Simon Jeffery is the president of Sega of America. He joined the U.S. arm of the Japanese publisher, famous for games such as Sonic the Hedgehog, in 2005 to recruit U.S. and European game developers to work with Sega on both original games and to Westernize its portfolio. Before joining Sega, Jeffery was the president of LucasArts from 2000 to 2003. We spoke about how the Japanese company is doing at its “Westernization” strategy and its moves into new areas such as iPhone games and the Nintendo Wii.
VB: How is Sega doing?
SJ: We’re having a great year. We’re the No. 6 publisher in the U.S. year to date. We doubled our market share from a year ago. There has always been quite a gap in the top 5 market share. We’re in the 5 percent range now. That’s been extremely positive for us. We have great hopes for the rest of the year with Sonic coming on the Nintendo DS and Samba de Amigo for the Wii, we’re improving with quality as well.
VB: What got you to the better market share?
SJ: A lot of it is sales from our catalog. One thing we suffered from for a while was that we didn’t have catalog that turned over. That gives games more legs. We’ve had a lot of releases in the first part of the year, such as “Condemned 2,” “Viking,” “Sega Superstars Tennis.” They didn’t sell huge numbers but significant enough to increase our share. “Iron Man” and “The Incredible Hulk” have also done good numbers, thanks to the movies.
VB: How do you look at things like iPhone games and Facebook games?
SJ: The social networking area is challenging for game companies. As soon as EA focuses on Facebook, the kids will move on. Look at how fast MySpace came and went in the U.S. That space needs to mature. We will play in it but won’t over-invest. We have the No. 1 application on the iPhone. We made a bet early on and have a great relationship with Apple. We use that to our advantage. Super Monkey Ball is No. 1 and it’s an extremely high profit-margin business. It’s likely it will do a million units.
VB: Will the iPhone become a real game platform alongside the consoles?
SJ: I think the iPhone and all of the ones that copy it will absolutely be a new platform. We’re investing in a forward-looking mobile games group. The point isn’t just to get Sonic on as many handsets as possible. Direct consumer delivery is where it’s going, as Apple has proven. We’re in a really good position and see it as a viable platform.
VB: I assume you’re happy with the Nintendo Wii. Your “Mario and Sonics at the Olympics” has done very well.
SJ: We are very happy. Mario and Sonic will sell more than 7 million units by the end of the year. The Olympics will help. We are happy with our relationship with Nintendo. We’ve shown that we can be successful on their platform.
VB: You had some mixed results on games like the Golden Compass.
SJ: The Golden Compass was a major disappointment. It did well in the United Kingdom because the movie did well there. It was a real box office flop in North America. If we did the best game in the world, it still wouldn’t have sold well with a movie that flopped.
VB: Did you learn something from that?
SJ: Were we in the same position, would we take a gamble on another opportunity like that? Yes. The upside potential is significant. When we signed the Ironman deal, it wasn’t going to be a huge movie. It was going to be like Ghost Rider or the Silver Surfer that does maybe $120 million at the box office. It’s more than $300 million at the U.S box office now and will be one of the top three movies of the year for sure. That has powered game sales beyond our expectations. If you don’t gamble, you can’t win.
VB: Does the success of the Ironman game help you with Marvel’s future movie titles?
SJ: Yes, we’ve already got Thor and Captain America under way. We will continue our relationship with Marvel for the foreseeable future.
VB: So the move into movie games is paying off now?
SJ: Yes. We always felt we needed to diversify our portfolio. We’ve lived off our own intellectual property like Sonic forever. Now we are trying to get a balance of a third Sega IP, a third original product, and a third licensed product. We knew we couldn’t gain market momentum without licensed product. It’s very popular with the big publishers now to denounce licensed product and having to own your own content. John Riccitiello does that all of the time. I totally believe you have to have licensed content as part of your portfolio.
VB: So you have an opportunity with licensed content because they have left it behind?
SJ: I think part of the reason they have left it behind is they are not good at it. If you look at “Superman,” it was not a success. We are smaller scale and can be more nimble. We’re not throwing ourselves at every license that comes along. With the Aliens products coming and the Marvel games, we have good things coming.
VB: Are there niche trends you’re jumping on? Ubisoft is making original games for girls.
SJ: We have been active there for some time. We have casual Wii and DS stuff. We haven’t made a special brand for it because we use the Sega brand. We think the Sega brand works well in the mass market, kids, and family space. We have done reorganization, brought in a new vice president of marketing from Disney Interactive, and are setting up a dedicated kids and family marketing effort.
VB: EA has moved into mature-rated games with titles like DeadSpace. What is worth nothing about that?
SJ: EA has always struggled with the hardcore gamer. I think they look at “Gears of War” and “Halo” and wonder why they can’t do that. EA has to do something about that. They have tried on and off over the years. It’s just like Activision had to come out from doing hardcore games and do more for the masses.
VB: Are gamer tastes changing?
SJ: We are seeing a shift, even in hardcore games, to snackable gaming. “Call of Duty 4” had a shorter single-player campaign and really good multiplayer. Hardcore games don’t have to be 45 hours long anymore, unless it’s a role-playing game. Gamers are driven by getting achievements, finishing games, and they want to consume a lot of games. Disposable income isn’t a problem for them. If it takes a shooting game 20 hours to complete, that’s frustrating. It’s interesting it has taken 25 years to figure that out.
VB: What are the trends among the big publishers? Some have had layoffs.
SJ: There is consolidation at the top. The rich are getting richer. But in this market, the poor are getting richer too. That makes sense. We are doing well at No. 6. We’re very profitable and doing what we want to do without being forced to fight with Bobby Kotick of Activision Blizzard all of the time. What Bobby is doing is extraordinary in overtaking EA. And staying so profitable. EA has the size and magnitude, but their profits are gone. They have big overhead too. Activision Blizzard is raining money now. The big hits will be bigger, just like in the movie industry. But the movie industry’s independent hits are still thriving and it will be the same in the game industry.
