Sega Corp President Hideki Sato held an impromptu huddle outside the annual Electronic Entertainment Expo last week to fire up young staffers on the first day of the biggest game show convention.
"The E3 game show means a significant transition for Sega," 50-year-old Sato told a group of 10 employees, outside the back door of the Los Angeles Convention Center. "I think game designers appreciate our ability to make game software."
PHOTO: BLOOMBERG
Sega's appearance at E3 was a coming out for the unprofitable gamemaker, which ditched its Dreamcast video-game console in March to focus on designing titles for rivals such as Nintendo Co and Microsoft Corp.
The company reported a loss for a fourth year on Tuesday, and with ?93 billion (US$760 million) in debt, might find it hard to fund hit games that can cost as much as a big-budget Hollywood movie to develop.
E3 was also a coming of age for Sato, a 30-year Sega veteran who succeeded the company's former president and financial backer Isao Okawa, who died in March of heart failure. Investors, who applaud moves by Sato to cut costs, say the company can't afford its new game titles to fail.
"I'm a bit positive on Sega and the successor to Mr Okawa as Sega is now getting serious because there's no one available to bail out the company next time," said Akira Hiramine, chief investment officer at Invesco Asset Management Ltd, which manages US$7.7 billion.
"A game company needs a big hit, but no one knows for sure which software will succeed."
Sega's group loss probably widened to ?58 billion, or ?356.37 a share in the twelve months ended March 31 from ?42.9 billion, or ?390.57, in the same period a year ago, according to the average estimate of four analysts surveyed by Bloomberg News. Sales likely fell 23 percent to ?260 billion.
Sega earmarked ?14.5 billion to develop 118 home-use video-game titles this year, aiming at sales of more than ?62 billion and 12.7 million games. The company invested ?7 billion to develop just one game, the martial arts adventure Shenmue, which was released in 1999.
This year's titles will include Shenmue 2 and Sonic Adventure 2, a new version of the three-dimensional action game Sonic Adventure. Sega will also develop 65 titles for the 1998 Dreamcast console.
As of April, Sega said it had inventory of one million Dreamcasts, about half January's levels.
The emphasis on game design was in full view at E3. Banners featuring close-ups of the company's Sonic the Hedgehog game character covered half the glass wall of the South Hall.
Booths in a corner of the exhibition space gave analysts, game developers and reporters a peek at Sega's latest offerings.
Okawa's picture hung over the display, a reminder of his legacy to the company, which included ?130 billion in personal donations in the last two years to keep Sega afloat.
Sato has moved quickly to take charge. Only weeks after Okawa's death, Sega outlined a plan to curb debt, cutting staff and reducing the size of the company's units and affiliates in a bid to return to profit this fiscal year.
The three-year plan aims to cut ?65 billion of debt by March 2004 and reduce the workforce at the parent company to 700 from 1,081 by March next year.
Sato leads by example, logging countless hours at the office, extending into late-night drinking sessions with staff, to boost morale.
"He's very friendly," said Toshihiro Nagoshi, president of Amusement Vision Ltd, one of Sega's 11 game software development units.
"He listens to our ideas, asks us about risks, and if he's convinced, he gives us a go."
Saddled with the unpopular Dreamcast -- Sega sold just one of the consoles for every five PlayStation 2s sold by rival Sony Corp last year -- Okawa in January made the decision to exit the hardware business.
The decision helped Sega stock jump more than 150 percent this year, outpacing Nintendo and Sony shares several times over.
The shares rose ?5, or 0.2 percent, to ?2,815 yesterday.
Sato, who has two teenaged daughters, oversaw the development of Dreamcast for seven years. The Tokyo resident was made vice president less than five months before his appointment to succeed Okawa as president.
His challenge is to develop hit games, analysts said.
Though Sega has a library of more than 1,000 software titles, the company can no longer rely on a captive audience of game players owning a Dreamcast.
Sega must now stand out among software designers whose budgets have soared as they seek greater realism in their games.
Sega will make 11 video-game software titles for Microsoft's Xbox, including remakes of existing titles and a new game, Gun Valkyrie.
The company has also tied up with Sony and Namco Ltd to develop equipment to be installed at game centers run by Sega and Namco later this year to deliver digital content using optical-fiber networks and faster Internet connections.
Sega last week said it will develop at least 10 games for Nintendo's GameCube, the Kyoto-based gamemaker's successor to the Nintendo 64 game console.
Titles will include Super Monkey Ball, an arcade game, and the soccer game Virtua Striker 3 Ver.2002. The company is also developing Phantasy Star Online for GC, a network role-playing game originally developed for the Dreamcast and part of the company's emphasis on teaming players through the Internet.
"Sega's revival was Okawa's strong wish," Sato told reporters and analysts last month. "Now we need to make sure this wish becomes the goal of each Sega employee."
Sega is pulling out all stops. The company is betting heavily on Sakura Wars 3, an action game which debuted in March.
The third title in the series, Sakura Wars 3: Is Paris Burning? features naval officer Ichiro Oogami joining a female assault group charged with ridding Paris of marauding phantoms.
To enhance the realism of the title's design, Sega's game developers took a week-long trip to Paris in March 2000, visiting metro stations, the Arc de Triumphe and numerous cafes and back alleys. Sega expects to sell 350,000 copies of the game in Japan this year.
The title has spawned fan Web sites, books, music CDs and trading cards, and even a petition to have Sega release the title in the US.
"A game console is just a delivery vehicle," Sato told reporters at a press conference in March. "What is most important for us is the content that gets delivered."
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