User blog:Shadowunleashed13/Sega-Sammy Annual Report 2013

Not exactly Sonic news, but I think this is important. A few days ago, Sega-Sammy Holdings released their 2013 annual report. Here are a few highlights:

Sega-Sammy's fiscal 2013 operating income is down 67.3% from last year. According to the group, the decrease in pachislot sales is due to the fact that they postponed the launch of "major new titles", and the decrease in pachinko machine sales is due to demand bias toward certain major titles. This resulted in an operating income 66.9% lower than the previous year for the Pachislot and Pachinko Machine Business segment of the group, and is cited as the main reason for this decline. However, although the group admits it is facing tough business conditions, it claims it is taking steps for future growth, and that they're striving for a medium-term target of 100 billion yen (over $1 billion) by transforming entertainment value into corporate value.

Naoya Tsurumi, the president of SEGA itself, says he is focused on the growth of the company. In order to "get SEGA back on a growth track", Tsurumi says he has firmly established a system of rapid decision-making, sped up implementation of directors' strategies, abandoned projects with low potential as quickly as possible, and established SEGA Networks and SEGA Entertainment Co., Ltd. Sega's current mindset is, according to Tsurumi, all about medium-term returns over short-term results.

Tsurumi also thinks one of the businesses SEGA should strengthen is the digital game content business. In his words, "at present, the digital game content market is becoming increasingly homogeneous, making differentiation more difficult. On the other hand, the preferences of jaded players and the advances in devices’ functions are fueling demand for rich content. Consequently, I think the market is probably on the brink of its next development phase."

This issue is also addressed later in the report:
 * "The shift toward demand for rich content in the digital game content market could become a tailwind for SEGA, which has accumulated competitive intellectual properties and development resources over many years. SEGA Networks will lead the Group’s efforts to achieve differentiation and establish a strong market position by marketing game content with high-resolution graphics and engrossingly multilayered gameplay. As for packaged game software, we will analyze return on investment and narrow down the number of titles. In conjunction with these measures, we intend to increase earnings opportunities by providing value-added environments that give games a social aspect or enable a game to be played across multiple platforms."

In other words, SEGA is considering a decrease in the number of their boxed titles and shifting toward the digital market.

However, the report also says later on:
 * SEGA is reinforcing its earnings structure in the packaged game software area while focusing management resources on accelerating efforts to strengthen competitiveness in the digital game content area, which is growing conspicuously. We intend to maximize earnings by pursuing a multiplatform strategy of rolling out video games for a wide variety of platforms. By stepping up collaborations across the whole Group, including the toy sales business and the animation business, we aim to leverage our extensive capabilities.

On a side note, Sega says they want to appeal to a more diverse range of gamers, including experienced players, newer players, and casual gamers. Also targeted is the F2P (free-to-play) player base, for which new business models are being developed.

On the bright side, Sega Sammy reported a net income of about $115 million. Net income was close to 200% year over year. In consumer business, operating income through Q2 was more than $11 million. Although Sega Sammy had expected a loss in consumer business, sales rose 24% year over year. Game sales exceeded their expectations, too, to 3.23 million units, as opposed to an expected 3,01 million. That’s a 17 percent increase since last year.

So, any thoughts? Concerns? Questions that cannot be answered? Leave it all in the comments below.