Whatever Happened to Sega?
Most of us know the story of how Sega, once a powerhouse of the gaming world, crashed spectacularly. But what happened next?
You've probably heard tales of Sega’s dizzying highs and crushing lows, a saga of a gaming giant that once gave the titans of the industry a run for their money. If you’re a 90s kid like me, there’s a good chance that the Sega Genesis topped your holiday wishlist.
With its iconic slogan “Genesis does what Nintendon’t,” Sega wasn’t just taunting its competitors; they were setting the stage for what felt like an endless victory lap. Back then, it seemed Sega could do no wrong, sprinting ahead in the console wars with the confidence of a company that knew it had the winning hand.
And boy did they have a strong hand! Sonic sped across screens in with a boldness that Mario could only dream of, while Mortal Kombat delighted and horrified parents in equal measure with its real blood—a stark contrast to Nintendo’s more sanitized version. Sega’s audacity to push boundaries not only with its advertising but also in its game development created a cultural phenomenon that defined a generation of gaming.
But then came the missteps, one after another. First, there were the Genesis add-ons like the Sega CD and 32X, gadgets that promised to enhance your gaming experience but ended up confusing and fragmenting the market instead.
And then, just when they needed a clear win, Sega dropped the ball with the launch of the Sega Saturn. Planned for a splashy release in October, dubbed “Saturn-day,” it was suddenly pushed up to May by Sega’s Japanese execs. This rushed launch not only caught consumers off guard but also left retailers scrambling. To make matters worse, it was priced a whole $100 more than Sony’s PlayStation, which soon swept the floor with Saturn, dominating sales and capturing hearts.
Then there was the Dreamcast. Ah, the Dreamcast! It was cool, ahead of its time, and packed with innovations like online gaming right out of the box. Released in a market that was already holding its breath for the Sony PlayStation 2, the Dreamcast was Sega's last roll of the dice in the console market. Despite its cool features and robust game lineup, it was too little, too late. The PlayStation 2 launched and quickly became the must-have console, leaving Dreamcast—and Sega’s finances—in the dust.
But what happened next?
After the Dreamcast era ended in 2001, Sega didn’t just sail into the sunset…
Sega might have given up on its most ambitious gaming ventures, but its knack for innovation was still there. One of its most innovative and culturally impactful ventures was the company’s entry into the Purikura photobooth market. This move came at a time when the global arcade market was generally in decline, yet Sega's strategic foresight into consumer trends allowed them to tap into a burgeoning new market segment.
Purikura, short for "Print Club," are photo sticker booths that allow users to take digital photos and then decorate them with a variety of borders, stickers, and text before printing them out on sticker sheets. These booths, which Sega introduced as early as in the mid-1990s, became a cultural phenomenon in Japan, especially among teenagers and young adults. Purikura was seen as pioneering the selfie trend long before smartphones brought it into the global mainstream. However, as smartphones became more widespread and competitors came in the space, Sega started losing its cash cow in the arcade space too.
Sega becomes a hotel company?
In the early 2000s, Sega found itself grappling with financial instability and a rapidly changing market landscape. To combat its incoming demise, Sega's leadership decided to diversify its business model well beyond the gaming world. One of the most ambitious yet controversial moves was the venture into the resort business.
In 2003, Sega acquired the massive Phoenix Seagaia Resort in Miyazaki, Japan. The resort, sprawling over a vast area located right next to the ocean, featured a mix of hotels, golf courses, and convention facilities.
The vision was grand—Sega planned to infuse the resort with its iconic gaming technology, creating an unparalleled entertainment experience that would attract tourists from all over the world. The company imagined integrating virtual reality experiences and interactive gaming into the resort's offerings, turning it into a unique fusion of traditional leisure with futuristic entertainment.
However, the reality was starkly different. The resort business proved to be far more challenging and capital-intensive than anticipated. The costs of maintaining and upgrading the extensive facilities were enormous, and the expected influx of tourists did not materialize at the projected levels. The Japanese tourist market was highly competitive, and the Phoenix Seagaia Resort struggled to carve out a distinctive niche that could consistently draw visitors.
The challenges were compounded by a lack of experience in the hospitality and leisure industry. The resort often seemed out of step with the latest trends in hospitality, and efforts to modernize the facilities were slow and costly.
The financial strain from the resort venture began to weigh heavily on Sega's overall financial health. The project drained resources that could have been used to bolster its core gaming business, which was facing increasing competition from rivals like Sony and Nintendo. As losses mounted, the venture became a symbol of Sega's overreach and misjudgment.
A deal with the devil
In 2004, the steam from Sega's once gigantic empire had almost run out, and company was desperate…
Enter Sammy Corporation, a titan in the pachinko machine industry—Japan's primary form of gambling. Pachinko, involving mechanical games similar to vertical pinball machines, is ubiquitous across Japan, with parlors dotting cityscapes nationwide.
This merger was Sega's lifeline, a sort of "deal with the devil" that stabilized its finances but at a steep cost to its public persona. Pachinko's hefty revenue streams were a band-aid for Sega's wounds, yet this new alliance smeared its reputation, intertwining the company’s fate with the frowned-upon gambling sector.
Despite Sega's rich portfolio of beloved franchises like Sonic and Yakuza, this controversial pivot dragged down its stock valuation, underscoring the market's lukewarm view of a gaming giant now dabbling in the dicey world of gambling.
