1up Interview with Mike Hayes

[Happy Cat]

      Inside Sega's New Focus
     Sega West CEO Mike Hayes  explains the company's massive layoffs and its new digital orientation.     By Frank Cifaldi
 
    Yesterday, Sega laid off 73 of its employees as part of  a structural reorganization to focus on digital games (such as iPhone,  Facebook and Xbox Live Arcade) and move all administrative duties and  traditional console game development to its London office. The news may  have seemed shocking to most, but according to Sega West CEO Mike Hayes,  it has been happening behind the scene for the past six months or so as  part of the natural evolution of the company - and perhaps, the games  industry as a whole.



 1UP caught up with Hayes over the phone -- volcanic ash was keeping  him grounded in London -- and discussed the rationale for this dramatic  shift in Sega's business strategy, as well as the future of its  traditional game output.


    1UP: How exactly is Sega defining digital platforms for its  new Digital division?

  Mike Hayes: It's a good question, because it's such a  broad space. Digital for us is kind of really all the checkboxes you'd  get. For us it's certainly all mobile devices - iPhone, iPad, the  interesting new devices we're seeing from other players, for example  Microsoft. It includes games for XBLA, for PSN, for Virtual Console. It  also then goes beyond to cover distribution methods like on PC, and then  it's also going to encompass everything to do with social gaming and  casual gaming. So it's a broad spectrum, but it's kind of everything  that isn't physically going to be shipped in a box of some sort. So  naturally there are huge gray areas between what is digital and what is  boxed because, but it's broadly that definition which we're encompassing  into the new Digital group.


  1UP: Why such a focus on digital?
   
MH: Clearly the evidence we have -- both in terms of  the general market and also in terms of the success we've had in  digital so far -- is that naturally it's a growing market and it is  profitable. Is it the pot of gold at the end of the rainbow? Hm, perhaps  that's a bigger debate. But certainly it's an important sector for us  to grow. So we had a lot of success so far, particularly with existing  Sega IP that we've reinvented in the digital space. So for example  Monkey Ball 1 and Monkey Ball 2 that we had on iPhone and iPad. And what  we want to do is take this one step further and start to create new  gaming experiences, new IP and push our level of ambition further within  the digital group. What we need for this is focus within Sega, and  certainly there will be more investment coming into that sector which  allows us to grow our business over the next few years. This is a case  of growth of digital, not contraction in the traditional part of the  business. That is certainly something that's going to continue to be the  bulk of our business, certainly in the short-term, and something we're  going to continue to invest in.


    1UP: So the boxed retail products are doing good for you?  This isn't a decision based on their performance?

MH: No, not at all. It's quite interesting, if you  look at Sega's relatively short modern history when we reinvented  ourselves as a multi-platform publisher, the excitement for us was being  on the PlayStation 2 and Gamecube and Xbox, and we sort of travelled a  path where our market share has increased significantly over the past  five years in both North America and in the European territories. This  is part of our ongoing expansion, which is great. We have a very strong  base now in the traditional business. We still want to grow, we still  want to be very competitive, but in terms of development and growing our  overall market share, part of that sort of journey for Sega, sort of  like chapter two, is this big digital arena. It's new, it provides new  outlets for us. We can do different things in terms of gaming  experiences, which is interesting for us. So in a way it's sort of a  part of the ongoing rebirth of Sega as a multi-platform agnostic  publisher of games.
   
   We do not underestimate the continuing importance and relevance of  what we call the traditional packaged goods business. That's still  earning the bulk of dollars, and that's still a very important part of  investment for us. So I want to reemphasize that, that's a really  important part of the business for us and will remain so, we guess, for  many years to come.


      1UP: Do you see the amount of boxed products decreasing in  the immediate future?

  MH: No, that's certainly not our intention. We're  still out there, we want to talk to every developer there is that's got a  great idea or a great prototype. It's our intention to continue to grow  in that field definitely.


   1UP: Why London for traditional development? Are they better  equipped than the U.S.?

  MH:To be clear, when we say one block is in San  Francisco and the other is in London, that doesn't get away from the  fact that we want to have a successful digital business globally and  continue to have a successful traditional business globally. But this is  very much an administrative point. So notably with London being used to  handling multi-territory business, it is better set up to have a  centralized operation. And of course having digital in San Francisco  naturally the Bay Area certainly being the hub of all things digital at  the moment, it was practical sense to put those two in those areas. We  live in a global world, and we're a global market. That just happens to  be where our administrative center is. It doesn't lessen our ambitions  in either of those sectors anywhere in the world, to be frank.


  1UP: You're describing it as an an administrative hub, does  that mean Sega America will be reporting to Sega London?

