A major Square Enix shareholder has created a huge presentation directed at company president Takashi Kiryu outlining its "External Perspective on Your Company's Management Challenges," highlighting the Final Fantasy and Dragon Quest owner's issues with its earnings and outgoings. What's more, these are some of the same issues one former Square Enix exec highlighted last year.
The 112-slide presentation was created by 3D Investment Partners – which became a major shareholder of Square Enix this June before reportedly increasing its stake in the company to 14.36% a month later. In it, 3D Investment Partners criticizes Square Enix's three-year medium-term business plan for not presenting a solid future vision, and points out the company's high game development budgets and lackluster profits from sales.
It should be noted that not all the data sourced comes straight from these companies, with some notably from third-party research organizations, so take the specifics with a pinch of salt. However, 3D Investment Partners' findings still help paint a picture of Square Enix's challenges. One slide claims that Square Enix had a significantly higher average development cost for RPGs released between "FY20/3–FY24/3" compared to Capcom, coming in at 15.6 billion yen ($99.9 million) for AAA games, compared to 6.6 billion yen ($42.3 million) for AAA RPGs from Capcom.
Final Fantasy 16, for example, is put down as costing 9.1 billion yen (or about $58.3 million) to develop, actually one of the lower figures in the presentation compared to the likes of Final Fantasy 7 Remake's 20.9 billion yen ($133.9 million) and even Forspoken's 13.7 billion yen ($87.8 million). However, as of May this year, the presentation claims FF16 had also sold only 3.23 million copies, still significantly less than Final Fantasy 15's 10 million (as of May 2022, over five years since launch).
Reacting to the presentation on Twitter, Jacob Navok – former director of business at Square Enix Holdings – notes that the themes of "sales are bad" and "dev costs are high" are "the same issues I addressed in 2024 when discussing the problems with Square Enix's sales for FF16 – expectations for sales were set correctly. They were not met because Square Enix sales were poor, and the game cost too much to make."
In that thread – shared in May 2024 – Navok noted that "there's a misunderstanding that has been repeated for nearly a decade and a half that Square Enix sets arbitrarily high sales requirements then gets upset when its arbitrarily high sales requirements fail to be met" – something which "was not true when I was there and is unlikely to be true today."
He explained that "if a game costs $100m to make, and takes five years, then you have to beat, as an example, what the business could have returned investing $100m into the stock market over that period."
Furthermore, "Can the game net a return higher than this after marketing, platform fees, and discounts are factored in? [...] Assume marketing expenses at $50m, and assume that you're not going to get $49 but rather an average closer to $40 given discounts, returns, and other aspects. Now let's say in that first month you sold 3m copies with $40 net received (we will ignore the recoup). You need to surpass $254m to make expectations. (That's $100m + $101m in ROI baseline + $50m in marketing). At 3m copies with $40 per copy received, you've only made $120m. You're far off."
Whether 3D Investment's presentation will have any impact on Square Enix's plans going forward is another matter, but in a request to fellow shareholders (via Business Wire), it states: "We kindly ask all shareholders of SQEX HD to read the Presentation and share with us your frank views on SQEX HD's strategy, capital allocation, business portfolio, governance, growth opportunities, and other related matters. We would be grateful to receive views from as many shareholders as possible to convey your views to the Board of Directors of SQEX HD to help resolve its management issues."