VB: You have been investing in original Western content for a few years now. Do you need to do any pruning?
SJ: We’ve already done some of that. We sold our racing studio in the United Kingdom to Codemasters. The racing category is so ultra-competitive. It’s so dominated for a few players and to try to compete makes no sense. We are focusing on where we can succeed. We’re being more strategic on building out hardcore original content. You can’t build a good original game and launch it successfully these days unless it really works.
VB: How is the interaction between Japan and the U.S.?
SJ: It’s healthy. We are profitable here. We are getting the kind of growth they wanted. They’re leaving us alone more. We have more autonomy. I go to Japan less and less than I did when I started.
VB: What games are you moving to the Wii?
SJ: The Wii is a very cost effective platform to experiment with. There is a lot of crap coming out for the Wii in general. But if it’s not a good game, it doesn’t sell. That flood of crap will die down as publishers become more coherent. The Wii is a great opportunity for hitting hardcore gamers. No one is doing that. With “Mad World” from Platinum Games, we are trying to show that millions of Wii games want to move on to mature games. They don’t have to have an Xbox 360 to do that.
VB: I guess people now believe the Wii isn’t just a fad?
SJ: It’s very much disproven. People do play with the Wii like crazy for a while. It gathers cobwebs. Then they bring it out again. But kids are such a big part of the gaming community now and they’re demanding Wiis from their parents. Those kids will shape the future of gaming and they’re not a fad. Microsoft and Sony have to think about how to make their experiences more gaming in that way.
VB: Accessories never really sold well with the consoles. Are some selling well enough on the Wii so that you will make games that exploit them?
SJ: We are fans of the Wii Zapper. Our “Ghost Squad” game keeps selling. We have more Zapper games going. The same for the Wii Balance Board, although we have nothing announced yet. We were surprised by the Wii Motion Plus. They’re in the position now of extending the life of the Wii by tinkering with it and improving the accuracy. Nintendo is really good at fixing the chinks its armor.
If you liked this Q&A, please check out our others:
Byron Acohido, author, “Zero Day Threat”, on who to blame for identity theft
Bob Aniello, marketing chief at THQ, on mass market video games
John Antal, chief of staff and military/historical director at Gearbox Software, making “Brothers in Arms: Hell’s Highway”
Wagner James Au, author “The Making of Second Life”, on life in a virtual world
Robbie Bach, president of Microsoft’s Entertainment & Devices Group, on Zune
Robbie Bach, president of Microsoft’s Entertainment & Devices Group, on Xbox 360
Robbie Bach, president of Microsoft’s Entertainment & Devices Group, on Windows Mobile
Mark Bernstein, CEO of the Palo Alto Research Center, on life beyond Xerox
Jeff Boyd, CEO of Miles Electric Vehicle, on the future of cars
Lucy Bradshaw, vice president in charge of production at EA Maxis, on making Spore
Jim Crowley, CEO of Turbine, on keeping the online game machine humming
Gonzague de Vallois, senior vice president of publishing at Gameloft, on iPhone gaming
Vinod Dham, father of the Pentium, on a life of technology and venture investing
Cammie Dunaway, sales and marketing chief at Nintendo’s U.S. unit, on broadening the game market
Jon Goldman, chairman Foundation 9, on game development as a model
Seth Goldstein, CEO Social Media, on social networking’s future
Mike Gallagher, head of the Entertainment Software Association, on E3 2008
Bing Gordon, former chief creative officer, Electronic Arts, future partner at Kleiner Perkins, on leaving EA
Todd Howard, executive producer of Fallout 3, on making a big role-playing game
Mark Jacobs, general manager of EA Mythic, wants to go to WAR
Steve Jurvetson, partner at Draper Fisher Jurvetson, on the cleantech revolution
Dan Kaminsky, DNS expert, on fixing the flaw that could have crippled the Internet
David Scott Lewis, the inspiration behind the hacker in “War Games,” on the early days of hacking
Max Levchin, CEO of Slide, on social networking
John Lilly, CEO of Mozilla, on the hybrid nonprofit-for-profit business model
Marissa Mayer, vice president for search at Google, on social search
Paul Marcoux, Cisco vp of green engineering, on making data centers energy efficient
Jeff Moss, the Dark Tangent, on organizing Black Hat and Defcon security conferences
Ray Muzyka and Greg Zeschuk, co-founders of BioWare, on making great games
David Nordfors, director of Innovation Journalism program at Stanford, on teaching new journalism
PopCap Games top executives Dave Roberts and John Vechey, on making games fun
Steve Perlman, CEO of Rearden, on funding R&D for startups
Ted Price, head of Insomniac Games, on expanding a high-quality game development studio
Jeff Pulver, VOIP pioneer, on the future of voice
John Riccitiello, CEO of Electronic Arts, on EA’s focus on higher-quality games
Gordon Ritter, Emergence Capital, on software-as-a-service
Henk Rogers, Tetris pioneer, on saving the earth
John Schappert, corporate vice president at Microsoft’s game division, on changes to Xbox 360 gaming
Curt Schilling, founder of 38 Studios and Boston Red Sox pitcher, on starting a fantasy online game
Dwayne Spradlin, CEO of InnoCentive, on expanding R&D crowdsourcing
Bill Watkins, CEO of Seagate, on the storage business and roughing it with Eco Seagate
Shu Yoshida, president of Sony’s worldwide game studios, on being an underdog again
Strauss Zelnick, CEO of Take-Two Interactive, on managing creativity
Mark Zuckerberg, CEO of Facebook, on hiring an outsider as COO