Formerly renowned for its video games and devices, Sega – now Sega Sammy Holdings Inc – has successfully transitioned to adapt to the ever-changing entertainment market and diversified with activities that span from the development and manufacturing of commercial-use video game machines, home-use video game software, and pachinko pinball machines, to the management of amusement parks, commercial resorts, casinos and tourism facilities. Hajime Satomi, President and CEO of Sega Sammy Holdings Inc, talks us through the group’s renewed strategic focus and perspectives.
Can you tell us a little bit about the merger between Sega and Sammy and the synergy and positive results that came out of it?
The most powerful outcome that came out from the merger was the technological edge that it gave us. Sega has very strong technology in mechatronics, which is mechanical technology, while Sega Sammy Holdings has a huge amount of intellectual properties. These two things combined create the best synergy, and give Sega Sammy Holdings a strong positioning in its industry today.
How you believe the entertainment and gaming industry is developing over the next few years and how is Sega Sammy placed to capitalize on these changes?
More than 50 years ago Sega started as an arcade game machine. It evolved into video games and the trend was thereafter recuperated by Nintendo, Sony or Microsoft, who came up with their own home video games. Now the hardware base is changing and we have transitioned towards smartphone games, especially in Japan. In the United States or Europe the home game consoles are still popular and large; however, in Japan the home game console market is shrinking and the smartphone game market is increasing. Therefore, we think that going forward the smart phone industry will also keep growing in the United States and Europe.
In Asia, countries such as China or India have a very large population with a fast-growing economy and an increasing spending power. Therefore we believe that the Asian market will be the future growth driver for our company. We would like to be the leader in these Asian countries and grow our business in these economies in the future.
The group itself has undergone significant changes and restructuring both with the initial merger, and also more recently. Can you tell us about the strategy behind these decisions and what has changed in the company?
Honestly speaking, the group as a whole had to be reorganized. However, it is not a simple restructuring and just about laying off employees. These are employees that have been with the company with know-how and experience. We want to be able to use those employees with their know-how in different ways. For example, in Incheon we are constructing an integrated resort (I.R.), which contains a casino, hotel, shopping malls, convention centers and entertainment theater all in one. Instead of just laying off our employees, I believe that we can bring them and take advantage of their development know-how for these new projects. I consider this I.R. business to be the third pillar to the holding company. There will be Sega, Sammy and the newly added I.R. business as the three main pillars. I would like to put more resources and more employees into this I.R. business and truly build the third part of the company.
Abenomics also is the tailwind for building the I.R. and we would like to build one in Japan as well, and not just overseas. The new I.R. in Japan should have a powerful appeal to attract around 30 million to 40 million international tourists every year and not just for the Olympics, but further than that, for boosting the economy after the Olympics in Japan. The government would support our efforts for such a build of an I.R. in Japan, but we have run into opposition from the some people in Japan. We would like to work with these opposed people to help them understand the bigger picture and see the boost that these projects will give to the Japanese economy. We as Sega Sammy Group would like to engage in this business in the future as well.
Why are they against the project?
Most of those who are against I.R. associate it with the image of old gambling houses. Some are opposed without being properly informed or having a complete understanding about the I.R.s that are currently being developed around the world.
Two years ago in Japan, foreign visitors were only 10 million people. Now this figure has grown to 14.4 million and for 2015 we estimate it to be 19 million. This has been growing every year, and because of the Olympics we estimate that it will grow even to 30 million by 2020. We would like to continue this growth path even after the Olympics has been completed, and this is why we are very keen on our I.R. project, which you can showcase to the world, and which can compete with Las Vegas, Macau or Singapore. We want to build a truly I.R., which may cost 800 billion or 1 trillion yen to build yet – but we want to build something that is so spectacular that the world wants to visit, and not just another casino.
The Japanese population will keep dwindling going forward; therefore getting more inbound tourists to visit Japan becomes very important for our local economy. There are many great places in Japan to visit, such as Mount Fuji, Hakone, Kyoto, Nara, Hokkaido or other areas in Japan. Getting the tourists to visit or using the I.R. to draw people to Japan can increase tourism influx in those other areas as well as boost the Japanese economy further.
How do you feel that at Sega Sammy you make a positive contribution towards society?
