Sega will shift ad focus to software

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Sega Enterprises' long-anticipated exit from the video game console business will refocus advertising on promotion of flagship software titles instead of hardware.

Forthcoming software titles such as Crazy Taxi 2, NFK 2K2 and Sonic Adventure 2 will be among Sega franchises receiving ad support via True North Communications' Foote Cone Belding, San Francisco, Sega's ad agency.

"The focus of our marketing and advertising, in particular, over the last 12 months has been software-related - that level of support will not change," said Chris Gilbert, exec VP of sales, marketing and operations for San Francisco-based Sega of America. "The difference is going to be hardware-related expenditures," Mr. Gilbert said. Spending on retail-oriented promotion and incentives, event marketing and other marketing activities will change. However, he projected media spending at about $50 million, or roughly half of Sega's estimated $100 million to $120 million marketing budget for 2000. More co-op-style partnerships on advertising are expected from Sega: "Co-op advertising will be the primary weapon used to deliver the value message," Mr. Gilbert said.

"The overall marketing spend will be less than this year, but it hasn't been determined," Mr. Gilbert said, referring to Sega's fiscal 2001, which begins April 1. The company's budgets are not set, and a restructuring plan and management changes are expected to be announced late next week. Mr. Gilbert said Sega will continue to support more than 1,000 software developers fanned out across nine development teams in various regions.

Sega introduced the Dreamcast console in North America in September 1999 with an estimated $125 million marketing budget. Some 3 million units have been sold to consumers in North America since launch, but approximately 2 million units globally remain unsold. "Our expectation is that we will have sufficient product to go through this holiday season," Mr. Gilbert added.

While Sega led the market with online multiplayer gaming via SegaNet, it faced increased competition with Sony Computer Entertainment's PlayStation 2, as well as the prospect of Microsoft Corp.'s entry into the market with the Xbox console this fall. Exiting the hardware business, Mr. Gilbert maintains, is "not that difficult in that we were continually losing money as a corporation and we needed to find a way to flourish going forward. " our real genuine core competency is in making great games."

Mr. Gilbert said Sega is in discussions with Microsoft and Nintendo Corp. to develop software titles for the Xbox and Game Cube, respectively. Decisions on those deals are expected within 60 days. Sega will continue producing software titles for Dreamcast owners, and it also will license some of its more popular characters to generate new revenue streams.

Copyright January 2001, Crain Communications Inc.

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