gamers while we are still perfectly willing to let them recoup 'secondary' profits via stuff like steam sales while at the same time there's a massive chain of stores that only exists due to secondary console sales. Someone should run a study of actual monetary impacts of piracy vs used sales. Of course, we only have numbers for used sales because piracy is mostly a wild fictional guess, monetarily speaking (is my steam sale purchase of Bioshock:Infinite a lost sale? Does my ceiling of $10 mean they lost $50 in profit?).

[Lakov_Sanite]

Also:Gamestop, there are a lot of people in the "wait and see" camp for tomb raider and that means a lot of secondary sales the company doesn't get a piece of.

While I'm no tgr, I do boggle at the shit companies will throw at pc gamers while we are still perfectly willing to let them recoup 'secondary' profits via stuff like steam sales while at the same time there's a massive chain of stores that only exists due to secondary console sales. Someone should run a study of actual monetary impacts of piracy vs used sales. Of course, we only have numbers for used sales because piracy is mostly a wild fictional guess, monetarily speaking (is my steam sale purchase of Bioshock:Infinite a lost sale? Does my ceiling of $10 mean they lost $50 in profit?).

The problem is gamestop only became a real factor in the current 360/PS3 age when new games started hitting a price cieling people stopped being comfortable with so there hasn't been a reaction, until now. I can guarantee you these companies have run internal studies and know the numbers.  What comes next from sony and microsoft is going to be a direct reaction to used sales, no matter how they do it be it online only or preventing re-sale or something else entirely.

[HaemishM]

His point is that if you look at the games market and spend too much in developing a game that 2 million in sales doesn't even break even, then you ran your development studio like shit and can't run a business properly.

This. Doing back of envelope math and assuming the publisher gives up 60% of the $60 suggested retail to distributors/retailers (which they shouldn't and if they do, they deserve to go out of business), that's still $48 million in revenue. If you are producing games that do not have a subscription fee attached and expect more than those sales numbers, well, you better not be spending more than $48 million on the damn budget because then you are a fucking idiot who deserves to go out of business.

Video games just do not sell 2 million copies every day. 1 million copies ought to be considered a success and if your budgets are such that you can't make money with 1 million in sales, you are doing it wrong with a fundamental misunderstanding of the video game market.

[Fabricated]

Runic Games has sold at least a million a pop of two different games for 1/3rd of the price of a AAA title and they seem fairly happy with it.

[Sir T]

The problem is gamestop only became a real factor in the current 360/PS3 age when new games started hitting a price cieling people stopped being comfortable with so there hasn't been a reaction, until now. I can guarantee you these companies have run internal studies and know the numbers.  What comes next from sony and microsoft is going to be a direct reaction to used sales, no matter how they do it be it online only or preventing re-sale or something else entirely.

Which is why the next gen of the X-box will have the "wonderful" ALWAYS ON "functionality." Which we have seen work so well every time its been tried.

[Ingmar]

Well, assuming you believe the rumor 100% (which I do not).

[Margalis]

While I'm no tgr, I do boggle at the shit companies will throw at pc gamers while we are still perfectly willing to let them recoup 'secondary' profits via stuff like steam sales while at the same time there's a massive chain of stores that only exists due to secondary console sales.

Publishers all hate Gamestop. The problem is that retailers like Wal-Mart have very limited shelf space, carry relatively few titles and do very little promotion. This is part of the reason many publishers are adopting the strategy of releasing a smaller number of higher-profile games, because that model works better with big-box retailers.

The problem is gamestop only became a real factor in the current 360/PS3 age when new games started hitting a price cieling people stopped being comfortable with so there hasn't been a reaction, until now.

I'm not sure that's it. The price of games has remained relatively constant adjusted for inflation, and the top end has come down from the days of stuff like Neo Geo and Phantasy Star 4.

One thing that is interesting, and I'm not sure why this has happened or the order of events, is that the publisher cut of retail copies has gone up over time and everyone else's cut has gone down. The retailer, the platform holder, the shipping companies, etc, all take a smaller slice of the pie than they used to. So the margin for retailers has gotten smaller, which incentivizes used sales.

[Lakov_Sanite]

The problem with inflation in the last 15 years is that people aren't generally making any more money now than they were previously. The whole 1% thing kinda throws off the curve, especially where video game consumers are concerned.