The Shrine

<div style='font: 12pt Modern; text-align: left; '>From old logs:

The company posted a loss of 350 or so million (dollar, not yen) for the fiscal year 1998
There was a loss of about 270 million for the fiscal year of 1999.
The semiannual report for the 1st half of fiscal year 2000 shows a loss of about 180 million.

Keep in mind the 1st half fiscal year 2000 ended at September 30, 1999.

The latest information I can find, dated May 26, I assume this means May 26, 2000, from sega.co.jp, shows a current loss of about $400 million, though they project an eventual profit for the Fiscal Year 2001, which I'm pretty sure they did not meet.

Sega reports something like 5 million-ish DCs sold worldwide and 30 million-ish sales software sales (for all games on DC, not just Sega).

At any rate, if you look at this situation mathematically, this is the 3rd or so year they've been posting losses. Doing some quick math, let's put their current losses at 1 billion. Yes, some of losses come from the amusement park/arcade operations but those two combined still has less sales than the consumer department. Most of the loss/profit comes from the consumer department. It's hard to imagine the first two categories can have any huge fluctuation in profit/loss, and they do not.

If you take a game to be $50 and assume that's pure profit, that means Sega will have to sell 20 million copies of software to just make up for the losses they've accrued over the years. That's a lot of games!

Of course we're not even factoring the costs to make games, or that the price tag on a game isn't pure profit, and a lot of other overhead. So it'd actually take quite a bit more games to even recover the losses.

Yes a lot of losses come from the Dreamcast hardware, but just because they stopped making DCs doesn't mean the cost incurred from DC hardware is going to just disappear now. I'm sure whoever took the losses for the past 3 years would like to see his money back.

And not to mention now Sega is moving to 3rd party, they're losing the advantage of being first party. I checked the $ from game royalty and it is relatively insignificant. The figure was around $30 million for fiscal year 1998. Sega reports a net sales of about 2.5X that of 1998 for the fiscal year 2000, so assume the royalty is about 3 times that, that's $100 million, still not enough to recover the costs. So that's clearly not how consoles are making money. We know everyone loses money on the system. So if neither of those two are profitable, why are consoles developed in the first place? The only explanation is that 1st party has a huge advantage in software sales, otherwise no one will be crazy enough to develop a new system that is guaranteed to lose money on hardware. And now they're no longer 3rd party.

To put it simply, the situation doesn't look good for Sega.</div>

<div style='font: 12pt Modern; text-align: left; '>So bye-bye DC hardware. 'tis a shame considering all the stuff that's out on it and what it can do. Sega did a bad job of getting the word out after the initial launch. Stuff like NFL2k1, PSO (and other games) shoulda had this thing flying off the shelves, but it's never hyped on TV. I saw more commericals for Might and Magic 8,000 than Soul Calibur, NFL2k1, Skies, Grandia, or PSO combined...that's kinda ridiculous marketing...</div>

<div style='font: 12pt Modern; text-align: left; '>CSK (the company that owns Sega) pumps in alot of money into Sega so they don't have to recoup so much losses. I have no idea about CSK's finalancial situation but they've been able to keep a company afloat that as you like to point out has been losing tons of money so they've got to be pretty damn big.

Software is not the only areas Sega will make money: Sega is selling out the DC hardware to other companies. They've already got a deal with Pace. They also have the ISP which currently has 200,000 users (of course the 50 hour free deal or whatever probably scews that somewhat) and since they are broadening the potential users to handhelds, set-top boxes, cell phones, etc. I think that's a good sign. But you and I are both oversimplifying how profits really come about. There are so many factors.

