Microsoft's not buying SEGA, and Xbox Series X isn't being re-branded

Here we are again, folks, at another article detailing why Microsoft isn't buying another billion-dollar company. In this coverage we'll be detailing why Microsoft isn't buying SEGA, and why the Xbox Series X isn't going to be rebranded with SEGA's name in Japan.

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Rumor has it Microsoft is buying SEGA. Another rumor says Microsoft will release the Xbox Series X as the "SEGA Series X" in Japan. Neither of these things are true. To really understand why the rumors aren't true we have to take a look at how both Microsoft and SEGA operate their businesses, and then briefly go over why the Xbox brand is so much more than just hardware.

First, let's start off with the obvious one: Microsoft isn't going to buy SEGA simply because it'd cost too much. There's no reason for Microsoft to buy, and more importantly, there's absolutely no reason for SEGA to sell. This is the same argument we made with the preposterous "Microsoft is buying CD Projekt RED" rumors, and the more recent "Sony is buying Metal Gear Solid" rumors.

Right now SEGA is doing very well for itself.

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The Japanese company made $3.37 billion in FY2019, and its total-year profits are up over 400% to $126 million. Game sales are up, its pachinko machines are raking in more revenues, and its resort business is still making revenues. It's segments are doing well and SEGA has a multi-year plan of games and content set for 2020 and beyond.

This is a base argument why SEGA won't sell, but a closer inspection shows SEGA has $4.2 billion worth of net assets right now. Companies only sell when they're hurting for cash and need to liquidate their assets. SEGA is far from hurting right now.

Now let's talk about why Microsoft won't buy.

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Microsoft isn't in the market for big acquisitions. Aside from Minecraft's purchase for $2.5 billion, Microsoft doesn't make big purchases for its Xbox brand. The more recent Microsoft Studios acquisitions are smaller-scale indies that lean more towards AA titles rather than huge AAA blockbuster IPs like the Yakuza series.

There's a big reason for this. Microsoft is a service-first company through-and-through. It cares more about services and ecosystem than it does about hardware and huge system-selling AAA titles. That's why the Xbox Series X won't have exclusives at launch, because it'd fly in the face of Microsoft's huge cross-platform Xbox ecosystem, which unifies consoles, Windows 10 PCs, and soon mobile phones together in one framework.

Also remember Microsoft doesn't care all that much about Xbox.

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Xbox is an extension, an outlier, a kind of guaranteed money-making segment that's focused more on services and storefront sales and less on hardware and blockbuster first-party games. That's why a lot of first-party Xbox games have live services, microtransactions, or some sort of engagement hook, because it naturally synergizes with the service-based focus.

Could Microsoft afford to buy SEGA, assuming SEGA wanted to sell its IPs, assets, and name? Most certainly. But they never would. The reality is Xbox is just a small portion of Microsoft's titanic empire--Xbox makes roughly 10% of the company's quarterly earnings. Microsoft will not make this kind of investment into another games company unless its massively accretive, which SEGA wouldn't really be.

Also SEGA has a lot of Japanese-based segments and domestic business arms. SEGA has a thriving pachinko/pachislot business with regularly makes up significant portions of its gaming revenues, and it also has hotels and resorts. Microsoft buying into that kind of thing would be messy logistically and on paper.

Okay, now that we've gotten that out of the way, let's talk about why Microsoft won't slap SEGA's name on their new console.

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The idea behind the rumor is Japan doesn't like the Xbox One, and that's true. They avoid the Xbox ecosystem and the console hasn't gained traction overseas. So rumor has it Microsoft will team up with SEGA and rebrand the Xbox Series X as the "SEGA Series X".

But as we said before, Microsoft doesn't care that much about hardware. Hardware is just the beginning, an entry point, to a small section of consumers. So instead of banking harder on hardware, Microsoft's just widened their net in an attempt to catch more fish.

Microsoft now has services that can reach Japanese gamers without them having to buy a console. There's Game Pass, which is accessible on PC, and soon Project xCloud, a cloud-streaming service that will wirelessly beam games to smartphones. xCloud is Microsoft's best bet for the Japanese market, not the Xbox Series X.

Basically there's no reason to rebrand the console because Microsoft has alternatives to console hardware to reach Japanese gamers. Microsoft wants to cover all bases here, and even if it fails to capture the Japanese market, that's okay--the real money is in Europe, Asia, and the Americas.

And of course Microsoft would have to pay SEGA to use their name. That's not going to happen either. Xbox runs on a tight budget, and Microsoft is shelling out tens of millions on advertising and lots more on console manufacturing. The Xbox brand will be seen in Japan when the Xbox Series X release in Holiday 2020.

So in summary, here's the reasons why the rumors are off the mark:

• SEGA is doing well, has no reason to sell
• Microsoft won't buy SEGA or any other big company
• Xbox isn't that important to Microsoft
• Microsoft cares mostly about services
• Xbox Series X re-brand not necessary as MS targets critical markets with hardware, and others (like Japan) with services