Tose, a Japanese developer that has worked with Nintendo, Square Enix, and Bandai Namco, reports its profits have significantly plummeted due to its partners cancelling a number of in-development games.
A screenshot from Crisis Core – Final Fantasy VII – Reunion (2022), Square Enix
Automaton reports that Tose, a Japanese developer who worked on Crisis Core: Final Fantasy VII Reunion and Scarlet Nexus as well as Dragon Quest Monsters: The Dark Prince, Paper Mario: The Origami King, and Splatoon 2, “saw a significant decline in profit in their digital entertainment sector, mainly caused by the cancellation of multiple in-progress games.”
According to Automaton’s translation of a financial statement “the company’s net sales went down by 27.6% compared to last year, coming to 3,243 million yen (about $20 million). In addition, the company posted an operating loss of 599 million yen, an ordinary loss of 580 million yen, and a final loss of 367 million yen.”
The company also adjusted its “net sales forecast from 5,520 million yen to 4,830 million yen, noting that it expects orders and development conditions to remain uncertain due to policy changes on the clients’ side.”
A screenshot from Paper Mario: The Origami King (2020), Nintendo
This report comes a little over two months after Square Enix announced it would be taking nearly a $140.2 million loss on a number of games that it scrapped that were in the middle of development.
In a press release, Square Enix detailed, “Square Enix Holdings Co., LTD. expects to recognize extraordinary losses pertaining to abandonment losses associated with its content production account on its books for the fiscal year ended March 2024, as detailed below.”
The company then provided more details on the losses, “In light of the myriad changes underway in the environment surrounding its Group, to revise the Group’s approach to the development of high-definition (HD) games with the intention of being more selective and focused in the allocation of development resources. As a result of a close examination of the Group’s development pipeline undertaken in keeping with this revised approach, the Company expects to recognize approximately ¥22.1 billion in content abandonment losses on its books for the fiscal year ended March 2024.” ¥22.1 billion is approximately $140.2 million.
The press release concluded, “The Company is carefully reviewing its consolidated forecasts for the fiscal year ended March 2024 to assess the potential for impact from the above or other factors. Should revisions to its forecasts prove necessary, the Company will promptly disclose the same.”
Press release from Square Enix
In fact, about two weeks after making this announcement, Square Enix announced they were radically altering their business philosophy and practices during in its New Medium-term Business Plan document.
The company detailed it “launched many titles but some failed to live up to profit expectations, especially outsourced titles and some AAA titles.” One of those major titles was Forspoken, which woke consultant Black Girl Gamers worked on.
It also shared that it suffered a slowdown in SD games and was “unable to launch hit titles to offset market maturation, aging of legacy titles.”
Furthermore, Square Enix detailed it had “insufficient portfolio management on a franchise-by-franchise basis” and the company cannibalized “new titles due to the launch schedule’s overlap.” Finally, the company detailed it had “gaps in our management infrastructure.”
A screenshot from Square Enix’s New Medium-term Business Plan (FY2025/3-FY2027/3).
After identifying these failures, the company announced its new corporate philosophy structure, “Enrich people’s own life with our help of creating precious ‘unforgettable experiences.’ The power of content is that of moving people’s heart. The experience that people are impressed is etched in my mind as ‘unforgettable experiences’ over time.”
“‘Unforgettable experiences’ will be part of people’s sense of value over time, leading to moral support. ‘Unforgettable experiences’ enrich people’s own life. We would like to help by creating precious ‘Unforgettable experiences’ by delivering contents filled with ensured fun.”
A screenshot from Crisis Core – Final Fantasy VII – Reunion (2022), Square Enix
On top of this new philosophy, Square Enix also detailed that it will “shift from quantity to quality, delivering ensured ‘Fun.’”
In order to do this, Square Enix detailed it will “strive to create the optimal portfolio, striking a balance between a ‘product-out’ approach that gives creators’ imaginations free rein as they develop content, and a ‘market-in’ approach that references customers’ voices and data to inform our development.”
The company added that it will “engage honestly with our customers and strive for a regular launch cadence, focusing our development efforts and investment on titles with strong potential to be loved for years.”
Finally, the company added it will “continue to monitor the value of our content production account closely and work to keep it to an appropriate level.”
A screenshot from Square Enix’s New Medium-term Business Plan (FY2025/3-FY2027/3).
What do you make of Tose’s claim that its profits massively declined due to the cancellation of the various in-development games?
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