Profits from Final Fantasy VII Rebirth and Final Fantasy XVI did not meet Square Enix's expectations

Square Enix has released the Outline of Results Briefing held on May 13, 2024 [PDF]. This briefing encapsulates the results from the fiscal year from April 2023 to March 2024.

In the results briefing, Square Enix stated that profits in the HD Games segment did not meet expectations. The biggest two releases in this segment during the fiscal year were Final Fantasy VII Rebirth and Final Fantasy XVI, but also includes Foamstars, Dragon Quest Monsters: The Dark Prince, Star Ocean: The Second Story R, and Infinity Strash: Dragon Quest - The Adventure of Dai.

In the HD Games sub-segment, we released multiple new titles, including major titles such as “FINAL FANTASY XVI” and “FINAL FANTASY VII REBIRTH,” but profits unfortunately did not meet our expectations.

Let me be candid for a moment. If you are thinking "This is old news", then yes, you are partially correct. A quick lesson for anyone unfamiliar: many Japanese fiscal year calendars go from April to the following March. After the fiscal year ends on March 31, many companies report their financial results about six weeks later, in May, as did Square Enix here. However, while some Japanese companies, such as Capcom and Koei Tecmo, release transcripts within days of the presentation, Square Enix has always taken more time. This delay has actually lengthened during the current fiscal year. As it turns out, Square Enix released the transcript of the May 13 meeting on September 18.

So, you may have read Bloomberg or IGN reports about these game's expectations back in May, months ago when the meeting happened. However, technically speaking, all those reports were second-hand, stemming from someone present at the briefing, reportedly. The difference with today's update is that the source is directly from Square Enix. Anyone with a web browser can read Square Enix's statements, which were released in the last 24 hours.

Much of this newly-posted outline also goes into detail about Square Enix's new medium-term plan (2025 to 2027), which was previously posted [PDF] in detail. Note: Several Japanese game companies group up fiscal years into a set of three, and dub that a medium-term plan. Square Enix's current 3-year medium-term plan, which started this April, is called "Square Enix Reboots and Awakens"

Another nugget found in the report confirms a larger "issue" concerning Square Enix's "HD Games" sub-segment.

Square Enix has four segments: Digital Entertainment (that's games), Amusement (arcades), Publication (manga/magazines), and Merchandising (merchandise). The Digital Entertainment segment has three sub-segments: HD Games, MMO, and Smart Devices/PC Browser. 'HD Games' includes all console and PC games that are not mobile, browser, or MMOs. For the enthusiast readers of this website, that includes the majority of the Square Enix games we cover. Games like Final Fantasy XIV are in the MMO sub-segment, not the HD Games sub-segment.

As far as HD Games goes, this report confirms that the sub-segment has posted an operating loss for three years in a row. Previously, results from sub-segments were not given individually, only aggregate for the Digital Entertainment segment as a whole. So, plainly speaking, this is the first confirmation that Square Enix's console games cost more money than they make, at least for the previous three years.

We recognize that issues remain in the Digital Entertainment segment. The HD Games sub-segment failed to better its profitability, posting operating losses in every year of our previous medium-term plan. In addition to this, we did not manage our title portfolio across the company as well as we could have, which I believe resulted in opportunity losses due to cannibalization between our own titles.

Going forward, here are the statements Square Enix makes about the HD Games sub-segment in the new/current medium-term plan.

In the HD Game sub-segment, we will establish a development footprint capable of consistently and regularly releasing titles that beat our customers’ expectations.

In the HD Game sub-segment, we will focus on releasing titles capable of delivering consistent fun.

In the case of HD games, we will create a global environment that allows more customers to enjoy our major franchises and AAA titles, including from our back catalog.

Of course, there is quite a bit more in the report regarding every component of Square Enix's business, results from the previous year, and plan for the next three years. So, check it out if you are into that.

As for the current fiscal year, Square Enix has SaGa Scarlet Grace, Visions of Mana, Romancing SaGa 2: Revenge of the Seven, Fantasian: Neo Dimension, Life is Strange: Double Exposure, and several ports. None of those are as high profile as mainline Final Fantasy titles, but it'll be interesting to see how the first year of the new medium-term plan works out for Square Enix.