'IRON MAN,' 'HULK,' 'ALIEN' POWER SEGA'S REINVENTION
It's no mean feat powering up from being video game publisher No. 14 in 2004 to becoming the industry's sixth largest third-party publisher today. But Sega of America is tasting that success. Industry analysts credit its president and COO since 2005, Simon Jeffery, as the force behind the company's struggle to reinvent itself.In fact, come May 2, when the Marvel Enterprises-produced "Iron Man" blasts into movie theaters, Sega is counting on the day-and-date release of its video game version to inject even more life into what was once a very anemic portfolio.
"Historically, Sega hasn't been part of the license business," explains Jeffery. "But we felt that in order to gain market momentum, we absolutely needed to have big game-appropriate movie licenses under our belt."
Which is why, in December, Sega came out with its action-adventure game “The Golden Compass” for all major consoles a few days prior to the film’s opening. And Sega intends to offer both console and handheld versions of “The Incredible Hulk” come June around the time of the Universal Studio’s June 13 movie release. At the end of the year, too, Sega will unveil “Aliens: Colonial Marines,” a first-person shooter that is the first of several games based on the “Alien” film franchise, thanks to a deal with 20th Century Fox.
Despite the fact that the games industry has been roundly criticized for being "overlicensed," Jeffery believes it is an important component of his company's strategy.
"This is all new for Sega," says Jeffery, "but, in our transition years, one of the things we've done is take a step back and look at what has enabled our competitors -- Electronic Arts, Activision, THQ and Ubisoft -- to be successful. And movie licenses always seem to be a part of that."
Ironically, during his three-year tenure as president of LucasArts Entertainment -- from 2000-03 -- he decided that the company was relying too heavily on its "Star Wars" license, but he was unable to achieve his goal of creating successful original IP.
"Although Sega is now building licensed games," he explains, "we are being careful not to chase every movie license that comes along. Too often, publishers just slap the license onto the box and don't give the game enough attention to make certain the content of the movie translates over to the game. We are trying to be particularly choosey about which licenses we want and with which developers we partner."
Jeffery has also been able to convince Sega's management in Japan that games sold in the U.S. need to be built in the West while appealing to Western tastes.
"Much of the product that comes out of Japan isn't really suitable or appropriate culturally for the Western market," Jeffery notes, "and Sega has become the first of the Japanese gaming companies to recognize that the global market has various tastes and isn't necessarily just one great big Japanese market."
That's the sort of approach that impresses industry analyst Michael Pachter who says that, prior to Jeffery, Sega was "Nintendo-like in terms of its product slate, focusing heavily on kids games, like those featuring Sonic the Hedgehog. Beyond those -- and perhaps the Virtua fighting and tennis games -- they really didn't have much that was impressive. But now they've begun to layer in titles with broader appeal." Pachter is senior vp, research, at L.A.-based Wedbush Morgan Securities.
He is particularly enthusiastic about “Iron Man,” the first of the films self-produced by comics publisher Marvel. “I’m the last guy in the world who you should ask about how well a movie is going to do, but it strikes me that it’s getting the right kind of buzz among the right kind of audience,” Pachter says. “And the fortunes of a licensed game rise and fall upon the underlying success of the property. I believe Sega this was a good opportunity for Sega, given the fact that ‘Iron Man’ is a product originally owned and then dropped by Activision. Three years ago Activision announced they were going to do the ‘Iron Man’ game with the movie, and then they just quietly bowed out. Sega did the right thing by picking it up, I believe.”
But Jeffery doesn't feel that Sega's success lies entirely with movie licenses; he observes growth in the industry's casual game and mobile game sectors and he is anxious to be part of both.
"We, like the rest of the industry, are eager to take advantage of the wave of awareness of casual games," he says, "and, at the same time, we have a very active mobile games group. I suspect that we'll be expanding into both areas and will be able to benefit hugely from some of our popular original IP, like 'Sonic the Hedgehog.'"
At the same time, Jeffery says Sega is "extremely conscious of diluting our assets by applying ourselves to areas where we can't succeed. For instance, we got our fingers burned in the past when we tried to build sports games and, while we may secretly wish that we were an active part of that community, we know commercially that that's not an area for us. So we do want to pick our battles and really concentrate on just those areas where we feel we have a genuine market opportunity."
This year, Sega intends to release around 30 games compared to just four in 2004. Jeffery expects about a third will be licensed products, a third will be directed at hardcore gamers, and a third will be casual games focused on the mass market.
Sega's gameplan is ambitious, but could it be overly ambitious?
"Not at all," says Pachter. "I don't believe Jeffery's plan is to be No. 3 next year or to double revenues every year. He's layering in projects and he intends to grow at a rate that's just a bit higher than the industry growth rate. That's the right way to build a company.
"To be successful, there needs to be some sense of urgency," adds Pachter. "In comparison, look at Midway. They've been in turnaround mode since 2003. And every single year they do just enough to approach breakeven but never quite enough to make money. Yes, patience is a virtue, but there comes a point where patience really doesn't help you anymore."
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