The Sega Genesis console once had a rabid fan base. Simon Jeffrey, president of Sega of America, recalls a time--about 20 years ago--when Sega was cool and known for producing "edgy" content.
Now, like some awkward adolescent, Sega (other-otc: SEGNF.PK - news - people ) has been spurned by its old fans for churning out ill-received Sonic-branded games and kid-focused content.
After its Dreamcast console failed to chisel out a space for itself in the videogame marketplace, Sega bailed out of the hardware business in 2001 to focus on game publishing. It's been a battle ever since. While Sega's portfolio of Sonic games and licensed fare such as "Iron Man" may not resonate with the company's fans, the strategy has been paying off: Sega now is consistently among the top six publishers in terms of market share, which Jeffrey says is growing annually. And with a firm base to work off, Sega can finally focus on reinventing itself.
Forbes.com sat down with Jeffrey to discuss the future of the company.
Forbes.com: Who do you see as Sega's competitors?
Simon Jeffrey: Over the last few years we've been competitive with the likes of Capcom, Midway and Eidos. We've doubled our market share year on year. We're now looking at THQ as our nearest competitor in terms of market share. We don't intend to be an Activision or an Electronic Arts--one of those juggernauts. We're actually really happy where we are. We can be small and agile and yet extremely profitable and successful. It really feels like this year we're competing with the next tier up, and THQ is a good company for us to model ourselves on and go after in terms of market share.
What's your plan of action?
We have a strategic road map that identifies areas we want to play in and the number of acquisitions we want to look at. We're fairly detailed about that--it's been one of the ingredients in our recent success. We've tried to look backward before we look forward. We look at everything that we have done wrong and the industry has done wrong, as well as looking at the companies who have grown successfully and figure out what they've done to grow successfully.
How do you view Activision now that its merger with "World of Warcraft" developer Blizzard Entertainment will create the largest company in the videogames industry?
[Activision Chief Executive] Bobby Kotick is one of the smartest people in the business. The way he's constructed Activision is really admirable. So many companies in this business want to be No. 1 right away. They want to grow, and they want to grow right now. They blow it because they burn out.
Bobby has grown Activision in stages over a long number of years to get to this point. And it's very calculating and very clever the way he's done that. Activision has also managed to be the first company in this business to market games properly. Anyone who can turn a hardcore brand like "Call of Duty" into a 10 million unit seller … is outstanding. I think that Activision is going to take some catching and their profitability is unmatched.
With Activision's success in mind, how do you view Electronic Arts' ongoing attempt to acquire Take-Two Interactive?
It feels like EA kind of needs [Take-Two], but it probably shouldn't have made it so public that it really needed it. I think that it's losing some investor confidence; the stock price is at a three-year low. And it seems like EA has been the petulant child instead of the professional market leader. However it's EA, and it's really good at coming back.
L ooking at these two juggernauts--Activision and EA--where has Sega learned the most lessons?
I think from everywhere. We're in the fortunate position of being fairly comfortable [as] the No. 6 publisher. We don't feel like we're forced to compete. We're not forced to try to make rash acquisitions just to get to No. 1--that affords us to sit back and look at what's going on everywhere.
Again, I think one of the issues and mistakes that this very young industry has had over the last decade has been not spending enough time to reflect on what's going on. That's something which we're really trying to be very cognizant of and be aware of what's going on in the marketplace and be reactive to it.
Where do you want Sega to be in five years?
Five years is a long time in this business, but I really hope we're going to be a top-five publisher. I can't believe us not being a top-five publisher on a global basis, not just in North America. I think that's something [that] will be tremendous.
Where I would really like for us to be is at the cutting edge of every platform, to be the go-to publisher for Sony with its next system and with Microsoft with its next system. We kind of are like that with Nintendo right now, and thanks to our relationship with Apple, we are kind of like that on the iPhone at the moment. But I want to really get that same kind of recognition with Microsoft and Sony. We have solid relationships, but when they're launching a new platform I want them to come to Sega to build their killer app.
How are you going to get there? Through acquisitions? Development deals?
I think at the moment, because of the climate, we're looking at development deals. However, if the right opportunity came along, we would happily be there. We still have plenty of cash in the bank and a willingness to spend it for the right thing. But recently there have been some insane developer acquisitions with some insane valuations, and suddenly all the developers think they're worth ten times what they actually are. They're all kind of talking silly currency right now. It's not a good climate for studio acquisitions.
That said, we're constantly looking to forge new relationships with development talent. A lot of the bigger, high-profile developers have been acquired. That's kind of a cyclical thing in the industry that fosters birth at the other end. You're getting a lot of start-ups on the other end from real high-end talent coming out of internal studios at the big publishers. We're really interested in fostering a lot of relationships with start-ups and existing talent.
What's the most exciting thing happening in the games industry right now?
The most interesting thing is the mass acceptance of gaming. It's gone from being kind of a nerdy, exclusive niche activity to probably the preeminent form of entertainment in North America. Pretty much every kid born in North America is going to be a gamer, which means that the market is only going to get bigger from here. I've been in the game business for 22 years, and that's the most noticeable thing: this tangible cultural feel that gaming is huge and everyone wants to be a part of it. I think the gaming business is in a healthy state right now. There will continue to be casualties, but that's just like every business.
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