By John Gaudiosi
FORTUNE -- Back in the 1990s, Sega was on top of the video game world. Its Sega Genesis was giving Nintendo a run for its money thanks to a blue hedgehog that could run at supersonic speeds and a library of addictive arcade franchises like Golden Axe, Streets of Rage, and Outrun. But a series of console hardware missteps, beginning with the Sega Saturn and ending with the Dreamcast, a beloved system that was almost immediately outperformed by Sony's (SNE) PlayStation 2 and Microsoft's Xbox (MSFT), resulted in Sega exiting the hardware manufacturing business for good.
Now Sega (SGAMY) is undergoing another revamp. After years of developing its franchises, including the still-popular Sonic the Hedgehog, across all platforms, the company is targeting the global PC games market. Sega has been investing more heavily in the PC gaming space of late. The company recently acquired Relic Entertainment and its World War II-based real-time strategy (RTS) franchise, Company of Heroes. Sega published Company of Heroes 2 on June 25.
On September 3, Sega will publish the ninth installment in the Creative Assembly's bestselling RTS franchise, Total War: Rome II. The series has sold over 7 million copies worldwide and has remained a critical favorite with the discriminating PC gaming press. The Total War franchise has sold over 3.4 million copies in the U.S. according to video game tracker NPD Group, and Total War: Rome has a U.S. installed base of 876,000. Sega plans on capitalizing on the global market this fall. According to Rob Bartholomew, brand director at the Creative Assembly, Total War: Rome II has the biggest marketing budget in Total War history.
"Total War: Rome II outscales any previous war game we've ever made before," said Mike Simpson, studio director at the Creative Assembly. "Our budget for this game was 40% larger than we had for Shogun 2. The gameplay campaign, itself, is around four times the size of Shogun 2's campaign. The game has 700 battlefield units for players to use and nine playable factions to command with different cultures, weapons, and tactics. It's an undertaking of a completely different step."
Three of Sega's core game pillars (Company of Heroes, Total War, and Football Manager) are PC-based, and Sega owns the developers (Relic, Creative Assembly, and Sports Interactive) behind these franchises. "PC is a very important part of our business," said John Cheng, President of Sega of America. "Total War sold 2 million units last year without a tent pole release and the upcoming Rome II had over six times the number of pre-orders in its first official week compared to Shogun 2, making it the fastest selling pre-ordered title in the series." He added that Football Manager 2013 became the fastest-selling game in the history of the bestselling annual franchise, passing one million Steam activations in May of 2013 (reaching that milestone almost five months earlier than its predecessor).
Jesse Divnich, vice president of Insights at video game research firm EEDAR, believes Sega's focus in the PC space is a wise strategy because the market is smaller, but also less crowded with competitors, and overall presents a better opportunity for Sega. "With the launch of the next-generation home consoles, we'll see a lot of focus shift away from core PC gaming from the major publishers, which will leave a lot of room for Sega to make some moves," said Divnich. "When the PlayStation 3 and Xbox 360 launched in 2005 and 2006, many thought the PC gaming industry was on its last leg. They were wrong."
Video game research firm Newzoo has forecast that globally more money will be spent on games played on the PC screen than on the TV screen as the game industry transitions to next-generation consoles. According to Peter Warman, founder of Newzoo, game revenues generated through PCs represent 39.2% ($27.6 billion) of the global market this year vs. 36.7% ($25.4 billion) for the TV screen. Market segments that make up the PC revenues are online social and casual gaming, massively multiplayer online (MMO) games, and PC boxed and downloaded games.
Sega faces multiple obstacles in the console business. The game publisher has come under fire from gamers after partnering with Gearbox Software on a sequel to 20th Century Fox's Aliens movie called Aliens: Colonial Marines. The game was lambasted by critics, earning a Metacritic score of 43 (PS3), 45 (PC) and 48 (Xbox 360) out of 100. Californian gamer Damion Perrine filed a class action lawsuit against the publisher and developer for "false advertising" because the gameplay footage that was previewed at international trade shows was different from the final version that shipped to consumers. American law firm Edelson LLC is handling the ongoing litigation.
