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AM Division Unifications! Part 2 - SEGA

 
House of the Dead EX
House of the Dead EX
Continuing the Stinger's evaluation of the leading and influential amusement manufacturers in the market – and the changing times that are shaping their business strategy, we turn to SEGA – in the middle of major management and operation restructuring. The development of new content is still underway with Asian and the international divisions given a wider autonomy then ever before. New projects in the works are revealed including a brand new shooting game and a new driver.

Continuing the fall-out generated from recent amusement exhibitions and conferences, and the next in this series of reports turns its gaze to another legendary amusement factory – SEGA.

The major amusement corporation with a considerable consumer games publishing operation has seen much upheaval in the last eight years. In 2001, then controlled through the investment of CSK, a near merger with Namco was scuppered only for Sammy to become the successful suitor on their second attempt in 2004 (for more detail review previous Stinger #141 and #172).

SEGA's American amusement division has seen major changes in its operation – following the merger with Sammy, the key long-serving executive posts were cut loose (funnily enough in major developments prior to ASI'03). SEGA Amusement USA was placed under strict control from Japan. The development of the GameWorks operation caught up in management turmoil.

Recent management developments of SEGA and Sammy were merged in the consolidation of the amusement handlings in Chicago relocated from California in 2005 - with in the then Sammy Corporation Elk Grove Village headquarters. In Japan the parent company saw the domination of the SEGA board by Sammy executives and a total redefinition of the investment in AM business, the once independent game Studios such as WOW Entertainment and Amusement Vision; all six were re-integrated.

New Japanese Management

Over the last few months the reality of a changed SEGA head-office could not be hidden from the trade. Speculation at the reality of the Billion of Yen that has been lost started to materialize in the way the company re-shuffled its operation.

In a not widely circulated April SEGA Sammy media announcement came the confirmation of the 'reform' of amusement facilities in Japan with the closure of 110 sites. Also, the announcement that SEGA had decided to move to a new management system, with the promotion of the General Manager to President in order to recover the core business. But the big surprise was the elimination of the Business Group Division System to be reflected across five divisions of the AM business group.

The media announcement revealed the change in the board structure with the confirmation that unlike previous comments, Sammy still saw the pachinko business as a long-term growth area – though the aspirations of pachislot is a 'sagging' market compacted by the claimed revision in regulations in the home market; Sammy again promoting an executive to president position.

Sources close to SEGA revealed that the need to re-establish profitability has seen autonomy given to groups to return to an even keel. This means an increase in R&D, and hopes for a strong amusement machine development schedule, though the internal development structure has seen major changes. New roles have been created within R&D that reveals this thinking, with the new position of General Manager of Family Entertainment separate to the conventional R&D role for Amusement content.

The only role not seeing a major chase is that of the Chief Executive Officer – who will however now be working a lot closer with the new Chief Operations Officer of both Sammy and SEGA towards a new business model for AM business – all taking effect as of May the 1st 2008 - as has been seen internationally.

Breaking Stinger News – One of the surprising news stories of the summer revealed in July concerned development legend and SEGA AM R&D executive Yu Suzuki; in an interview with a SEGA of America consumer executive, it was stated that Suzuki-san had parted ways with SEGA, working on his own projects that would include a PS3 home game with an independent Chinese developer.

Having joined SEGA in 1983 as a software programmer, his talent was revealed with games such as ‘Hang-On', leading to ‘Out-Run' and the ‘Virtual Fighter' series. Yu Suzuki had headed up the SEGA-AM2 division – but in 2003 Suzuki-san started Digitalrex corporation with 27 employees joined to SEGA. While he been heading up the Digialrex – AM Plus R&D department, the team had been responsible for the arcade driver ‘SEGA RaceTV' (LindBergh Hardware) that had received less than promising reaction – this previous to development of the ‘Psy-Phi' (LindBergh Hardware) game that was canned in development.

The confused news of his departure was treated initially with surprise, though with the current changes in the SEGA executive structure and complaints of R&D projects this could have be the latest in a reshaping strategy to try and return to profitable enterprises. In the end it would be a few days before bosses at SEGA Japan would rush to refute the original report – in a slap in the face to the SEGA of America's credibility as a reliable source – Japan reaffirmed that Yu Suzuki still worked for SEGA as a ‘Creative Officer', but did not refute he was not fully active on AM projects.

New International Management

Broken during the run-up to the American ASI'08 event – SEGA Amusement USA had to reveal (though through gritted teeth that the news had broken early), that their chief executive had stepped down. But in a more surprising development, the satellite of the Japanese giant amusement factory would centralize its international direction under a central command. That would see the head of the European division now also control the Chicago office and all of the US business.

