Industry veteran Jacob Navok (Genvid CEO and Director of Business at Square Enix Holdings) recently shared his insights on Square Enix and the changing landscape of gaming. Navok offered a clear-eyed examination of what’s happening with AAA development. Here’s what we learned.
Pre-Fortnite: A Different Ball Game
Remember before Fortnite stirred the pot? AAA releases were like blockbuster movies—new, shiny, and competing mainly with other fresh arrivals. Studios aimed to grab attention quickly, relying on players to finish one game and jump to the next. This era (roughly 2015-2022) saw massive investments in development, fueled by the belief that the audience kept growing.
Think of FF16 – pre-production started then, counting on steady audience growth and traditional sales models. However, Fortnite dropped in 2017, showing the power of F2P to dominate player engagement and retention. This changed how the industry views audience behaviour and makes money from games.
Square Enix’s Sales Struggles
High Square Enix sales expectations? It’s not some arbitrary number. They had to cover massive development costs and see a return on investment (ROI) that beat the stock market. Imagine a game that costs $100 million to develop over five years. The ROI needs to be higher than what that $100 million would’ve earned if invested elsewhere.
Now, factor in platform fees, marketing, and launch discounts. Even millions of copies sold might not meet these targets. FF16, despite movin’ three million copies at launch, fell short. This financial pressure highlights the challenges AAA developers face in an F2P-dominated landscape.
Evergreen Engagement
Free-to-play games like Fortnite, Roblox, and Call of Duty: Warzone are masters of engagement. They’re like ever-evolving amusement parks, keeping players hooked for years. Unlike traditional AAA titles (you finish them, you move on), F2P games constantly pump out new features, events, and rewards. It’s a cycle of stickiness, similar to social media – you keep coming back to see what’s new. The result? Gamers are less likely to switch to a new release, even a hyped-up Final Fantasy title.
F2P games build a loyal fanbase with constant updates and community focus. This makes it brutal for AAA games to capture the same sustained attention and investment level from players. This shift has major implications for how AAA games are built and marketed today.
It’s All About Retention Now
“Fortnite-ization” is the term for the massive change brought about by Fortnite and its F2P brethren. These games changed the way the industry approaches engagement and monetization. Before, it was all about launch sales. Now, it’s about long-term engagement and a steady revenue stream from microtransactions and seasonal content. This shift has influenced development strategies, pushing studios to build “live service” games that can grab and hold onto player interest for a long time.
Titles like Fortnite shower players with frequent updates, new skins, and limited-time events to keep them hooked and spending regularly. It’s a winning formula, and many traditional developers are rethinking their approach to adapt. The “Fortnite-ization” of gaming signifies a move away from one-time purchases towards a world where ongoing player retention is the key to financial success.
Cost, ROI, and the Price Equation
Developing AAA games is costly. We’re talking hundreds of millions of dollars for asset creation, motion capture, textures, animation, engineering, and infrastructure. To justify these costs, developers gotta achieve a positive ROI, meaning they not only recoup expenses but also beat potential earnings from other investments.
A $70 game might only net $40 per sale after deductions. Add marketing costs and other overheads, and the sales targets to break even become daunting. This financial reality forces developers to either cut costs, raise game prices, or find ways to expand their audience. It’s even harder when F2P games dominate the scene, making attracting and retaining players willing to pay premium prices for new titles tougher.
Raising the Bar (or the Price Tag)?
With development costs skyrocketing and free-to-play competition heating up, AAA developers are stuck between a rock and a hard place regarding pricing. The traditional “fixed price” model is looking a little shaky. One option involves hiking the price of new releases to reflect the ballooning development costs better.
- Whispers circulating around titles like Grand Theft Auto 6 suggest future AAA games might break the $70 barrier. This aims to ensure developers recoup their investments and achieve the necessary return on investment (ROI). But there’s a catch – higher prices might scare away potential buyers, especially when they have free alternatives readily available.
- Another approach involves negotiating a better revenue share with platforms like Steam or the PlayStation Store. By taking a bigger cut from each sale, developers could squeeze more value out of every unit sold. It’s an uphill battle, but these adjustments are crucial for the survival of the AAA game development model in an F2P-saturated market.
Monetization Models
The answer might not lie solely in pricing. Some studios are experimenting with alternative monetization models within AAA games. Here’s a peek at a few options:
- Cosmetic Microtransactions: Think unlockable skins, weapon camouflages, and character customization options. This lets players personalize their experience without affecting the balance of gameplay.
- Season Passes: Offering players exclusive content like new maps, game modes, and story missions through a season pass can be another revenue stream. But beware, it’s a tightrope walk – the content needs to be substantial enough to justify the cost without fragmenting the player base.
- Battle Passes: Similar to season passes, but often with a tiered structure. Players can progress through free and premium tiers, unlocking rewards. The key is to ensure the free tier offers a compelling experience while incentivizing players to upgrade for additional goodies.
The industry is at a crossroads. AAA development needs to adapt to the changing landscape dominated by F2P giants. Finding the right balance between cost, pricing, and monetization is key. It’s also about innovation. Studios need to explore new gameplay experiences that can’t be replicated by the F2P model, perhaps through deeper narrative elements or unique multiplayer experiences.
Here’s the bottom line: AAA games aren’t going anywhere. But they have to evolve to survive. With creativity and a willingness to adapt, studios can still craft incredible experiences that keep us glued to our screens – even in the age of Fortnite and its free-to-play counterparts.
