SEGA to use transmedia, licensing to soften the blow from any sales misses

SEGA investors pressure executives about the volatility of the games market, seeking clarification on risk. Management responds with a quick rundown of how transmedia can be used to help counter unsuccessful games.

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The games industry is quite chaotic right now, and SEGA's shareholders have taken notice, offering up some tough questions for the top brass. In a recent Q&A, SEGA investors ask the company's executive management about the wild ups and downs with video game sales, especially those that have consistently reviewed well. Why isn't SEGA able to consistently sell more games?

The questions set forth to SEGA are somewhat biting, but rightly so, as these investors expect returns. Management provided an interesting response that widens the lens of SEGA's total business and how its non-interactive content can actually act as a safeguard against volatility.

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While SEGA is known for best-sellers like Sonic, Football Manager, Persona, and Yakuza, the games-maker typically is in the middle-grade when it comes to game sales, or at least the data that it publicly discloses. SEGA typically does not enjoy tens of millions of sales of its games upon release--that takes some time. And then there's no guarantee the games will be a hit, or at the very least, sell a meaningful amount of copies to make a profit.

So what's SEGA to do? Diversify with transmedia, licensing, and merchandise--a move that has paid off quite well thanks to mega-hit adaptations like the Sonic films.

In the Q&A, SEGA management affirms that these deals are not only highly profitable, but branching into these kinds of deals offers less risk than something like a 5-year game that takes tens of millions of dollars to develop.

Q. We consider the significant fluctuations in revenue from Full Game and F2P to be a structural issue. How will you address this going forward?

A. We are currently building a stable revenue base consisting of high-margin licensing revenues and repeat sales of Full Game, and F2P as a continuous revenue source.

On top of this base, we aim to build a revenue structure that enables us to take on challenges for new titles in Full Game, which tend to have high volatility. By continuously expanding transmedia initiatives and diversifying our revenue sources across multiple layers, we aim to reduce performance fluctuations caused by the presence or absence of new titles.

SEGA also says that licensing offers high growth potential, which makes sense, as they own some of the most acclaimed and recognizable franchises in the industry--Sonic, Angry Birds, and even something like Virtua Fighter to name a few.

Q. How do you view the growth potential of the licensing business, and how will you approach it going forward?

A.We view it as a high-margin area with growth potential. We are currently proceeding with the invest in this area

including increasing personnel in Japan, Europe, and the US. Sonic is already widely merchandized. In addition to existing product categories such as toys and apparel, we will use Sonic to expand into new areas, such as food products that can drive repeat purchases, and apply these efforts to grow IPs other than Sonic. Furthermore, regarding Sonic, we are seeing examples of leveraging the IP's recognition and popularity to promote other companies' products and services. We feel this represents a step forward in IP utilization and will work on expanding these initiatives while maintaining a focus on quality control.