Sega Goes Beyond Sonic

The video game maker has a plan to break into the top five. It involves moving past the pre-adolescent set with fantasy, speed, and violence

by Christopher Megerian

SPECIAL REPORT

The Power of Gaming

• Getting Serious About Gaming
• The Name of the Game Is Work
• Video Games Entertain and Educate
• Sega Goes Beyond Sonic
• Mining Virtual Worlds for Market Research
• Console Makers: Move It or Lose It
• Navigating the Uncanny Valley

Sonic the Hedgehog was introduced in 1991 to compete with Nintendo's Mario. Sega is planning to release two Sonic games for handheld consoles later this year, as well as a joint Mario-Sonic game for the Nintendo Wii. Bloomberg

In order to become a top-five video game publisher, Sega is counting on the success of movie-related game franchises such as the upcoming Iron Man, based on an old title from Marvel Comics. Sega

Story Tools

• post a comment
• e-mail this story
• print this story
• order a reprint
• digg this
• save to del.icio.us

Can Iron Man, the Incredible Hulk, Captain America, and Thor save Sega? The venerable video game publisher, which has been knocked around the industry like a character in a video game, is tired of being relegated to the second tier. Sega is determined to break into the top five of video game publishers in the next year. That means more than doubling the company's revenue in the midst of what could be one of the most competitive holiday gaming seasons in recent memory.

How does Sega plan to crack the top tier of game publishers? The goal is to hitch the company's fortunes to a shooting star—more specifically, a comic-book movie star. Sega, like other Japanese companies that have struggled to make inroads in the West, has been aggressively pursuing high-profile movie licenses. The licenses are part of a strategy aimed at diversifying Sega with more games for a wider variety of gaming platforms and audiences.

For a company best known for a quick-footed blue ball of fur named Sonic the Hedgehog, Sega is making some uncharacteristic acquisitions. It is primed to release an adventure game based on The Golden Compass, a fantasy movie starring Nicole Kidman and the new James Bond, Daniel Craig, that hits theaters Dec. 7. The company also snatched up the licenses to four Marvel Comics characters—Iron Man, the Hulk, Captain America, and Thor—that have movies in development or under consideration. In addition, Sega is planning two new games based on 20th Century Fox's Alien movies.

Out of the Hardware Market

Of course, there are no sure things in the high-risk world of video game development. Movie games typically sell well but have a reputation for poor quality, and the movie itself could bomb at the box office, potentially sinking the game version. In addition, next-generation gaming technology has increased development costs. Admits Sega of America President Simon Jeffery: "It only takes a couple of $20 million games to fail at market, and we're out of business."

Sega knows how easy it is to reach that point. When it launched its Dreamcast console in 1998, the company was already hurting from previous failures in the hardware market. The technologically advanced Dreamcast was warmly welcomed by gamers, but the popularity of Sony's PlayStation 2 forced Sega out of the hardware business in 2001. That year, the company reported losses of about $435 million and axed a third of its Tokyo workforce.

That's when Peter Moore, then president of Sega of America, began the push to transform Sega from a hardware manufacturer to a platform-agnostic game publisher. The company began to pull out of the red when it discontinued unprofitable online services such as Seganet, but it continued to gasp for air. Sega's successful line of football games was left out in the cold when Electronic Arts (ERTS) cut a deal with the National Football League and the NFL Players Association, giving the company exclusive rights to portray NFL players, teams, and stadiums. Sega's football games, which were considered high quality despite costing only $20, were left out in the cold.

Back in Action Games

Sega limped along until 2004, when it was acquired by Sammy Corp., a Japanese creator of games and slot machines. When Simon Jeffery became president of Sega of America early the following year, the company had begun pursuing an aggressive global expansion strategy. "It really was a paradigm shift at the top at Sega Sammy," Jeffery says. Although the Japanese old guard wanted to reenter the hardware business, he says, "There really had to be an absolute flushing out of that old way of thinking."