Sammy president to push for arcade focus at Sega

The first clear indication of Sammy's intentions for Sega following its acquisition of a large shareholding in the publisher earlier this week has emerged, with the company keen to see Sega focusing more heavily on arcade products.

In an interview with Bloomberg Japan earlier this week, Sammy president and CEO Hajime Satomi said that he wants Sega to concentrate on the arcade games business and be more strict about pouring money into loss-making home console releases.

The decision makes business sense on a number of levels. Not only is the arcade division of Sega profitable - as compared with the loss-making home console division - but its business ties in neatly with Sammy's own interests in the Japanese and global arcade markets. "Our earnings capability is restricted for the arcade market," explained Satomi-san in a shareholders meeting this week, "so we hope to strengthen that aspect of our business through the partnership with Sega."

Satomi-san hopes Sega will make use of Sammy's Atomiswave system, a low-cost, cartridge-based, JAMMA-compatible arcade setup that runs on the same CPU as Sega's Dreamcast console and Naomi arcade systems, and which the company has rolled out on a worldwide basis. "It's low cost enough that even a single play at 10 yen [around eight cent] a game can turn a profit," he said this week. "We can sell it in third-world countries as well."

In its last reported six-month figures, Sega posted a massive loss - 2.5 billion yen (â'¬19 million) - in the home console business, which was only offset by a similarly gigantic 5.6 billion yen (â'¬42.5 million) profit in the arcade sector. Its home console titles continue to review relatively well, but Sega has struggled to harness that critical momentum.

However, it's not all doom and gloom for Sega's home console division by any means. The division has high hopes of entering profitability next year, and has gradually been creeping towards the break even line over the past twelve months - and many aspects of Sega's development work are likely to continue unaffected, since they are already profitable.

Some areas of home console development at Sega will certainly be endangered by the move, however. While work on licenses such as Virtua Fighter, Sega Rally, Sonic and Shinobi is unlikely to run into difficulties, the loss-making Sega Sports projects are likely to be high on Satomi-san's hitlist.

Sammy's arcade ambition puts Sega in an awkward position. Whether or not the company agrees with Sammy's edicts, by purchasing a 22.4 per cent stake in Sega from one-time parent company CSK, Sammy has become Sega's largest shareholder, with Satomi-san, who owns over 50 per cent of Sammy, now holding the largest individual amount of voting stock.

It's only a matter of time before Satomi-san is elevated to the Sega board - with a meeting scheduled for February 17th effectively to install him in an advisory capacity - and he's already said that "if [Sammy's] vision does not agree with that of Sega then we might have to consider taking more shares."

This is effectively executive speak for "Struggle and we'll just squeeze harder," and Satomi-san himself admits that relations between Sega and Sammy following the stock purchase are not as good as they could be. "It's true that our original merger proposal was rejected, and that some Sega executives have been opposed to the stock acquisition," he admitted to shareholders this week.

"However, the majority of Sega's management team has been friendly and cooperative throughout the past several months," he continued. "The maintenance of that relationship is one of the reasons that we continued to pursue an investment with Sega."

Following events this week, Sega is reportedly planning to hold a special shareholders meeting in the next few days to discuss Sammy's recent acquisition of CSK's stake. Meanwhile, other reports suggest that Sammy will soon attempt to appoint two of its executives to Sega's board, one to head up arcade and one to handle home entertainment. However the full scale of Sammy's plans for the publisher has yet to emerge, and Satomi-san has already said he "won't rule out the possibility of making [Sega] a subsidiary."

Additional Reporting by Rob Fahey