JAN. 30, 2015 • Sega of America (SOA) is moving from the San Francisco Bay Area to Southern California as part of a company-wide restructuring. The relocation will be undertaken between January and early summer but a location for the new SOA headquarters was not disclosed. Some employees are receiving relocation offers but positions will be cut during the process to streamline operations and lower operational costs. Sega Sammy Holdings Inc. announced the changes as part of a larger set of measures to implement a restructuring process announced last October. At that time, the company identified mobile, PC online gaming and resorts as its major growth areas. In Japan, Sega Sammy continues to review its amusement business and expects to narrow its product lineup and downsize services. Development personnel no longer working on amusements will be transferred to online games to further expand new product slates. Between February and March the company is soliciting 120 voluntary retirements within Sega, and around 180 more from other divisions. Sega divisions in the West have been instructed to streamline their operations to become more efficient. The closing of SOA’s San Francisco office is expected to significantly reduce fixed expenses. No alteration to SOA’s release schedule is planned as a result of the downsizing or the move to Southern California, and the division expects it will be better placed to ramp up IP merchandising efforts. No disclosures were made regarding what streamlining will be put in place at Sega of Europe.

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Impact: Sega of America abandoning San Francisco seems more like a retreat from sky-high real estate costs there. Southern California is by no means cheap, but by comparison the Los Angeles area is much less costly to operate from and is equally well situated on the Pacific Rim. Sega Sammy is a diversified company and SOA is actually a part of its consumer business which is actually doing better than other segments.

Like Nintendo Co. Ltd., Sega Sammy finds its traditional business segments under pressure from changing consumer trends. The arcade business has been shrinking for decades with the console side remaining significant yet unsettled. The consumer embrace of mobile entertainment in Asia is a major driver of Sega’s pivot toward smartphone game content. As Sega got out of the console hardware business in 2001, there is no inertia or conflict of interest in changing platform focus, unlike at Nintendo. The PC and mobile game businesses have been performing quite well for a while now. So Sega is not in dire straights. Last November, Sega Sammy forecasted that net sales for its consumer business will have grown 17% by the end of the fiscal year on March 31. It is the expected -13% hit to net sales in the Pachinko segment and the -5% drop in amusement center revenue that are the problems. So while Sega Sammy must watch costs company-wide, its consumer game business, which accounts for about 30% of total revenue, is well positioned to continue growing on mobile in Asia, and on PC in North America and Europe.