  MH: As CEO, I'm based in London. So technically  that's been happening ever since I got the position last summer in any  case. But there are certain things, so for example we will put the  Global Brand group in London. However, a lot of that has happened  already anyway. So really a lot of the day-to-day operations we have  working out of San Francisco in the traditional business actually is  going to remain relatively unchanged.


  1UP: It sounds like you're saying that this move has been  happening for some time, and we just haven't seen it on the outside?
 
   MH: Yeah, that's absolutely right. Actually the  efficiency and new opportunity of digital turned out to be reasonably  convenient bedfellows in that we could take both and look at managing  cost and look at how do we grow the business further. So it's something  we've been working on probably for the last six months.


  1UP: I'm seeing that 36 jobs were cut in San Francisco, are  these cuts entirely because of the move to digital or is there more to  it?
 
  MH: It's part of looking at the efficiencies of the  company overall, and by putting some of the central work in London, we  can make efficiencies in various departments. I'm happy to say that  London and San Francisco stem from where Sega used to be as a hardware  company, when they were more like two separate companies, and that's the  legacy a little bit of what we have in operation, and that's probably  something that's not really seen by the outside world, nor should they  probably be overly concerned about it.


  So, my job really has been to...you know, we're truly in a global  business, and digital absolutely has made sure that's defined fully. So,  I mean to think of how can I have core administrative hubs to manage  everything outside of Japan, China and Korea. So there was a lot of  duality, there was a lot of doing the same work twice. And you'll see in  Europe, likewise a similar number of people have unfortunately been  made redundant, but that's because there was a lot of copying between  both San Francisco and London. So it's kind of a natural question of how  do we become more efficient and affective as an operation, and that's  what the exercise has been. There's nothing specific, as to where 30 of  those 36 positions come from, it's being something generally within most  of the departments in the company.
 
   1UP: I'm having a hard time wrapping my head around why 37  jobs were cut in London based on the explanation I'm hearing, which is  that this was an organizational shift to London.

  MH: Not everything is moved to London, so for  example take QA and localization as very good and truly staff-heavy  operation. Within the process there was a lot we were duplicating. So  for example there's a lot of what was being done in London that was  copying what was being done in America. So there are those positions  that don't necessarily need to be as highly staffed as they have been.  So that's particular in Europe where we've become more efficient by  putting more of the emphasis on QA and localization out of the San  Francisco office. But the administrative hub of the package business is  now going to move more into London. So for example the Brand Management  team that we had in America - not all, but a lot of that - is not  required because a lot more of that will not be done by the team in  London. By really working people's objectives and their hours, we find  that people can be more effective and do more. So it's a little bit of  everything in terms of how we've managed to reduce those numbers and  become more efficient with the reorganization.


  1UP: Have these shifts affected release dates?

  MH: No, not at all.


  1UP: So Sonic 4 is still on track?

  MH: (laughs) Sonic 4 is still on track,  yeah. The only reason I chuckle is that we're in videogames. I've never  ever yet seen a development schedule that is always on time, do you know  what I mean? But in terms of the reorganization, it is certainly not  affecting any of our development schedules.
 
  1UP: Was the closing of Secret Level because of the shift to  digital?

  MH: It was a broader thing. We're pleased with Iron  Man 2 that they worked on, but the truth of the matter is that we  couldn't find another appropriate project to give them. It was something  you may recall we did with our racing studio here in London, about  three years ago. It was a good team, but we were unable to find them  their next project.


  1UP: So you've let a lot of people go, but it is a  reorganization and a change in focus, so does this mean you're also  hiring?

  MH: There is one key position, we're looking to hire  a senior person into the digital group, preferably with good PC  experience. And yes we will be hiring more people into the digital group  over the next 6-12 months.
   

  1UP: So there is a long-term plan to grow the digital team?

  MH: The term I like to use is "controlled profitable  growth." You can either go off and spend whatever it was, $300 million  dollars like EA did to get into the business. Or you can just cover a  middle field, and that's really where we want to be. So we're very  prepared to invest in development and personnel, but I want to do it in a  very controlled manner over a period of time. The main reason of course  being that, you know, is digital the big gold rush? It's exciting, I  think it's going to be very successful, but there's also a lot of  unknowns, and I think you need to be a little cautious not to overly  rush into that. So you will see a lot more from us over the next twelve  months in what we're doing, particularly in new projects that we'll be  announcing over the next few months. So, yep, we're on an upward curve  in terms of investment and people, but it's going to be very controlled  over the next year.


  1UP: Do you see this shift in focus on digital over retail as  a strategy specific to Sega or to the industry as a whole?

  MH: I think it's an inevitability. Digital is there,  digital devices are there. I don't think digital and retail need to be  mutually exclusive at all, I think a publisher can successfully support  both of those, and that's exactly what we intend to do.

http://www.1up.com/do/feature?pager.off ... Id=3178958

[Sharky]

My reply to the article!

