http://www.1up.com/article2/0,2053,1606347,00.asp Sega Sammy Holdings Outlines Future Strategy
By David Smith
6/2/2004
When Sega and Sammy first announced last month that they would be joining together in a holding company structure, many questions arose regarding just what the alliance would mean. Now, at least some of those questions have been answered. In a press conference held last May 19, but only just published on the web in English, Sammy chairmand and incoming Sega Sammy Holdings president Hajime Satomi outlined the big picture and some of the key details regarding the two companies' plans for the future.
As announced last month, the company will be created through a stock swap, giving Sega shareholders 4.2% of the holding company and Sammy shareholders 8.4%. The inequality is a consequence of the relative market capitalization of both companies.
Sammy will also have a greater share of the holding company' s management. Satomi will be chairman and president, with Sega president Hisao Oguchi as vice chairman. Sammy representatives will hold three of the company' s five directorships, including both executive directorships. " Unfortunately, Sega has been in the red for nearly 10 years," said Satomi, explaining the decision to lessen the power of Sega' s directors. " It would tighten things up if the members that had directing position and representative rights took responsibility."
The closer alliance between Sega and Sammy " will create a truly integrated and powerful entertainment company," Satomi said. A chart of the relative sales and market capitalization of Japan' s biggest game publishers and amusement companies put Sega Sammy Holdings in second place, well ahead of Konami and just behind Nintendo. Satomi claimed that it will be able to " catch up and surpass Nintendo as the number-one company" over the course of its upcoming three-year reorganization.
Sega and Sammy will both continue to trade under their existing names, logos, and brands. However, the holding company -- staffed by some 50 employees, working with a budget of 10 billion yen -- will oversee the general direction and management of both. In Satomi' s words, Sega Sammy holdings will " focus on planning and administration, delegating explicit authorities and responsibilities to subsidiaries, in order to achieve the optimization of group management."
As a more concrete example of cooperation and coordination between the two companies, Satomi pointed to their recent use of the Hokuto no Ken license. Sammy produced a pachinko machine based on the popular action comic series last year, which became a surprise hit. Sega was able to capitalize on its popularity by producing a related arcade game and distribute Sammy' s console conversion of the pachislot game, allowing the two companies to build on each other' s success.
Over the next three years, however, that collaboration looks to substantially change the structure of the two companies, especially with regard to their console and arcade game business. In the arcade arena, the two companies plan to work together to increase their market presence and earnings, building and operating more and larger arcade locations in Japan and elsewhere. Meanwhile, in the console realm, Sega Sammy Holdings plans a thorough review of the " domestic and overseas R&D framework of both companies," with an eye towards restructuring their development efforts in search of immediate profitability.
" We expect to reorganize Sega, Sammy and other subsidiaries into business segments," said Satomi, " so we can effectively allocate management resources such as employees, goods, capital, and intelligence, and improve management efficiency." Those business segments, as shown below, will cover the development and production of pachinko and slot machines (Sammy' s core business), arcade and consumer game software (integrating both Sega and Sammy' s efforts in that area), and the adaptation of those products in other media (such as Sega' s toy business and the exploitation of its character franchises).
The first step in that reorganization will be the integration of Sammy' s arcade and home videogame business into Sega, in both Japan and North America. Sega will distribute Sammy' s Atomiswave arcade hardware and games under its own brand worldwide. It' s not yet clear how this may affect Sammy' s fledgling North American publishing operation, but given the example of the Square Enix merger (which resulted in the dissolution of Enix America), it looks as if Sammy Studios might not be long for this world.
More interesting is what may happen to Sega' s once-fragmented internal software development studios. As announced last month, Sega' s seven development subsidiaries -- Hitmaker, Sega Wow, Sonic Team, Sega-AM2, Digitalrex, Amusement Vision, and Smilebit -- have been reintegrated into Sega. However, it' s not certain how that change will affect their day-to-day operations.
Satomi commented briefly on the larger picture of the reintegration. " I feel that Sega has high individual capabilities, but it' s too separated into different subsidiaries" , he explained. " Sega wasn' t able to create an overall corporate strategy or uniformity because of that, which is a major reason behind the company' s stagnation. Oguchi himself has been feeling the same way. It' s about time that we returned back to the old Sega." Given that Sega' s teams have existed as they are for years, however, and are all at work on existing projects, it seems likely that they won' t be shaken up too significantly in the short term.
If you' re interested in checking out Satomi' s entire presentation (it' s rather dry, but some might enjoy all the corporate jiggery-pokery), head by Sammy' s investor relations site. We' ll certainly continue to follow developments in this story as they arise over the coming years, and the picture of Sega' s future becomes clearer.