How important is the UK market to Sega?

Mike Hayes, CEO, Sega Europe and Sega America: Yeah there was that claim a few years ago that the UK was the second biggest games market in the world. Clearly, the UK is still a big market. But I would say, the UK’s share of the global market in the traditional retail space is declining – there’s no doubt about that.

I think the UK, as a market, is finding it harder than most of the other major markets to manage the reduction there is in platform sales.

When Sega started out seven years ago as a multiplatform publisher, everything was UK based. So we’ve had this need to drive our businesses elsewhere continually. So actually, the UK is now a significantly smaller part of our business than it was seven years ago.
In fact I just looked at the figures and I was quite staggered by how much smaller it is. The UK now, in terms of per cent of overall business, is half of what it was five years ago.

But that’s also because we’re trying to drive business in Russia, because we’re trying to make business in America, because we have huge sub-licensing deals in South America.

But there is a definite sign that the UK is finding it hard in the traditional retail business. Of course, it is also exploding in the mobile and online games space.

But it seems that publishers can’t generate exciting revenues with mobile games.

Hayes: If you have a hit you can.

EA’s mobile game revenues were about $70 million for the quarter, which is a fraction of what they make at traditional retail.

Hayes: The profit margins can be very significant though. If you have an IP, your return rate can be a lot higher. You’re going to make a lot more money having an Aliens game on living room platforms than on iOS.

Also, investors tend to gravitate towards how many boxes a company can sell.

Hayes: I think that’s right, yeah. But we’re all going through a transition. 15 per cent of Sega’s revenue comes from digital sources.

Going back on the issue of the UK, I take it this Alien game needs to be a global success?

Hayes: Absolutely, you can’t make a game just for the UK, with the brilliant exception of Football Manager. That game still skews to the UK, but still less and less and less. You cannot run a games business unless it’s a success around the world.

In particular, our new game needs to be a success in the US, which is something a lot of UK studios have found hard to crack.

Tim Heaton, Studio Director, Creative Assembly: Yeah it’s still a negative thing to be a European developer in the US, which is something we have to overcome.

Why is Sega investing further in Creative Assembly?

Hayes: I think the original purchase of Creative Assembly, coupled with Sports Interactive, was essential for Sega to become a more established Western-facing company. That’s always been key.

Once we started working with [studio director] Mike Simpson, and then Tim Heaton, I think there was a realisation we have the ability to expand this talent into other areas. I mean, the standard that Total War sets is very high.

If you can repeat that sense of management and creativity on another project then there’s an opportunity for Sega.

Tim Heaton: It was clear that our console team wanted to do something in the core games space, and we thought about lots of different things. We pitched a playable demo of Aliens to Sega and they loved it.

So we’ve had a core of a team who have created tech for the project, and have built a really experienced team from all around the world, and essentially a new engine directly aimed at this genre.

We’ve gone aggressively out to find new people from all around the world. Interestingly, immigration was one of the things I spoke to culture minister Ed Vaizey about, because I don’t want any cap on bringing in staff.

In the current business climate, how essential is it to have a licence that people are going to instantly recognise?

Gary Dunn, VP of Production, Sega: A well-known IP is certainly a big leg up for us. After the commercial success we enjoyed with Aliens vs Predator, we knew this was still a big space we wanted to play in. The IP gives us a great universe to exploit.

How big a factor is the cost of the Alien licence?

Hayes: As a general point, when you have a great licence, the amount you need to spend on marketing is significantly less. So the two balance each other out. But that’s independent of how much money you invest in the game, because we know how well tie-in licence games have gone recently, we have to create a game that stands on its own two feet. This is a quality-first approach.

How significant is the digital strategy attached to this?

Heaton: Yeah it’s very important. I think it has become a given these days. There is a whole digital infrastructure around this core title.

How will it be feasible to develop a game for PS3, Xbox 360 and Wii if you want just one team working on the game?

Heaton: Well we haven’t confirmed any of the platforms yet. But by and large, we would like to make most of the platform evolutions and technical delivery in-house. Simply because we feel that’s how we maintain quality.

It’s the Creative Assembly way to keep things close. That doesn’t mean we’re not going to massively outsource work. We have a group at Sega China that can help us, as well as other potential places, but we want to keep control here.

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