In several tweets on Twitter, he explained in detail why Final Fantasy is not generating the expected sales, which will probably not even allow Square Enix to recoup the exorbitant development costs.

Jacob Navok is currently the CEO of Genvid, but used to report to the CEO of Square Enix Holdings. As such, he was an insider at the publisher, which we’ve written about before, with Final Fantasy XVI and Final Fantasy VII Rebirth both failing to sell as expected. Why is that? Let’s quote Navok (but not the whole thing, because that would make the quote twice as long):

A thread on the recent Square Enix news regarding FF sales numbers and expectations. https://t.co/mI1MAtRU3n

— Jacob Navok (@JNavok) May 23, 2024

“There is a misconception that has been repeated for almost a decade and a half that Square Enix sets arbitrarily high sales targets and then gets upset when its arbitrarily high sales targets are not met. This was not true when I was there, and it is unlikely to be true now. Sales expectations are generally driven by the need to cover development costs plus a return on investment. If a game costs $100 million to make and takes 5 years to make, then you have to beat, for example, what the company could have made by investing $100 million in the stock market during that time. For the 5 years prior to Feb 2024, the stock market returned an average of 14.5%. Investing that $100 million in the stock market would yield a return of $201 million, so this is our ROI baseline.

Can the game make more than that after taking into account marketing, platform fees and discounts? This is actually a very difficult equation, although it seems simple; the $70 the consumer pays only returns $49 after 30% platform fees, and the platforms generally get a return on any money spent on exclusivity, meaning they keep that money until it is paid back. Plus, the discounts start almost immediately. Let’s say you have a marketing spend of $50 million, and let’s say you’re not going to get $49, you’re going to get an average closer to $40, given discounts, returns, and other things. Now, let’s say you sell 3 million copies in the first month, with a net profit of $40 (we’ll ignore returns). You need to exceed $254 million to meet expectations. (That’s $100 million + $101 million in ROI baseline + $50 million in marketing). At 3 million copies and $40 per copy received, you’ve only made $120 million. You’re way off.

From the statements made, it will take FF16 eighteen months to reach the expected sales. I used the stock market as an example, but the actual ROI should be higher than the stock market averages. The required sales figures are not wild expectations; the number of copies sold was too low. And my numbers are actually much lower than reality (game development costs are probably twice as high, and marketing is probably also twice as high, and that makes the ROI requirements also higher). But that’s not even the core of the problem, this is just me proving that expectations are not set immodestly. The core of the problem is that the budgets were set in a period where there was an expectation that the audience would grow.

Total audience growth was a reasonable expectation in the 2015-2022 era, and it still is today. Not only has the industry grown significantly every year, but every day a new generation of gamers comes of age. That means your total addressable population should be growing, and you should be growing your revenues. What happened? Not just to Square Enix, but to the industry as a whole? Audience behavior is radically different from what was expected in 2015. Remember, I said 2015 was before Fortnite. The way it used to work was that you would pick your release date, much like a Hollywood movie, stick to it, and look at the competition as the titles coming out in the weeks before and after.

We would look at a Hitman or a Deus Ex release and consider whether there was a Call of Duty or Assassin’s Creed coming out around that time, assuming that gamers had X amount of money to spend and Y amount of time, and that if we wanted to get the full sticker price (remember, discounts ate into cash received, and also at that time used disc sales were $0 cash received) we needed to get as many sales in the first two weeks as possible. At that time, as a gamer, when you finished the last game you played, you moved on to the next one. You were looking for the next title when you finished the previous one. We wanted one of our titles to be the next title you bought to satisfy your gaming needs. That world has changed radically in the last 6 years,” Navok wrote.

He then turned to live service games, calling them evergreens. Players may ignore mainstream Final Fantasy titles as development costs rise and are increasingly passed on to players. If a game isn’t revolutionary, many people will stick with Fortnite (and similar titles that continue to generate increasing revenue). That’s why everyone is jumping on the live service game bandwagon…

Source: Reddit