Square Enix - Disc Based Model is Dead -Tomb Raider Sales "Disappointing" (#TombRaider)

Tomb Raider

Square Enix issued their 2013 fiscal report, and for the first time since the merger they've posted a loss, despite a nearly 16% increase in sales. 

Despite what looked like strong sales, Tomb Raider, Sleeping Dogs, and Hitman: Absolution (all very good games, and very well reviewed), these games didn't meet their sales / profitability targets.

In the HD games category, we delivered three major titles in the fiscal year under review, primarily in Europe and North America. These titles—Sleeping Dogs, Hitman: Absolution, and Tomb Raider—failed to reach their respective targets, and resulted in financially unsatisfactory consequences, whereas the HD business in Japan remained strong through sales of the Nintendo 3DS version of Dragon Quest VII: Eden no Senshitachi (Warriors of Eden) and others.

. . .
We do not recognize this situation as a temporary phenomenon that can be dealt with merely by restrengthening the distribution system, but as a structural problem in the HD business. That is to say, the financial results posted in the fiscal year under review reflect an intrinsic problem within the HD game business model that has come to the surface.

Tomb Raider was heavily and quickly discounted. Giving discounts and price protection to retailers killed its profitability, according to the report.  

Interestingly, HD games like Tomb Raider represent a trouble spot that Square Enix doesn't think will get better over time.  Because the company has no feedback during the development cycle from customers, and no way to gather revenue during the game's development, there's a very large capitalized cost - meaning that Square Enix has to make large investments in games like Tomb Raider or Sleeping Dogs before they see a penny, and because of that, it's easy to misjudge demand, face unforseen competition in the retail space, and face issues with traditional distribution.

Here's the upshot:  SquareEnix all but flatly states that the disc based model of games distribution is dead, at least for them.  Here's a choice quote from the annual report, showcasing how seriously SquareEnix is pursuing a new revenue model, and showing how quickly they're moving toward that model (right now):

Consequently, the time has come for us game makers to take more flexible approaches in offering games and to devise various earnings models conforming to customers’ game-playing environments, moving away from the limited outlet of disc-based distribution of games. In this current of change, it is extremely important for the HD games category to enable transition from a disc-based earnings model to a more flexible one. This will define the future way wepursue HD games development.

The Tomb Raider publisher also states that it's becoming increasingly difficult to create games which can be a world-wide phenomenon.  They express an interest in the report in focusing more on titles which will appeal to more localized audiences.

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