Sega's Sato trying to rejuvenate gamemaker

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."

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.