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Sega's video game business is still not coping with change
Sega's video game business is still not coping with change
May 10, 2013 | By Mike Rose

May 10, 2013 | By Mike Rose
More: Console/PC, Business/Marketing

Although it would appear at first glance that Sega's last fiscal year was healthy, with soaring profits recorded, this is actually far from the truth.

For the fiscal year ended March 31, 2013, the publisher posted profits of 33.5 billion yen ($330.1 million), up 53.3 percent year-over-year.

However, it was deferred tax assets as a result of the liquidation of some of its U.S. subsidiaries that caused this boost to the company's net income figure. In reality, Sega's business operations continued to struggle, with operating income painting a better picture of Sega's fiscal woes -- 19.1 billion yen ($188.2 million), down 67.3 percent year-over-year, and revenues of 321.4 billion yen ($3.2 billion), down 18.7 percent.

Sega's video game sector is still not coping, regardless of the company's major restructuring plans a year ago. Sega blames weakened demand for games in the U.S. and Europe, and says it needs to adapt better to a market that is geared towards social and mobile games.

As part of the company's plans to restructure its video game business, Sega nearly halved the number of games it sold -- just 10.8 million software units sold, compared to 17.2 million in the previous year. Breaking this figure down, Sega sold 4.2 million units in the U.S., 4.4 million in Europe, and 2.1 million in Japan.

Sonic & All-Stars Racing Transformed and Aliens: Colonial Marines were Sega's two best sellers, with 1.36 million and 1.31 million units sold respectively. Meanwhile, Football Manager 2013 sold 940,000 units, London 2012 sold 680,000 units, and the Japan-only release Ryu ga Gotoku 5: Yume Kanaeshimono sold 590,000 copies.

In comparison, Sega had more luck with its mobile games. Phantasy Star Online 2 in particular exceeded 2.5 million downloads, and revenue from in-app purchases far surpassed Sega's forecasted intake.

In fact, Sega's digital revenue nearly surpassed its packaged games business for the first time -- 29.7 billion yen ($293.0 million) compared to packaged games' 35.6 billion yen ($351.2 million).

Overall, the company's consumer business recorded revenues of 84.7 billion yen ($836.0 million), down 2 percent year-over-year, and operating losses of 732 million yen ($7.2 million), an improvement over the previous year's losses of 15.2 billion yen ($149.8 million).

Sega's other businesses aren't looking so hot either. Its pachislot and pachinko business saw operating income drop by 66.9 percent, while operating income from its amusement machines business was down 74.3 percent.

How 2013 is looking

Looking to the current fiscal year, Sega notes that its video game business is still undergoing "rationalization" as it attempts to swing back to profits.

The upcoming next-gen consoles should help, says the company, and should lead to sales of around 11.7 million software units for the year ended March 2014. Sega noted its recent acquisition of Relic Entertainment, and said that this studio will be put to good use in the coming months.

The company says it will release 42 retail games for current consoles during the current fiscal year. This includes 5 PS Vita games (down from the 8 it released last year), 6 3DS games (up from 3 last year), 4 Xbox 360 games (down from 9), 7 PS3 games (down from 14), and 7 Wii U games (up from 2 last year.)

Notably, this figure does not appear to include games for next-gen consoles, and Sega is keeping the full extent of its next-gen projects quiet for now.

And of course, Sega will continue to push its social and mobile games business, as well as focusing on downloadable PC games, in the name of shifting its business to adapt to the current environment.

As a result the company has made bold estimations for the current fiscal year, forecasting overall revenues of 485 billion yen ($4.9 billion) for the current fiscal year, up 50.9 percent year-over-year, and profits of 47 billion yen ($463.7 million), up 40.7 percent year-over-year.

It says part of this will be down to a swing to profits for its video game business, with revenues in this sector of 109.5 billion yen ($1.1 billion), up 30.7 percent, and operating income of 3.9 billion yen ($38.4 million), compared to last year's 732 million yen ($7.2 million) losses.

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Merc Hoffner
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"Sega notes that its video game business is still undergoing "rationalization" "

"This includes 5 PS Vita games (down from the 8 it released last year), 6 3DS games (up from 3 last year)"

Hah, lol

Joseph Anthony B. A. Tanimowo-Reyes
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I haven't bought any Sega games in a while, mainly because their only property I care for is Sonic, and they've yet to put out a new non-mobile Sonic since Generations.

Ryan Barrett
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Everyone should boycott Sega, for all intents and purposes they are "all washed up."

Ardney Carter
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Good to hear that PSO2 is actually generating money for them. Which makes it all the more bizarre that its release seems to have been delayed for US/EU. It's the only Sega product I've actually been looking forward to in ages >.>

Jonathan Jennings
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It always sucks for me to see Sega isn't doing well from the genesis to the dream cast ( which I adored) and streets of rage to shenmue they were a huge part of my childhood. So to see it usually seems like the company is running in place if not falling backwards always bums me out a little

Jonathan Murphy
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Your company is only as good as the people in it. Your company can only succeed when you listen to your people. Your company must adapt to survive. Sega has face planted on all three of these.

With that said I've checked out PSO2. It's good! C'mon Sega release it in the USA already!

[User Banned]
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This user violated Gamasutra’s Comment Guidelines and has been banned.

Ron Dippold
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Hmmm, have you ever thought of... [steepling my fingers here] making non-crappy Sonic games again? Since you're long past the point where you can come up with great new IP like Panzer Dragoon again.

To be fair, Sonic & All-Stars Racing Transformed was quite a good game for a modern Sonic game that had nothing to do with Sonic running.

wes bogdan
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They could always do more HD REMAKES.....Azel saga,panzer series,virtuial much to mine and haveback in peoples library's . Sega made great original ip and perhaps before going forward they NEED TO go back.

Simone Tanzi
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Panzer Dragoon for Oculus Rift.... make it happen....

Dave Endresak
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Actually, all they have to do is listen to their global customers and offer the Hatsune Miku games via Steam and other digital services. Millions of sales? Easy. Low cost for translation (pretty much only menus)? Easy. Global customer base who would love to buy not only the base games but the DLCs? Easy.

Meanwhile... they struggle... well, that figures when you don't listen to what people want.

Unless Crypton is holding them back until the release of English Miku, of course. That's possible, too...