Square Enix reports $33m extraordinary loss as new AAA studio shifts focus Half-year financial results also show declines across the board despite Tomb Raider and Octopath Traveller launches

James Batchelor UK Editor Wednesday 7th November 2018 Share this article Share

Companies in this article Square Enix

Japanese publisher Square Enix has reported an extraordinary loss in its latest fiscal report, attributed to a change in strategy at a key subsidiary.

The firm announced Luminous Productions - the new studio opened earlier this year with some of the Final Fantasy XV team at the helm - will now concentrate on "large-scale, high-quality AAA game titles, which best leverage [Luminous'] strengths."

This decision has caused a loss of ¥3.73 billion ($33 million), which has dealt a blow to Square Enix's financial results for the six months ended September 30th.

It's not overly clear what has actually changed at Luminous Productions, since the original announcement said the studio would be "development new AAA titles and bringing innovative game and other entertainment content to a global audience".

It's likely plans for "other entertainment content" - which we surmised to translate as transmedia products like Final Fantasy XV's full-length prequel movie - have been dropped, instead focusing specifically on games.

The loss is one of several bum notes in the publisher's financials, with declines across the board for the six month period. Net sales dropped 15 per cent year-on-year from ¥132 billion ($1.17 billion ) to ¥112.2 billion ($1.08 billion) while profits were halved, down to ¥8.64 billion ($76.4 million).

Operating income took the biggest hit, down 61 per cent to ¥10 billion ($88.5 million), while ordinary income fell 43.6 per cent to ¥15 billion ($132.8 million).

Looking at the Digital Entertainment segment, which handles Square Enix's video games, net sales dropped 18.9 per cent to ¥82.8 billion ($732.5 million) and operating income halved to ¥13 billion ($115.4 million).

Big releases for the six month period were Switch exclusive RPG Octopath Traveller and September's Shadow of the Tomb Raider. The publisher did not comment on how well each title performed.

Other declines in Digital Entertainment were attributed to poor performances from previously launch titles in the mobile and PC browser area, as well as a decrease in licensing income.

Declines and sluggish performances were also seen in the publisher's other businesses, including amusement machines and merchandising.

Square Enix remains somewhat hopeful for the full financial year in terms of net sales, forecasting ¥270 billion ($2.39 billion) which would be a 7.8 per cent increase over the previous fiscal year.

However, it expects to take a hit in operating and ordinary income, as well as profits, which are forecast at ¥21 billion ($185.7 million) - 18.7 per cent down on last year.