Sega cautious on social games expansion

Sega won't be buying into the rapidly growing social games sector with developer acquisitions, instead opting to build its own team from scratch.

Although the company is interested in new online digital markets, it's taking a cautious approach and creating its own teams and IP slowly. Mike Hayes, president of Sega West, compared social gaming companies to mobile developers from five years ago – they have value but are not necessarily profitable.

"When we began looking at mobile in the West we wrestled with the issue of should we buy or build from scratch? And we went through the process of looking at a major acquisition," said Hayes in an interview published today.

"Five years ago every company making mobile games was worth an absolute fortune, but now we've seen what happened to mobile 1.0. I'm not saying that about social gaming, but the value of what is current - you could argue is actually too high. If you look at a lot of famous companies, I won't mention any names, but look at their balance books and they are not making any money. They have value."

The approach is different to that of rival publisher Electronic Arts, which splashed out on Playfish last year for $300 million. Despite the cautious approach, Hayes said the company does have the money for new social and digital projects, and is prepared to invest in alternatives to triple-A console blockbuster games.

"To create titles for the core gamer on Xbox 360 and PlayStation 3 is a very expensive and risky thing. Do you spend $50 million trying to compete with Call of Duty: Black Ops, which is a very challenging task, or do you take that $50 million and look at different ways of investing it?

"That's not to say we're not in the core market, because with things like Aliens Vs Predator and Vanquish you can see that we are, but in terms of where do you start diverting funds, it's definitely digital and devices that bring different gaming experiences and different consumers that are a very important part of what Sega's doing," he said.

"That is something we need to do in the West and it's coming from our headquarters as well as where we are headed in the next five to ten years restructuring our business."

He added that a large publisher needs to look at the digital business realistically and understand that although there are new business models to adopt, they are currently geared towards smaller companies and smaller profits.

"How do you create different gaming experiences and make money? Because the vast majority of what is available on the iPad is free to play, or is very low development costs for low return. As publishers we need to get something that gives us a bigger return. I think we have to try and be smart enough to do gaming in a different way."

The full interview with Mike Hayes can be read here.