The financial climate of the world market was reflected in the situation that hit SEGA – information from well placed sources said that the SEGA Sammy Group chief executives had seen losses in the multi-million of Dollars (if not higher) due to a spiral of no confidence impacting stock price. This was compounded by the fallout of trust in AM business that was caused by the appallingly worded statement from a Namco Bandai statement on the reason for their closure of a number of poorly performing amusement sites. At the same time, SEGA was divesting themselves of over 110 venues causing some investors to assume problems with the operation – even though this would later be refuted, the damage has been done.

As revealed in our ATEI'08 coverage, SEGA Europe saw major developments in its European business, with the Middle East and former Soviet Union also flourishing under new sales opportunities. However, SEGA Amusement USA has been laboring under the States and distribution environment – there was also the great expense and effort that SAE had to undertake in supporting the SEGA GameWorks amusement operation division.

There had also been some questionable decisions forced on the SAU management in representing SEGA Japan development strategies. The American division has had a difficult time in educating the market to ‘UFO Catcher' systems and also to more advance amusement pieces such as the Satellite Terminals genre (still on test in Chicago), and advance racing games (‘Initial D 4').

The SEGA operation has been restructuring its AM venue business internationally – it previously announced the ditching of over 110 non-profitable venues, though this was not a collapse in AM facility business but a rationalization. News has been leaked of an across-the-board fiber-optic system between sites, all supporting advances in the ALL.NET infrastructure. However, SEGA started to collapse its wholly owned subsidiaries in Europe and Korea, and had abandoned plans for a $227 million amusement complex in Yokohama, Japan.

In America the majority acquisition of the troubled GameWorks over 15 site chain, by SEGA Sammy Group in 2005, unified operation plans. Already covered in detail in Stinger #643, the American operation has great aspirations to develop new sites that will encompass the new trends needed to increase the corporations' holdings. Though steered from Japan, it is expected that the GameWorks initiative will play a part in the unification of the international sales presence.

New Development

The news of the SEGA Sammy groups fortunes were underlined in May with mixed results.

Though slightly lower than originally forecasted, the company still looked at an operating loss for the finical year of over ¥5.8billion ($55million),culminating in a $505million net loss – the fundamental component of the Sammy pachinko business seeing sales of pachinko units going from 132,000 units sales to 108,000. In the amusement scene, SEGA confirmed the dissolving of the Singapore and Korean amusement divisions to "…increase operating efficiency…"

But with all these mixed results the importance of the amusement scene to SEGA has not been lost on the recent management changes. The development of the existence market also plays a major part in development. This was recently highlighted by the awarding of the amusement industry's most recent Guinness Book of Records award to SEGA. The company's title ‘MushiKing' was awarded the prestigious position of being the ‘Game with the most official tournaments played'. The kid vending experience has been a phenomenal hit but has received limited media recognition – unhappy that arcade had succeeded in the casual game scene. The game awarded the Guinness Book of Records award based on over 100,279 official tournaments held between May and November 2007.

New Asian Development - The SEGA AM development operation has not slowed even in the face of financial conditions. This new development saw its first appearance at the May SEGA Private Spring Show – in previous years the company showed a heightened development. The big appearance was ‘RAMBO' (LindBergh Hardware) – the company's latest shooting title; sitting in a cabinet similar to ‘House of the Dead 4'. This high profile license- based on the original action film franchise - hopes to offer big play action. Sources close to SEGA also reported that the game would be later released in a Theatre Cabinet variant (as seen to some success with ‘Let's Go Jungle Special').

All guns blazed for the presentation of the product in Japan – SEGA even enlisted the support of Hiroshi Fujioka, an actor employed by SEGA in the 90's to promote their Saturn console through a series of outlandish TV commercials; revealing at a press event that the game, though based on the earlier film series, will also include scenes from the latest outing for Johnny Rambo.

The direction of the SEGA R&D AM thinking can be seen in a number of instances of machines currently on test in Japanese Loctest (location tests). The latest new driver ‘Hummer Extreme' (LindBergh Hardware) offers the package seen with ‘OutRun 2 Special Attraction' – offering the same motion base and dual control two-player networked experience, but using racing Hummer ATV's as the vehicle of choice.

A second game was revealed before the SEGA Summer Private Show, when loctest information was circulated to fans in Japan of the latest installment in the popular driver. ‘Initial D: Arcade Stage 5' (LindBergh Hardware), is not an update as was seen with ‘Initial D Arcade Stage 4 BREAK' (the ID4.1 variant only launched in Japan February), but is proposed to be a full update sequel with hopes for new cars, stages, and card data.