I would really like to see Sega put more of their Arcade classics on XBLA/PSN... There are load just begging to be ported with a few extras like Outrun Live Arcade, After Burner Climax, Virtual On or REZ...

Arcade games like 2 Spicy, Ollie King, Wild Riders, Daytona, Sega Rally, GunbladeNY, House of the Dead 1,2,3,4,EX,  Ghost Squad, Virtua Cop 1,2,3 the list is seriously hugh! Theres games going back all the way to the 16 bit days that never saw console release!

Then what about Sega Dreamcast games? Chu Chu Rocket is a gold mine in itself! Alien Frount Online, PSO, Cosmic Smash, Crazy Taxi, Skies of Arcadia, Space Channel 5, Typing of the Dead, Sonic Adventure 1, Sonic Adventure 2... another hugh list of untapped games!

What about the Saturn!? Panzer Dragoon series, NiGHTS, Guardian Heroes, Fighting Vipers, Shining Force 3, Shining Wisdom, Radient SliverGun, Burning Heroes... etc etc...

Then theres even the last gen games on Xbox, NGC and PS2... like Super Monkey Ball, Panzer Dragoon Orta, Jet Set Radio Future, Shinobi, Otogi 1&2...

This is the kind of thing Sega of Americas digital arm should be doing... Put these games on XBLA and PSN and when all is said and done make them into collections on retail disk and sell them all over again.

Worst part is Sega Japan already did a bunch of these for PS2 in the Sega Ages collections but never made it to the west, now is a perfect them to port those games to XBLA and PSN!


Oh and while you're at it slap the NGAGE Dragon Force MMO rpg known as 'Pocket Kingdom' onto the ipad... and the PSP game Crush onto XBLA!

[ribbitking17]

He laughed. He laughed at the very mention of Sonic 4.

[STORM!]

Sounds pointless for me...

 @Sharky

 Burning Heroes is a mix of Burning Rangers & Guardian Heroes? lol

 Also, Sega does not own Otogi and Radiant Silvergun.

[Sharky]

Sounds pointless for me...

 @Sharky

 Burning Heroes is a mix of Burning Rangers & Guardian Heroes? lol

 Also, Sega does not own Otogi and Radiant Silvergun.

... lol haha, yeah I ment Burning Rangers. No idea why i said that.

I thought Sega owned the IP those games...

[Sega Stylista]

SoA dead as far as important decision making. . . Brand management in Europe. . .those are good things.

I think Sega can comeback over the long run through digital.

digital = arcades of the 10's, or however you refer to this time period.

Sega is really missing the boat not making a portable adaptation of Jet Grind Radio. Even if simplified a little bit. . . *Huge* broad audience appeal.  Jet on Ipod/phone/pad would get mega sales.

If Sega has Platinum making retail games on that end then it needs to commission Treasure to dedicate itself to the digital space. . .another perfect marriage.

[Happy Cat]

Here is what Edward@SEGA said about the layoffs, new division.  Basically the guy who is in charge of PSU.

To answer your questions, all of the staff you know through our blogs, forums, and PSU -- our Community team, in short -- are still here. So are the people who work on PSU, here and in SEGA Japan. And seeing as PSU very much falls under the category of a digital, social game, it's fair to say that this is a positive thing for our MMO future.

I will say that today was a difficult day -- this is a business and re-organization is both vital and necessary, but there is a personal side to this as well, and on that front, today I had to say goodbye to a lot of bright and talented people I consider both friends and excellent colleagues. Business can be rough sometimes.

But, I think it means good things for PSU, especially in the long run. This is an important game, both in terms of connecting SEGA's past to it's present, and because it represents -- still -- a unique experience on the Xbox 360 and a special MMO title. There's still a lot of opportunity here, both now and for the future.

[Barry the Nomad]

I SEE CUBE ONLINE!!!!!!



Anyway, I wish PSU was FREE for fucks sake. I'm not paying whatever it is for a hunters license.

[George]

I think SEGA should really think a new way to approach making money on Phantasy Star games.

That is what my next top 10 article will cover. Probably (Top Ten ways to improve the next Phantasy Star Online game.) or something.

[Happy Cat]

I think SEGA should really think a new way to approach making money on Phantasy Star games.

That is what my next top 10 article will cover. Probably (Top Ten ways to improve the next Phantasy Star Online game.) or something.

Do it! Sounds like it could be an awesome Top 10

[Sharky]

I think SEGA should really think a new way to approach making money on Phantasy Star games.

That is what my next top 10 article will cover. Probably (Top Ten ways to improve the next Phantasy Star Online game.) or something.

Make sure you talk to me for this one!