Has Sega’s switch to digital worked?

A year ago Sega restructured its Western business, with a bigger emphasis on digital content and more attention given to its core IPs. Did it work?

MCV quizzed European chief Jurgen Post to find out…

We are one year on from the restructure. What’s the progress been since? Did the revamp work?

We wrapped it all up last summer. All those changes reorganised us around the core IP – Football Manager, Sonic, Total War and Aliens – and that has worked well.

But the big news since was that we bought THQ’s studio Relic. One of the goals when we restructured was to add to our IPs and now we have Company of Heroes and Warhammer alongside the other four pillars. Relic is another PC studio, but that’s what we are good at. It was a match made in heaven and we understand their strategy. It may seem to be a niche segment to some but we understand it very well. And walking into Relic’s office was like walking into Creative Assembly – the same atmosphere and the same type of people.

Sega is a PC expert. But lots of excitement now is focused on the new consoes. Do those devices matter to Sega any more?

Of course all the consoles matter, and we are developing for them. We have an agreement with Nintendo and are developing three Sonic games for them, for instance.

The next-gen console market is exciting and we are following it closely. We have a lot of PC studios, and in that sense you might say we are very prepared. If, as many say, these next-gen machines really are more like PCs than ever then we have a lot to take advantage of in terms of technology. The PC base certainly makes it feel much easier for us.

And as for the genres we are in, we could think of maybe porting an RTS title at some point to a next-gen platform. Technology is changing so much, with voice commands and input devices, that especially for a genre like the RTS there’s an opportunity. Diablo is going there, after all, so it looks like there is a console market for what we do.

What about the deal with Nintendo and the Sonic games?

We have Sonic: Lost World on Wii U and 3DS and then Mario & Sonic at the Sochi 2014 Winter Olympics later in the year too. Plus there is a third game we haven’t announced.

Historically Sonic games have always sold very well on Nintendo platforms, so it’s a good fit. And Nintendo and Sega have always worked together in a positive way – the first game Sonic debuted on after we stopped making hardware was a Nintendo platform.

"[Wii U sales are] a concern. But I certainly
hope Sonic can help. The Lost World might
just be our best Sonic game yet, it is one of
the games that can help them. I saw Nintendo’s
briefing at E3 and it has a very strong line-up
of games for Wii U. I think it’s helping people
think that things might change."

Do you have any concerns that Wii U has been slow to pick up? Can Sonic turn that around?

Oh yes, it is a concern. But I certainly hope Sonic can help. The Lost World might just be our best Sonic game yet, it is one of the games that can help them. I saw Nintendo’s briefing at E3 and it has a very strong line-up of games for Wii U. I think it’s helping people think that things might change.

And look at what happened on 3DS. At E3 Nintendo pointed out that 3DS did 400,000 in the first week, then it dropped below 100,000 for the next few months, then they dropped the price.

Now, Nintendo hasn’t said it will drop the price of Wii U, but why point this out otherwise? So who knows, maybe there’s a bigger plan in the back of their heads and they just aren’t ready to talk about it. There’s a lot of next-gen noise at the moment Nintendo has to wait through.

You call Lost World ‘the best Sonic game yet’, but you were very down on Sonic a few years ago. So what’s changed?

We started to make quality the number one priority. Even in the back catalogue: if we had Sonic games with low quaity, or a bad Metacritic, we took them off the shelf. We focused on the core game – not offering all that back catalogue deals when a new game comes out.

I think we’re seeing the results of that now.

Sonic & All-Stars Racing Transformed had good Metacritic scores last year and the last few years the Sonic games have had better and better reviews. We’re on the right track with Sonic.

After buying Relic is there desire to add more studios?

We’re always looking for opportunties and if something came along we would go for it. We’re still looking – and we are looking at some but I can’t tell you what they are.

Fortunately Sega Sammy is a healthy company so we can do it. Last year we changed the organisation and are now on the right course. If we can add another brand or studio to that, we’d be on the way to being a whole new company.

Your digital offering is also changing Sega into a new business. What are the objectives in that space?

The business models are changing every day, and free-to-play is something we are excited about; at GDC we announced Total War Arena, and then in Japan we are seeing huge success with Phantasy Star Online 2. Phantasy Star is free-to-play on PC and Vita, and doing very well on Vita in Japan. We will bring that game to the Western market at some point.

Mobile is important too, and we have successful F2P games there, such as Kingdom Conquest which is monetising well in Japan. And we recently launched Sonic Jump and Sonic Dash, one of which is entirely free-to-play. Dash has 15m downloads. We are getting there in terms of these new models, and we are learning. That’s what’s most important. That and taking careful steps, testing out how these brands work in various territories.

One other thing that this causes is growth of the value chain, and you end up hiring more people in locally to manage that. We are building a team for free-to-play in Sega West and may even build some tech to support the games I’ve mentioned and some unannounced ones.

"We started to make quality the number
one priority. Even in the back catalogue:
if we had Sonic games with low quaity,
or a bad Metacritic, we took them off the
shelf. We focused on the core game – not
offering all that back catalogue deals
when a new game comes out."

F2P has some real posterchild successes. Have you kept much of a close eye on those businesses?

It’s hugely inspring, definitely. Companies like GungHo [Puzzle & Dragons], Supercell [Clash of Clans] or games like Candy Crush have come out of no where and are doing millions each day. Same for Wargaming, I?am sure.

But you hear those stories, and some of them are very successful, but no one is talking about the failures in that space. It would be great to have Total War Arena be a breakthrough game, but we have to be realistic – you need some luck, then good people, a great game, and you might get somewhere. But there’s a huge amount of risk to those games too because you have to invest for the long-run, you can’t just launch it and forget or switch it off if it fails after a month.

Lastly, what did you make of what happened to THQ earlier this year? Sega was once upon a time one of the ‘middle’ publishers many were saying would struggle. But you pivoted away. Did THQ fail to heed the market problems Sega saw coming?

It’s hard to comment on really. It’s very sad when these companies go bust and close. I always say you have to just look at your business and do the right things. But yes, Sega took a drastic move to adapt to the new market – and you adapt or adjust fast enough you are ready. Would THQ have survived if it had changed the way we had? I can’t really say. This is generally a very risky business. Like other worlds like film or TV or music, we’re making creative things that might not always work – you can’t anticipate what every success or failure will be. Otherwise this would be really easy! And a bit boring.