Sega Reorganizes in West, Forms Digital Group, Lays Off 73

IndustryGamers has learned that Sega West has just implemented a major restructuring of its business in North America and Europe. Consequently, the company has “made the reluctant decision to reduce headcount by 36 employees in the San Francisco offices and 37 in London.” This represents a 15 percent workforce cut in North America and 10 percent in Europe (so roughly 12 percent overall for Sega West). Why is this happening? Sega is now looking to put much more emphasis on the growing digital sector, Sega West President Mike Hayes told us. The San Francisco office will now serve as the Digital division, while Europe will continue to focus on traditional video games.

“We've been going through the planning process the past 6 months, taking a look at the future of the market and where we think our investments need to be. It's no surprise that the share of digital is growing as an overall part of the video game business, so we decided we have to invest more in that specific area,” Hayes explained. “And notably, we had to get our business groups appropriately sorted to provide the right focus. Traditionally, Sega of America and Sega Europe had been running a dual company where both would look at traditional goods and both would look at the digital side. What we decided to do is to make San Francisco the kind of hub for our digital efforts, and therefore make London the hub for the traditional packaged goods part. I would stress, however, that this is very much administrative reorganization, because clearly we want to be very successful with digital globally. Likewise, we want to continue to be successful with traditional goods. So the reorganization allows us to be much more efficient in terms of our costs, but probably more importantly in the way that we can look at the future business.”

We asked Hayes if this move had anything to do with economic pressures. Parent company Sega Sammy Holdings just this week did lower revenue guidance partially because of “weak” overseas performance and the company blamed North America for “stagnant” game sales, so the timing of the reorganization was curious. He insisted, however, that the decision came from the West.

“No, this was an initiative taken by the West. Of course, we're always under pressure from our head office – who isn't? But this is definitely something we looked at as a business as the Western business managers,” Hayes noted. “We wanted to figure out how to be more effective in this incredibly growing marketplace and how to be more cost effective. It's something that the management teams in San Francisco and London have embarked upon.”

Of course, the word digital can cover a pretty wide spectrum these days. So what platforms will the San Francisco digital group be aiming their laser sights at? Here's what Hayes had to say: “Sega has already done some very good things in this broad digital space so far, and now it's a case of how we can take it further. We're definitely looking at mobile applications, the iPhone, the iPad – we're interested to see what happens with Microsoft and others – creating games for PSN and XBLA. Again we've had some good successes in those areas. And we're finding increasingly that ESD [electronic software distribution, such as Steam, Direct2Drive, etc.] is taking a bigger share of our overall revenues, so that's an important growth area for us. The whole PC field in general [is doing well for us]... Football Manager, which is a European title, has done great.

“So what we've done so far is taken strong Sega IP and we've had lots of success. Look at how well Super Monkey Ball has done on iPhone. And we've got lots of excitement around Sonic 4 that we're launching on XBLA and PSN later this year. The challenge for us now, is how to go beyond that in terms of doing more than just reinventing existing Sega IP. And that's really where a lot more of the focus and investment is going to be with this new digital division.”

Hayes told us that we should expect some original IP product announcements for the digital platforms “over the next few months.”

Hayes seemed particularly jazzed about the iPad. “I think what the iPad does is it enables us to do much more interesting things with our titles, and it's that ability to use the technology further to take gaming into new areas that's something we're excited about and will focus on in the San Francisco organization,” he said.

We also asked Hayes about Sega's Facebook digital games strategy, since that's an area that traditional publishers are still grappling with, while companies like Zynga and Playfish (now owned by EA) dominate. Hayes noted that a Facebook project would likely be among one of those upcoming product announcements coming later in the year: “This is a new area for traditional games publishers, so to be blunt one of the things we need is to get expertise in that area. That's why we're currently doing a search for a senior position who we hope would have a lot of experience in that PC, social gaming field, because we do see what opportunities exist and we feel it's very important that Sega has a share of that marketplace. So that's one of the projects we're working on currently, but it's too early to give out [all the details]." 

So just how huge is the digital business going to be for Sega? What percentage of their sales are they anticipating will come from this? Hayes couldn't say, noting that it's all still evolving. “All we know is it will be a bigger part of the business as we move forward, but in terms of the goals and how much digital is going to be, that's something we're going to have to work on with this new group and figure out over the next few months... Do we want to move everything from traditional into digital? Absolutely not. We're taking what we feel is a very balanced approach; it'll be an evolution, not a revolution,” he said.

Over the last year or so, the sour economy has really had an impact on the global games business, as layoffs and studio closures have been all too frequent. So with Sega's latest restructuring and round of cuts, how does the publisher feel about the economy and the industry now? “I think there are many things at play in the market,” Hayes responded. “How mass market have PS3 and Xbox 360 become of late? We're excited about Move and Natal, because that should take the mass market share even bigger. We've seen that new IP is harder to breakthrough and sequels are doing much better in the traditional business. And if you look at the economy, you've got markets that have truly suffered globally like Spain, which has got some significant issues. And in the primary markets of the U.K. and U.S. and Canada, I think the economy recovery we're seeing is helping the business but I don't think our business dipped significantly because of the economic situation. So fortunately, we're mostly through that, but on the whole there are other dynamics in the market that are probably more important for us to concentrate on; and again, that's what our expansion into new platforms [is all about].”