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We get used to reading these. Sega (OTCPK:SGAMY) software sales drop by 60.5% for their Q1 ‘09. And they lost $108 million in the three months. What does this tell us?:

  • Sega released less skus than the comparable quarter in ‘08. The AAA boxed part of our industry is reliant on revenue from recent releases. There is no long revenue stream like music and books have. And MMOs and casual games also.
  • Sega is probably too small as a publisher (and getting smaller). The economies of scale in publishing massively favour the biggest companies. They need to be consolidated.
  • AAA boxed retail games in this generation are not a good business model for most. The games are too expensive to make and most of them generate too little revenue.
  • Most of the AAA boxed industry revenue comes, increasingly, from a small number of genre leading titles. Sega are pretty short on such titles.
  • Sega aren’t sufficiently diversified across product classes. Where is the Sonic MMO, for instance?
  • Owning vast swathes of heritage original IP, as Sega does, is no guarantee of success.
  • Sega cannot keep losing money at this rate for ever. How long before something happens to sort the problem?

Disclosure: No position

Source: Examining Sega's Plummet