Business of Gaming: More Financial Results

By Dog of Thunder, 5 years ago
Another week, another set of financial reports regarding the previous financial quarter. First up, one of the disappointing performers from last year, SEGA, celebrates turning a profit by finally releasing their financial report for the 2013 fiscal year.

SEGA Reports Profits Up, Remains Big In Japan

This was an interesting report from SEGA this year, not because of what it had listed or any startling revelations in their business practices, but rather because of what the report does not mention: International sales of retail titles. There is one brief section in which SEGA mentions the changing economic climate in the United States and Europe as the rationale behind greatly reducing the number of games they shipped overseas.

With SEGA's consumer division only reporting a 2% loss for the past fiscal year, where did they make money if not in retail sales? Simple: Phantasy Star Online 2, which was released in Japan last July for Windows-based PCs, led SEGA's push for digital games with over 2.5 million registered users and in-game sales that exceeded SEGA's projections. Sales of smartphone titles also exceeded intial projections with Kingdom Conquest II and the Japan-only PuyoPuyo!! Quest cited as successes. The latter title managed to exceed two million downloads as of this past June.

In a lean year regarding new retail titles, SEGA also managed to find success by purchasing strategic assets. Relic, the developer SEGA purchased from the THQ auction, came with rights to the Warhammer 40k license, which SEGA matched with their previously acquired Warhammer Fantasy license. Company of Heroes 2, the title Relic was working on when THQ filed for bankruptacy, was released just this past financial quarter and hailed as both a critical and commercial success with over 320,000 copies sold as of July 1st.

With both Relic and Creative Assembly, the developer of the Total War franchise, in-house as part of SEGA, the company is projecting this coming financial year to mirror that of 2013. A decreased emphasis on console retail titles and an increased emphasis on digital releases is expected to turn a small profit. An increase such as the one SEGA experienced this past year, in which digital sales shot up 400% over the previous year, is unexpected.

Given that last year SEGA's financial report was one of outstanding losses, it is good for the industry that one of Japan's largest publishers was able to recover and can now plan for future success.

The complete financial report can be viewed: here.

Capcom Reports Losses For Q1

As we reported previously, this past financial quarter saw Capcom layoff several employees from the California offices. That particular cost-cutting measure was part of a company-wide restructuring designed to propel Capcom into the new console generation and get the Japanese publisher out of the financial doldrums that they are currently mired in up to their eyeballs.

Compared to last year's Q1 results, Capcom posted a net income loss of 37.3%. Sales went down 6.2%, operating income was also down 72.9% and, of course, the stock price dropped nearly $10 per share. Resident Evil Revelations and Dragon's Dogma both managed to meet their modest sales expectations, but with no other retail titles released during this past quarter, Capcom expected to take a loss. Capcom is banking on the launch of the next-generation consoles to help provide stability to their bottom line. Unlike both SEGA and EA, Capcom's mobile division needed to see an astronomical gain this quarter and, instead, posted a loss. Smurf Village was the only one of Capcom's mobile offerings to provide a stable income with the mobile division as a whole posting a loss of 9.4% when compared to Q1 2013.

Capcom needs a hit title to bring the company into the next-generation and it won't be Dead Rising 3. Capcom's Xbox One launch title is being published by Microsoft, who is also providing funding support to cover Capcom's development costs. While there is no doubt that the latest entry in the zombie-slaying franchise will be a hit, the impact on Capcom's bottom line will be blunted due to money owed to Microsoft.

Capcom's Q1 2014 financial report can be viewed right here.

Take-Two Reports A Loss

Take-Two, the publisher behind Gearbox, Rockstar, and Firaxis, was upbeat when reporting how much money the company lost in the past three months. BioShock Infinite (Xbox 360), the company's only major release this quarter, performed remarkably well by shipping over four million copies. Grand Theft Auto IV also hit a milestone and has now shipped over 25 million copies worldwide. Borderlands 2 has sold over seven million copies as of June 30th, making it one of the fastest selling titles in Take-Two's portfolio.

The magic of Borderlands 2 for Take-Two is not confined to retail sales; the RPG/Shooter hybrid helped account for the fact that digital sales made up 52% of Take-Two's total sales this past quarter. That performance mirrors the similar experiences of SEGA and EA, which is to be expected when companies have slowed the release of retail titles to a tiny trickle.

Take-Two's losses this quarter are being attributed to next-generation game development costs and are only extraordinary losses, which in a business sense means a "one-time loss", to the tune of $29 million. Given that Grand Theft Auto V is arriving soon, Take-Two projects an overall net gain for the rest of the fiscal year, despite Q1's extraordinary loss.

Ubisoft Q1 Sales Report

Ubisoft has not released a complete financial report for Q1, though one is expected to arrive within the next few weeks. Q1 earnings for Ubisoft were down 42.2% when compared to last year. The €131 million from Q1 2012-2013 was the result of This past quarter's sales total of €76 million was instead attributed to Ubisoft's back catalog of games. €60 million of their sales for Q1 came from previously released titles, such as Far Cry 3, Assassin's Creed III, Just Dance 4, and the remarkable staying power of Rocksmith.

Digital downloads attributed to €34 million, which does include some cross-over between the backlog category although Ubisoft's sales report does not detail exactly how many backlog titles were sold as digital downloads. The digital-only releases of Far Cry 3 Blood Dragon and Call of Juarez: Gunslinger exceeded expectations. All told, Ubisoft had projected a gain of only €70 million for the quarter, placing them €6 million above internal estimates.

Ubisoft is expecting big things out of its lineup this year, with Assassin's Creed IV: Black Flag, Splinter Cell: Blacklist and, especially, Watch_Dogs expected to help the studio achieve a total of €1,450 million in sales by the end of the financial year.

Ubisoft's Q1 sales report can be viewed here.

I apologize for the lack of Take-Two's report being available as I cannot find a good way to make it public in an easily readable format.

The big takeaways from this batch of reports is clearly that a lack of retail releases will cause digital sales to carry more of a company's bottom line. Clearly, each and every one of these companies has been waiting for a new console generation to be released as the current market had grown stagnant. New consoles bring about new opportunities for every company to have a "fresh start" in a new marketplace, which some need more than others. Given the turn-around made by SEGA after they restructured last year, here's hoping that Capcom can replicate that success.