"Certainly the Aliens: Colonial Marines brand took a hit with its 2013 release onto consoles, but it is unlikely to impact Sega's overall brand image," said Divnich. "Consumers tend to punish the game's brand more than the publisher's brand. It's no different than in movies. Just because The Lone Ranger was a box office flop, doesn't mean people will think twice about the next Disney movie."
Sega also has aligned itself with its once-rival Nintendo (NTDOY). While many companies, including Electronic Arts (EA), Bethesda Softworks, and Take-Two Interactive (TTWO), have abandoned Nintendo's struggling Wii U console, Sega has expanded its partnership to bring exclusive new Sonic Lost World games to the device (and Nintendo 3DS) this fall. Sega and Nintendo have had success with their on-going Mario & Sonic at the Olympic Games franchise, which features characters from both game worlds. Global sales of that franchise have surpassed 12 million copies, according to Divnich. It remains one of the bestselling franchises on Nintendo's platforms.
Cheng believes this relationship with Nintendo will help drive both hardware sales for Nintendo and software sales for Sega. The Japanese company continues to release Sonic games for mobile devices like Sonic Dash. "Sonic's role at Sega has never been more important," said Cheng. "He is a much loved character and a highly valued global brand that performs incredibly well in areas such as mobile, clothing, and toys. We look forward to expanding the brand further into other areas outside of games."
The Kickstarter darling has a long way to go before it upends gaming.
FORTUNE -- Given my disappointment over the Wii U and the traditional gaming industry's trend toward iterative games with bigger budgets, I wanted to love the Ouya because it stood for everything the company and competitors like Sony (SNE), Microsoft (MSFT), and Nintendo did not. But after some time with the indie console, I realize it too has MOREJP Mangalindan, Writer - Jul 12, 2013 12:08 PM ET
Can the popular 3DS handheld become a reading device? One publisher thinks so.
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The world's largest electronics manufacturer does have other clients.
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Flush with $15 million from Nvidia and Kleiner Perkins, the $99 Kickstarter success story keeps making waves -- and it's not even out yet. Julie Uhrman talks to Fortune about fast-tracking Ouya, those harsh early reviews, and a rumored mobile device.
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Households with broadband Internet access are increasingly piping Internet video to their TV sets, through a variety of devices.
FORTUNE -- We can examine the strategies of Netflix (NFLX) and Comcast (CMCSA) all we like, but the speed at which television moves off of cable and onto the Internet will be determined largely by what people decide to do in their living rooms. Now that they have the hardware and software MOREDan Mitchell, contributor - May 3, 2013 6:36 AM ET
Chipmaker AMD hasn't had it easy. Now three of tech's most powerful companies have embraced it for the long-term.
FORTUNE -- With its processors in 83% of PCs, Intel (INTC) overwhelmingly dominates traditional personal computing. But there's one area where the chip giant won't be winning any time soon: game consoles. If reports prove correct, Advanced Micro Devices (AMD) could manage what its competitor hasn't: getting its chips into all three of MOREJP Mangalindan, Writer - Apr 11, 2013 7:14 AM ET
With profits down, the company that spawned Mario desperately needs a hit. But is the Wii U it?
FORTUNE -- Can Nintendo do with the Wii U what it did with the Wii? When Nintendo launched that console in 2006, the oddly named system changed the way millions of players interacted with games with a controller that recognized gestures. This time, Nintendo aims to repeat that success, this time by including a MOREJP Mangalindan, Writer - Nov 20, 2012 5:00 AM ET
Also: How Microsoft may be risking an $18 billion empire on Windows 8; Zynga's shares pop.
Nintendo slashes profit outlook [THE WALL STREET JOURNAL]
The Wii U, an overhaul of Nintendo's popular but aging Wii game machine, will test whether traditional videogame consoles can still prosper amid a technological shift that is providing consumers with vast options for games ranging from online personal-computer titles to free-to-play social games on smartphones. Not only is MOREJP Mangalindan, Writer - Oct 25, 2012 12:35 PM ET
Nintendo has been trying to nose its way into the profitable digital format business. Will the traditional gaming firm be able to make the jump?
By Chip Lebovitz
FORTUNE –The gem of the video game industry these days is digital format sales -- games you can directly download from the web. After all, downloading is convenient and eliminates packaging and shipping costs that hurt profit margins. But if there's money to MOREOct 22, 2012 5:00 AM ET
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