Sega: The Blue Sky Company

Sega: The Blue Sky Company

Six years after Dreamcast, the sun is shining for Sega Sammy. How did a company in the depths of despair manage to rebuild itself? And how will it achieve the dominance it craves in the console games market?

The last time Sega made headlines this often was in 2000, when it was losing everything. The underperformance of Dreamcast, the overspend on sales and marketing, the $400 million losses, and the resignation of president Shoichiro Irimajiri signalled dire straits for a company with two other loss makers in its recent history – its amusement arcades and the Saturn.

Then came announcements: Dreamcast discontinued, inventories to be expediently sold, cutbacks to be made, and Sega the platform-holder to be reborn as Sega the platform-agnostic content-provider. Its presence in the videogame software market had slumped to a low of 4.2 per cent; now its goal was to achieve 25 per cent dominance. Its traditional model of recruitment and development was insular and Japanese; now it wanted a world of talent on its payroll.

It’s taken more than six years for that new Sega to emerge, still in transition but clearly once again in control. The severest cutbacks – the layoffs of almost a third of its Tokyo workforce in 2001 and the shedding of unprofitable ISP operations SegaNet and Dreamarena in 2002 – helped turn the first profits in three years within a few months. And when arcade giant Sammy acquired all of Sega’s stock in 2004, creating holding company Sega Sammy, profits for the year tripled to ¥8.76 billion ($76.9 million or £38 million). But headlines over this past year, once again swamped by news of Sega and its unlikely endeavours, have seen something more than the return of its money – its confidence.

moscallout The prolonged precariousness of Japan’s amusement trade has chequered Sega’s past with opposing losses and gains./moscallout

Sega Sammy, like Bandai Namco, is a union built to survive a storm. Totalling over 60 different companies, its subsidiaries handle far more than just videogames, pachislot machines and arcade halls. Real estate company Recipe, Top One toys (aka Sega Toys), Telecom Animation Films, Sega Sammy Golf Entertainment (owner of Hokkaido’s North Country Golf Club) and XYZ Cinemas are all examples, as are operators of Tokyo’s popular electronic darts games and venues. Between them, they’re theoretically capable of responding to every entertainment trend, anticipated or not, that arises.

And they have to be. The prolonged precariousness of Japan’s amusement trade has chequered Sega’s past with opposing losses and gains. One announcement might herald the steadiness of its videogame divisions, to cite February’s nine-month financial reports, while at the same time noting a 23 per cent drop in profits thanks to the decline of the pachinko machine market, Sammy’s once-lucrative monopoly. Meanwhile, Sega’s Ryu Ga Gotoku 2, a CERO D rated roaming brawler, ships over 500,000 units and dominates the Japanese charts. DS dating sim Oshare Majo: Love And Berry repeats the success and fends off Nintendo’s Jump Ultimate Stars, and the Wii, a quirky, unapologetically toylike console built on last-generation technology, outsells PS3 three-to-one and conquers the gaming world. You wouldn’t like to put money on any one aspect of the industry in which Sega has to invest.

So it’s investing in them all. In a bid to exploit the unique growth potential of the Western arcade scene, GameWorks, the arcade chain founded by Sega, Dreamworks and Universal in 1996 and now wholly owned by Sega Sammy, has been reinvented. While Sammy oversees Japan’s facilities, managing the ascending IC-card and outgoing (or so it would seem) pachinko markets, GameWorks is exploring the broader entertainment traditionally offered by bowling alleys and leisure complexes. Several sites now feature flatscreen-dominated sports cafes (dubbed Arena Sports Bar & Grill) alongside traditional game floors, and parent company Sega Amusements USA continues to trial eastern imports, such as Mushiking, in the hope of building its heavily merchandised genre a western audience.

Sega’s balance of home and arcade development has been heavily scrutinised ever since Sammy boss Hajime Satomi, at the birth of Sega Sammy, voiced a desire to shift Sega’s focus from home development to low-cost coin-op manufacture. Sammy’s JAMMA-compatible Atomiswave board was to be the platform, and Satomi warned that if Sega didn’t capitulate on such key issues then Sammy would buy up a controlling number of shares. “It’s true that our original merger proposal was rejected,” he told stockholders, “and that some Sega executives have been opposed to the stock acquisition.” Whether Rikiya Nakagawa, the chief of arcade subsidiary WOW, who quit a week into the merger, was among them is unknown.