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Last week, Japanese co-development company Tose reported a nine-month net loss of 367 million yen (over $2.2 million) and announced a downward revision of their earnings forecast. The biggest contributing factor to the losses was ongoing game projects being cancelled by clients. (Related Article). In a recently disclosed shareholders’ Q&A, Tose provides more details on their situation and the prospects of receiving compensation for the losses.

Given Tose’s long history of doing development work for major companies like Nintendo and Square Enix, plus their involvement in an undisclosed volume of games (Scarlet Nexus, the Paper Mario remake, Crisis Core: Final Fantasy 7 Reunion and Final Fantasy Pixel Remaster, to name a few), news of their financial struggle was shocking. With conditions worsening in the game industry, companies doing outsourced work in Japan seem to be getting the short end of the stick, as financial losses from certain cancellations are non-recoverable.

According to Tose’s Q&A published on July 10 (reported on by GameBiz), the company “does not expect to see any compensation” for the cancelled projects that caused losses in Q3 (September 2023 – April 2024). Tose does have measures in place to ensure they get compensated when a game is cancelled at the client’s convenience (such as signing separate contracts for each stage of development). However, with the games in question, it seems the development process had not moved along far enough for Tose to be guaranteed compensation. In other words, the ongoing projects were cancelled during their planning stage, which seems to have been enough to incur significant losses to the developer, but not to call for compensation.

In addition, Tose mentions that the ongoing titles had been cancelled by a major client they’ve previously done business with. The said client went through a big revision of its policy and mid- to long-term business plan, which resulted in their development plan changing.

Major co-development studio Tose does not expect to receive compensation for games cancelled at clients’ convenience - AUTOMATON WEST

Co-development studio Tose "does not expect any compensation" for games cancelled by a major client in the past 9 months.

automaton-media.com