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Jump in physical game sales can't save Sega from sales and income drops

Games success not enough to overcome slumping arcade and smartphone performance

Sega Sammy has reported decreases in both net sales and operating income for the nine months ending December 31st 2017.

Sales were down 8.7 per cent at 260,804m ($2.4bn) while operating income plunged 26.9 per cent to 25,623m ($234m). The company is still forecasting a ten per cent drop in annual sales and 56 per cent drop in income for the full year ending March.

Sega's Entertainment division, which includes games, enjoyed a 1.6 per cent annual sales increase and a 12.3 per cent jump in operating income, making it the company's clear standout performer. Sales of physical games were up 23 per cent on last year thanks to the release of Football Manager 2018, Sonic Forces and Ryu Ga Gotoku Kiwami 2.

Note that the gains were driven by sales of back catalogue titles. New game sales were down in both Japan and Asia, although did climb 132 per cent in Europe and North America.

There were big gains in its arcade operations, too, with like-for-like sales up 201.1 per cent year-on-year. UFO Catcher was the star performer here.

The company went on to blame its 17 per cent drop in digital game sales on the slowing Japanese smartphone market, which it says is increasingly dominated by fewer, bigger players in the app market. The result, it says, is the need for "higher quality" content, which brings with it larger development times. Sega still predicts growth ahead for the console and PC games sectors.

Like many Japanese entertainment companies, Sega also commented on the sluggish pachinko and pachislot industry, in which sales of new machines are struggling and it is becoming increasingly hard to introduce new brands. However, in December the company secured a manufacturing, sales and distribution deal for gaming machines in Nevada.

For the year ahead, Sega is targeting success from Shin Megami Tensei Liberation, which released last month, and the upcoming arrival of Valkyria Chronicles 4 and Hokuto Ga Gotoku. It is also producing TV cartoon Yowamushi Pedal Glory Line and will launch a toy line in Japan.

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