And yes there are many benefits to being a 1st party but Sega saw very vew of those even with DC and saw quite many negative effects if things don't go so well. You are looking at Sega's figures for liscensing. As you know, they had crap for 3rd party support (except early on in the US). Just look at the thousands of games Sony and Nintendo (at least besides the N64) got on their systems. Most of the DC games came from Sega and you of course don't get liscensing for that. Unless the hardware is doing poorly, lots of money actually does come from the hardware itself later in its life. The system becomes easier and cheaper to make the more you make and you can keep the price high enough to start getting big-time profits. Anyway, I don't see how 1st party can have much of a software advantage other than you can deny games from being released that may compete with your game but I doubt any company would do that unless the company in question was small time. Or of course, having your system be pretty much the only one make games for it :) But I still think Sega can defintly overcome that but I have nothing substantial to base this on other than their performance at DC's launch. Like I said: We'll find out soon enough.</div>

<div style='font: 12pt Modern; text-align: left; '>Stuff like Grandia, Skies, and PSO won't really sell well here. They are RPGs after all. It's probably a wise decision not to blow money on advertising to an audience that's pretty indifferent to RPG.

Though then the question comes, why spend so much money developing these game if they won't sell? I think they were planning to sell lots in Japan, but that didn't work out.</div>

<div style='font: 12pt Modern; text-align: left; '>It's kind of hard to believe that a system that once sold $300 is now making more per system sold when it's selling for $100. I'm pretty sure most hardware producers lose money on every hardware they sell. Consider the power these next-gen machines are packing, it's hard to imagine they can even be profitable.

As for Sega's backing, I don't care how rich you are, but you'll not back up a company that's not making any money forever. Just doesn't make sense.

The figures I gave come from Sega themselves on their balance sheet. It's safe to say that whatever the real figures are certainly no better than what Sega says. It makes zero sense to lie about you losing more money than you are!

Losses are okay in the short run, but if Sega continues this way, don't be surprised if the support is yanked altogether. Someone has to be paying for the $1 billion dollar they lost, and whoever lost that money certainly expects whatever they lost to come back eventually, otherwise they'd just stop supporting altogether. It just isn't economically feasible to support something that's always losing money because you save more money by just not supporting it. Unless, of course, you forsee the company will be doing better in the future. We can't predict the future, but it's not a favorable situation. Maybe 1 billion isn't a lot to the Sega's parent company, but suppose Sega suddenly made a 1 billion dollar after moving to 3rd party, do you think that money will go to recruiting new programmers, developing new games, etc...? No, whoever sucked up the 1 billion loss in the last 3 years will want that money back now. It's not hopeless, but it isn't exactly the situation you want to be in.</div>

<div style='font: 12pt Modern; text-align: left; '>If you don't think hardware that is 4-5 years old is not going to be extremly cheaper than it was before, then I don't know what to tell you (even if was a tiny profit, just think how many consoles they sell once the price drops to around $150 - $100). I remember reading about that hardware thing, I think in Next Gen magazine, but I'm not sure and maybe things have changed or maybe they were just wrong. Regardless, I'm pretty sure they makes tons of liscensing, well more than enough to recuperate any hardware losses. I see no other reason why they would make hardware in the first place when there is already one out there or why there was going to be 4 companies competing for hardware this generation. I just don't see where any signifigant software advantage comes in to recoup all those losses you claim.

And I'll just give a big "duh" to your last paragraph. :) It would be quite ludicrous for me to argue with "if Sega continues this way, don't be surprised if the support is yanked altogether" or "it isn't exactly the situation you want to be in". I agree 100%. I just don't think things will continue this way. You obviously disagree. I think sales might be sluggish this year on the transition (VF 4 should be massive though, at least in Japan) but after that I see smooth sailing but that's so far in the future, we have no idea. I just think the way things are looking now is pretty good when I look at the software potential.</div>

<div style='font: 12pt Modern; text-align: left; '>Nah, I think all those games would sell more if Sega gave them the television push they deserve. If companies can afford to give Legneds of Dragoons and Might&Magic a TV push, the PSO, Skies, and Grandia surely deserve one...</div>

<div style='font: 12pt Arial, Modern; text-align: left; '>Well, remember that advertising helped FFVII sell a record type number in America, and part of it was the graphical trick. And with the new age RPG's, they will have realtime graphics that look as good as FFVII's FMV.</div>

<div style='font: 12pt Arial, Modern; text-align: left; '>This leads to profit. The systems do cost way less to manufacture once they are five years old, especially since they divert a lot of the production to China or Malaysia (blah). And even with only a minescule profit per unit by that time, it adds up to a lot when you can double the ownership of the console in only a year or two.</div>