Sega: 'Death of Packaged Games is a Total Exaggeration'Sega's been in the packaged goods business a long, long time, and while the company is making efforts to focus more on digital, it doesn't see physical software evaporating anytime soon. Retail game sales were down to 71% last year, according to the EMA, and this July's retail performance (per NPD) was the worst since October 2006, but there's no reason that digital and physical can't coexist successfully for years, Sega West boss Mike Hayes told IndustryGamers.
"The day of the double-A game is over."
"Net-net people are playing games more, net-net, the business is still growing, and in a way, some of the new businesses we’re growing are less risky. So I think that the death of packaged games is a total exaggeration. But I think there’s probably going to be a lot of necessary pruning and good husbandry [across the industry], which means that the quality for the consumer in the end is actually going to be better, because people are going drill into what they know is going to be successful," Hayes commented.
"I think everyone’s saying it’s becoming all digital and no packaged; I just can’t see that. I think both are going to coexist to a greater or lesser degree. I do like the comment I heard at GDC, which is that the day of the double-A game is over," he added, referring to Epic's Cliff Bleszinski, who said the "middle-class is dead."
"I think that that’s something that we would absolutely agree with. If you’re not going to be in there with a product to really compete then your chances of making a return on that are going to be really limited," Hayes observed.
In an increasingly hits-driven business at retail, the risks associated with investing anywhere between $40 and $100 million in a project (when you add in marketing) have only gotten higher. On top of that, consumers don't want to spend $60 anymore on most games. Can the industry really sustain itself this way? It's clear that the economics are changing, and digital is having a huge impact.
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For Sega and other publishers this will mean narrowing a product slate to focus on IP that's likely to do well at retail. Sega highlighted Sonic, Aliens, and the Total War and Football Manager brands. Beyond the core IP, Sega can then experiment with its growing digital business.
"So basically our strategy is we focus on our core IP, the triple-A for the console platforms. We will put in one or two new IP and innovate on those platforms where we can. And at the same time, we’ve set up separate groups which are focusing in on the digital side. In fact, 15% of our revenues are now from this broad digital area, whether that’s iOS or ESD (Steam, Direct2Drive, etc.) or XBLA or PSN and so forth and we figure that’s going to grow to around 20 a quarter within another 2 years. So we’ve spent the last 2 years already transitioning that. So we have divisions set up for all those different groups," Hayes explained.
And the nice thing about narrowing the core IP slate at retail is that money can then be allocated for more digital products, Hayes said.
"One of the interesting things for us is how we allocate the development budget. Because at the end of the day, that’s the most important thing. So for every new IP that we don’t try, that releases $30 million - that $30 million is being allocated across the mid-console download and on the low end apps," Hayes told us. "And what we’re announcing over the next few months are a lot of new IP on XBLA and PSN, which are pretty cool. So we’ve been able to use our development monies in a more spread about kind of way."
"I don’t think we’re in any way unique in that process. I think where Sega does benefit is our IP, because a lot of it can now be unlocked. So traditionally, we have spent $20 million to try and build a Golden Axe or a Sega Rally. Now, the great thing is we can unlock all that IP, particularly on console download, and particularly on a lot of smaller apps. And that’s where we have that big difference and that’s our strength."