We are in the entertainment industry and a company that provides enjoyment. We use the newest, leading-edge technology in our entertainment business. Building something that will be enjoyed by everybody in Japan and even overseas could be the platform to introduce the Japanese culture to the global audience. If we can build our I.R. as great and spectacular as we want it to be, we can expand and display our Japanese culture to those who visit from overseas. We could host for example Kabuki shows, which is a very old Japanese tradition and a strong reflection of the Japanese culture. Our visitors will feel the Japanese hospitality, which is called “omotenashi”. For example in Kyoto, people can already experience the Japanese hospitality by having a kimono-dressed server hosting meals, so we could replicate something similar to really share and spread the culture of Japan.
What would be the best approach for the creation of such a project or to encourage such projects?
First and foremost is the taxation system. The government needs to deregulate the effective corporate tax rate to be below 30%. If you want more overseas or foreign business investment attracted to Japan, you have to make the taxation lower, and put in place infrastructure and an environment to receive them. For example, currently, even if you invite foreign VIPs to Japan, they will not be able to stay long due to the limit on the number of days they can park their private jets. The mere fact that Haneda Airport is only capable of accepting a maximum of eight jets during the day is hindering foreign investors from visiting Japan. If these things do not change, you can’t ask foreign VIPs to visit and see Japan all day long.
It is essential for Prime Minister Shinzo Abe and the government to gain a better understanding that the details and infrastructure must be in place to increase the number of VIP foreign investors that will come, visit and invest in Japan.
However, there is a big potential growth for Japan with the current Trans-Pacific Partnership (TPP). If the United States and Japan can honestly start this TPP, it will mean positive changes for Japanese businesses and the economy. Japan can dramatically change internally in terms of capital and trade, and Japan can grow large with leaps and bounds.
On the innovation angle, what kind of next-generation concepts are Sega Sammy working on?
Sega Sammy Group is currently planning with Sony Pictures to create a live-action and animation hybrid “Sonic the Hedgehog” movie scheduled for release in 2018. Like with this CG animation production, we would like to expand our business into other entertainment areas beyond what we are currently involved.
How are you going to rebuild the Sega brand and how long do you think that is going to take?
As I said before, the Sega brand first became famous as an arcade machine and then with the home video game consoles. The Sonic character was largely popular with those machines and consoles. Unfortunately, we eventually withdrew from the home video game console business. However, our name and brand is still out there because of the famous characters from people’s childhood. We would like to change, adjust or shift our product, brand and business with the current era to be a leader again in the future.
Going forward, Sega Sammy Group’s key word and main focus is and remains entertainment. Even through our resorts, I.R. or even pachinko business, we remain focused on the entertainment industry. We are also the largest institutional shareholder of Sanrio, which has famous characters such as Hello Kitty, etc. I would like the Sega Sammy Group to be recognized for entertainment internationally in the future.
Could you take us through Sega Sammy’s global ambition and describe your overseas strategy?
Pachinko is only appropriate for the Japanese market and we cannot expand that business overseas or globally. Therefore for our global or international expansion, we have to center and focus on Sega. We are strong in the smartphone and online gaming industry. Therefore, for our company to grow bigger, we must focus on expanding into markets other than smartphones and online gaming – such as indoor theme parks in Asia or animations. We have rights to animations such as Conan, Lupin the 3rd and Anpanman, which are all popular animations in Japan. Lupin the 3rd is very popular now in Italy and on television.
These are items we are introducing to the world under the concept of the so-called “Cool Japan,” which is a concept promoted by the government of Japan. We would like to expand around the “Cool Japan” concept in the future and grow from there.
Other than that, there are those entertainment businesses that we do not possess yet and that we can grow or acquire those through M&A to grow internationally as well.
Mr Ishige-san from Jetro has stated, “Japan and a number of Japanese companies could improve their marketing and visibility to the outside world”. What steps have you taken or currently taking to enhance Sega Sammy’s profile to outside investors?
I believe that is true. I think Japanese companies in general should be more aggressive in the international market, but all of the Japanese companies as a whole are passive and hesitant when it comes to the international arena. Japanese companies do not aggressively pursue marketing or business internationally or overseas compared to South Korea, who aggressively have expanded everywhere from Asia.
Given Japanese businesses’ strength and power, they would be successful in the international arena, but somehow they do not expand aggressively. This may stem from the fact that Japanese businesses can be successful just from domestic business without expanding overseas as well. I believe that it is a sad truth. We really have a lot of conservative companies here.
What kind of final message would like to share?
I believe that Japanese companies need to be more aggressive and face the challenges of the international market – and that includes our company as well. We would like to aggressively pursue global activities and challenges in the future to have our Sega Sammy Group brand recognized as a leader in entertainment. Furthermore, we would like to become a company that the international audience can support and also help grow.