At the Tokyo SEGA Private Show during July, a full support of amusement was still very evident, though this years event had a large placement for the big medal machine (possibly SEGA aware of movements in the Japanese medal scene- the company showing a networked ‘Progressive Jackpot gaming system'.

On the floor was ‘House of the Dead EX' (LinderBergh Hardware), a surprise gun game; the cabinet was the old ‘2 Spicy' gun game unit enhanced for two-players, with foot peddle. Sources suggested that the game will be released as a 2 Spicy kit installation. Going for a cartoon-esq., styling that departs from the gore fest, the bright color and style will hopefully get the game a Yellow PAS sticker and clear a backlog of units into wider circulation

Also on display was the new driver ‘R-Tuned: Ultimate Street Racing' (LindBergh Hardware). Developed by AM-2, the game is housed in an enhanced ‘RaceTV' cabinet (again suggested as a kit upgrade). The game offers night -driving custom car action – sitting in the genre of fun driver, and in direct competition to ‘The Fast and the Furious', ‘Need for Speed', ‘D1GP Arcade' and ‘Maximum Tune'. One source close to SEGA hinted that the game had been developed to close the door on any opportunity of the phenomenally popular Raw Thrills series coming to Japan (though the style and presentation of the new SEGA game could leave them open to criticism of emulation). The game includes card storage, ALL.NET support and 4-player network.

Both ‘House of the Dead EX' and ‘R-Tune' show the cannibalizing of previous (overstocked and under selling) cabinets, pointing towards a consideration of inventory reduction and addressing a string of poorly received games – and a means to plicate operator complaints with a kit replacement. Observers point to a decimation of the R&D resource effecting the focus on pure amusement entertainment shaming the AM operation at the Japanese giant – a factor SEGA's new management hopes to address.

Though again only shown as a video at the Private show (as was seen at AOU'08), the game has been on test, ‘Virtua Fighter 5: R' (LindBergh Hardware), positioned to take on the major revenue success of ‘Tekken 6' and a slew of new fighters from SNK-P and the immanent mass hysteria of ‘Street Fighter IV' hitting the Japanese streets.

Rumors from sources at SEGA also suggest that another drive is in the wings from the AM team – though guarded in secrecy, it's suggested that a sequel to ‘Enduro Bike' or ‘Hang-On' on the LindBergh hardware could be seen before the end of the year. This also linked to rumors of a new LindBergh hardware update for JAMMA'08 to compete with the new PS3 and Type-X developments.

Breaking Stinger News – A brand new book due for publication this year, called ‘Arcade Mania: The Turbo-charged World of Japan's Game Centers', has managed to gain a fascinating, interesting insight into the Japanese AC development scene. In one interview, the game director of VF5 reveal that the Playstation 3 version has not been given the same online support as the arcade version due to worries that possible online delay might mean millisecond advantage or disadvantage for players. This is a highly telling statement at how far behind the console hardware is – and how avidly the console industry attempts to hide the limitations of what they call Next-Gen, compared to an industry they keep calling dead!

New North American & European Development - With the recent changes in the top management structure within the international division, the autonomy to establish territorially specific markets has increased. In America there has been some issue with specifically developed content – the ‘Primeval Hunt' (PC Hardware) content was created based on direct involvement with US sales. May, in Japan's AM team was feeling that rather than a poor game, the direction given may have been at fault. The failure to sell was seen as another example of a separation from what the players want, and what the operators are prepared to buy.

In the UK – following the sales success of ‘Ford Racing: Full Blown' (PC Hardware)- the UK operation has received increased support to plough their own furrow. From his support was created ‘SEGA Rally 3' (Europa-R Hardware), based on a UK studios consumer title, but with hardware support direct from Japan, the motion base developed by SEGA Japan from the deluxe system. Some sources in Japan claim that there was still some resentment to the UK being able to develop a SEGA Rally title – the brand seen as Japan's only to redevelop.

What this could all mean:

The financial downturn that impacted SEGA shares in recent months has only stated to manifest itself. It is expected that expenditure in advertising and exhibitions will be drawn in across the international divisional structure. It was revealed to the Stinger that SEGA Europe would not be exhibiting at the UK's Preview'09 in October - the first time in many years that they have had to depend on their distributors for representation. The dual booth at IAAPA will not be repeated, and many will be surprised by the size of the presence at ATEI'09 compared to previous years.

However, it would be unwise to write off SEGA Sammy – the operation still sees itself as a major player in the operational and manufacturing arm of amusement. There are secret plans for quite considerable new business developments in the coming months, and at this year's JAMMA the new direction and business fight-back will commence!

News Story with thanks to Kevin Williams. Please visit www.thestingerreport.com for others.
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