SEGA-Sammy’s Latest Financial Report Breaks Down Covid-19 Loses, Rise in Home Software Sales Including Sonic and Persona franchises

As most of you guys have known, SEGA has been largely effected by Covid-19 this year, so much so that they actually sold 85% shares of their Arcade management business earlier this month. This obviously caused a lot of people to panic and predict that SEGA was going under. Now we have SEGA-Sammy’s new financial report to look at and see how much damage the virus has done to a company like SEGA.

I’ll try to point out interesting things that I find in the report below:

SEGA Entertainment Losses are real:

It isn’t surprising that SEGA has been posting a huge drop in income when it comes to its SEGA Entertainment branch which does Amusement machines and Pachinko machines. They predict that they will end up losing -31.5% in income before income taxes. Last year before the virus the Entertainment divisor posted a +27.1% income before income taxes. That’s a massive drop. SEGA-Sammy also broke down how much COVID-19 subsidy the company got: 570 million yen if my calculations are correct, which is about 5.4 million USD. This is adding both quarters (last and this one). As for the losses they had during the pandemic, adding them for both quarters equals 2.6 billion yen (roughly added up). If you put together the subsidy SEGA got, they are still over 2 billion (19 million) in debt.

But as you know, SEGA made big moves by selling off 85% shares of their arcade management business. While it sucks as big SEGA arcade fans here, to see them sell their iconic locations to other companies, it really doesn’t look like arcades and amusement centers will go back to normal after COVID-19. We are rounding out at a year and its getting worse. SEGA sold those 85% shares for 18.4 billion yen ($174 million USD). Will this be a good move for SEGA long term? Hard to know because we don’t know what will happen in the near future. If arcades become more popular than ever, then SEGA will have made the wrong move but it doesn’t seem that way.

One of the bigger aspect is that SEGA called for a ton of employees to retire early in their new restructure and thus have to pay out 10 billion yen (95 million) to that. Seems like a huge chunk of the sale income.

Looking at their breakdown it seems that SEGA really seems to be waiting for this virus to blow over and hoping that their upcoming pachislot, pachinko machines and arcade titles will gradually get their audiences and sales back.

SEGA console & PC software sales rise big!:

In the West, we don’t have much need for gambling machines and aren’t huge on arcades anymore. While its cool for SEGA’s history, most Westerners care about SEGA’s console & PC output and they have increased sales. Below is a photo of what SEGA considers ‘Major Titles’ for the company and as you can see, Puyo Puyo Tetris 2 made it along with Sakura Revolution:

When we reported that SEGA sold its amusement management shares, we also said that it was moving some of its arcade developers over to console. In the financial statement they show “Newzoo Global Games Market Data” that predicts that the global game market will continue to grow by a  huge amount (doubling almost from 2015) going into 2023. Don’t be shocked if you see SEGA increase the amount of games they release going forward:

So let’s look at some of the amount of units that SEGA sold coming in from the first quarter to now (Q2). The first quarter SEGA sold a total of 14.3 million units, 12.3 million being already released software with 2 million units being from the PC version of Persona 4: Golden. This quarter SEGA kinda had a pause on games, they only made 7.6 billion yen onalready released titles but Total War Saga: TROY generated 3.2 billion yen in income. The game was given away on Epic Games, so no idea if they counted the copies given away. Though it shows you, if you look back to last year in Japan alone, that SEGA was making a ton of money. According to them Persona 5 Royal (Western release only), Persona 5: Scramble (Japan only), Yakuza Like a Dragon (Japan only) sold all together 13.4 billion yen (124 million USD, SEGA purchased Atlus for $140 million for example). Crazy! While it does seem like a ‘drop’ in revenue sales, you have to understand that SEGA’s biggest title this year is only the western version of Yakuza: Like a Dragon and a Total War side game. I will say Sakura Wars not being mention isn’t a good thing though. Especially if its being outsold by a Persona PC port.

I do think that sales will get even higher next year when we get Shin Megami Tensei V, the new Sonic the Hedgehog 30th Anniversary title and hopefully a western release for Persona 5 Scramble. I think a good sign is that SEGA’s older titles are rising in sales. When they had massive sales for Yakuza 7, Persona 5 Royal/Scramble they only sold 5.6 billion yen of older titles. Last quarter it was up to a massive 12.3 billion yen. This does mean that fans are buying up SEGA software even after its been out.

Another interesting look is the rise of sales in SEGA IPs, which have gotten more popular. While it seems sales are ‘down’ in a way, it does seem ‘key franchises’ have actually risen in sales and for someone like Sonic the Hedgehog that hasn’t had a game this year, its quite interesting.

Here are the Q1 2020 results of how many units SEGA’s big IPs sold:

As you can see, SEGA’s Total War reigned supreme with over 1.9 million units for their games. Mostly coming from OLD titles like Total War: SHOGUN 2 and ROME II. While Persona came in at a second, beating Football Manager sales with two titles. It seemed pretty bad for Sonic the Hedgehog that didn’t break 1 million unit sales with two games released last year. Also interesting seeing Alien: Isolation still selling at the bottom.

Yeah but what about this quarter? Well, its a lot different now:

Unsurprising Total War remains on top but units increased in sales and still of older titles that SEGA released years ago. This is great, these games continue to create profit. Even though Sonic the Hedgehog didn’t get a big game or even marketing campaign (Like the 2020 plans the team had), the franchise went from being 4th best selling, not being able to put together 1 million units for the quarter to 2.3 million units. That’s a huge jump. Football Manager stayed at a 3rd place but increased its sales by 600k units. While Persona dropped down to fourth place for SEGA, it sold 200k more units than the last quarter. I would say that’s pretty good.

My only question is how much are these Yakuza and Sakura Wars games selling if you aren’t putting them as a top selling IP next to Total War, Sonic and Persona?

In the END though SEGA is posed to lose -24.5 BILLION YEN (232 million USD), they will be cutting down higher ups pay by 30%. This is after all the early retirement, continued sales of software and all that. Its not a great outlook, for sure. But I think SEGA pulling 85% out of a business like Amusement Centers is a good thing, while they profited for awhile, that profit had been up and down. Never stable and it continued to shrink. SEGA pushing more developers and workers into making software titles, especially since they are on the rise in sales and due to COVID-19 a lot more people are playing video games at home; it makes sense to adapt.

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