Sega still had skin in the game…
Despite the upheaval following its merger with Sammy Corporation, Sega remained committed to its core business of gaming, albeit with a strategic pivot. Sega started aggressively pursue overseas gaming companies to bolster its development capabilities and extend its geographical footprint. Notable among these was the acquisition of Creative Assembly in 2005, a British game development studio famed for its "Total War" series. This acquisition was particularly successful, enhancing Sega's offerings in the strategy game market and significantly boosting its presence in the Western gaming market.
Similarly, Sega acquired Relic Entertainment in 2013, a Canadian studio known for its expertise in real-time strategy games, including "Company of Heroes" and the "Warhammer 40,000: Dawn of War" series.
The success of these acquisitions varied. Creative Assembly continued to thrive under Sega's ownership, consistently delivering critically acclaimed titles and expanding the "Total War" series with new innovations and settings, and even managed to create synergies between the studios by creating the “Total War: Warhammer” series.
Relic Entertainment, however, faced more challenges. While the studio continued to produce high-quality titles, some releases like "Dawn of War III" received a mixed response from both critics and fans, highlighting the difficulties of meeting high expectations and evolving market demands.
A Sonic boom in the film industry
The late 2010s marked a new chapter for Sega as they leaped from gaming consoles to movie theaters with the "Sonic the Hedgehog" movie. The initial reveal of Sonic's design set the internet abuzz for all the wrong reasons—fans were horrified by his overly realistic look.
To everyone’s surprise, Sega did something almost unheard of; they listened. The studio pushed back the release date from November 2019 to February 2020 to redesign Sonic, transforming him into a character that truly resembled the beloved blue speedster.
The result? "Sonic the Hedgehog" was a box office hit, earning praise for its fun, family-friendly approach and the performances of stars like Jim Carrey, who played the mischievous Dr. Robotnik. This success demonstrated that Sega’s intellectual properties still commanded a massive fanbase and that, with the right strategy, they held tremendous potential.
Sega abandons Japan and hardcore gamers for… Gambling?
A pivotal moment in Sega’s strategic shift came in 2022 with the acquisition of Rovio Entertainment, the Finnish powerhouse behind the wildly successful "Angry Birds" franchise. This move wasn't just another addition to Sega's portfolio; it was a major leap aimed at amplifying its capabilities in the more casual mobile gaming sphere.
Valued at approximately 100 billion yen, the acquisition of Rovio stands as Sega's largest to date. It brought with it not only the Angry Birds series, but also Rovio's extensive team and its operational base in Europe. This strategic acquisition is intended to bolster Sega’s presence in the mobile gaming sector—a sector that has posed challenges in the highly competitive Japanese market but shows substantial growth potential globally.
This acquisition also reflected a broader strategy by Sega to diversify its gaming operations and lessen its reliance on the Japanese market, which has significantly contracted as a share of the global market—from a high of 30-35% in the mid-1990s to less than 10% today.
In the same year, Sega Sammy decided to double down on the gambling markets. This pivot was driven not just by the allure of profit but also by the promise of financial stability in a notoriously unpredictable gaming industry. The acquisition of GAN Limited, a provider of internet betting solutions for the casino industry, marked a significant expansion into the US gambling market, diversifying Sega Sammy’s revenue streams and firmly establishing its footprint in a sector that, while fraught with regulatory and ethical challenges, promises robust returns (Gematsu).
To add salt to the wounds of Sega’s gaming fans, in late 2023, the company cancelled "Hyenas," an ambitious project by Creative Assembly intended to break into the online FPS market. This decision followed a sobering evaluation of the game's potential success and the broader strategic fit within Sega's portfolio. On top of that, during early 2024, Sega decided to undergo a notable downsizing within its European operations. The company laid off 240 employees across its studios, including major layoffs at Creative Assembly, and sold off Relic Entertainment.
As Sega shifts further from its celebrated gaming legacy toward the financially alluring but ethically murky gambling sector, the path ahead is an unclear one. The company's strategic moves have certainly secured new revenue streams and diversified its business model, but at what cost?
What’s next for Sega Sammy?
As we ponder the future of Sega Sammy, the scene is tinged with uncertainty and concern. The company's strategic pivot towards the gambling sector—though lucrative—stirs uneasy feelings among fans and stakeholders alike. With Sega's rich portfolio of characters, there's a growing apprehension that iconic figures like Sonic or the cast of Persona 5 might soon feature more prominently on the flashy interfaces of Las Vegas slot machines than in the video games that made them beloved.
This drift away from Sega's gaming roots towards the "dirty" gambling industry paints a grim picture for those who cherish the brand's legacy. The recent cancellations of promising titles and the downsizing within Sega’s European operations only deepen these fears, highlighting a company potentially losing touch with its foundational audience.
Alternatively, the future could see Sega’s treasure trove of IPs becoming the focal point of a major acquisition, where a new steward might restore these beloved franchises with the Triple-A treatment they richly deserve.
There's also the potential for Sega Sammy to take up its legacy expertise in gaming innovation and explore new entertainment frontiers. In fact, Sega still make some of the most innovative gaming experiences in the world in its many arcades in Japan. Developing these to a wider audience could usher in a new era of gaming innovation from Sega.
In conclusion, as Sega Sammy navigates through these tumultuous waters, the company stands on the precipice of profound change. The decisions made in the coming years will be critical in determining whether Sega Sammy can reclaim some of its former glory or if it will continue to pivot away from its roots towards entirely different industries.
Regardless of the path chosen, the legacy of Sega Sammy as a pivotal player in the evolution of gaming and entertainment is undeniable. Only time will tell how this legacy will evolve as the company strives to balance its storied past with the opportunities and challenges of a rapidly changing digital landscape.
Were you listening to the Lethal Weapons as you wrote this.?😎