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Thread: Sega’s Financial Troubles: An Analysis of Export Revenue 1991-1998

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    Mega Driver Hedgehog-in-TrainingMaster of Shinobi Gryson's Avatar
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    Genesis Sega’s Financial Troubles: An Analysis of Export Revenue 1991-1998

    Something new to share: I've acquired in-depth Sega revenue information for 1991-1998, including export revenues.

    The most interesting thing? Sega was in a serious bind at the end of 1993.



    Revenues from exports to North America and Europe tanked at the end of 1993. This provides a lot of context for Sega's desire to get the Saturn out as soon as possible, and why waiting until 1996 would have been unrealistic.

    Read my write up here and get the data:

    https://mdshock.com/2021/04/14/segas...nue-1991-1998/

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    Social Justice Ninja Master of Shinobi IrishNinja's Avatar
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    awesome to see! cheers for this.

    93 though...i recall thinking they were doing good then, but maybe just here (stateside)? sega-cd was awesome but didn't help, and by 94 SNES definitely saw more high profile output. i'm still puzzled as to why they killed game gear and any other revenue streams they had going into the saturn, but so many of the decisions around that seemed to be motivated by fear, so i can see how this factors in to that directly.


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    Super Sexy Sega Master of Shinobi cowboyscowboys's Avatar
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    Stuff like this is hard to beleive.
    From April 93 to September 93 129,719 (Not exactly prime retail season)

    Then in prime holiday season October 93 to March 94 they drop to 80,411 (Tons of the best selling Genesis games were released during this time frame. Aladdin, Sonic Spinball, Eternal Champions, Mortal Kombat, SF2CE, NHL 94, Madden 94', Joe Montana Football 94', Sonic 3)
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    Well, as Gryson covers in his article, the value of Japenese yen fell big time during 1994-95, which means less export revenue. Secondly, the Genesis game sales overwhelmingly began to be dominated by third-party publishers, which also meant far less revenue.

    Look history has shown how Nintendo and then Sony were incredibly successful using 2nd-party developers to produce games with 1st party IP's. Particularly as systems aged, allowing the core designers to work on the next generation hardware's games. SEGA did not employ this enough, and then you add to their awful foray's into CD and 32X rather than go N's route with onboard chip enhancements. By 1994, I personally was done with SEGA/Genesis, only using it to play EA Sports games with my friends. Meanwhile I'd gotten the SNES and was regularly buying games on that.

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    Quote Originally Posted by IrishNinja View Post
    awesome to see! cheers for this.
    Thanks!

    i'm still puzzled as to why they killed game gear and any other revenue streams they had going into the saturn, but so many of the decisions around that seemed to be motivated by fear, so i can see how this factors in to that directly.
    As I say in the article, I don't really think that's true. In 1995 Nakayama said that the Genesis was still very much part of their focus in North America. It's pretty clear from their publishing output that they hadn't killed the Genesis revenue stream:



    They also had a massive advertising campaign for Vectorman towards the end of 1995. SOA even had some strong titles released in 1996, after the third parties had mostly abandoned the system.

    Quote Originally Posted by cowboyscowboys View Post
    Stuff like this is hard to beleive.
    From April 93 to September 93 129,719 (Not exactly prime retail season)

    Then in prime holiday season October 93 to March 94 they drop to 80,411 (Tons of the best selling Genesis games were released during this time frame. Aladdin, Sonic Spinball, Eternal Champions, Mortal Kombat, SF2CE, NHL 94, Madden 94', Joe Montana Football 94', Sonic 3)
    The rise in the first half of 1993 isn't surprising, given Sega had just had its biggest ever worldwide advertising campaign for Sonic 2 at the end of 1992.

    I also don't think Sega was doing bad in North America. The Genesis was selling very well. Sega sold more consoles in 1993 in NA than any other year (~5 million). Nakayama's comments point to a very bad situation in Europe, though. With the worsening exchange rate and more competition from third parties (like, as you say, Mortal Kombat, SF2CE, NHL 94, Madden 94), Sega's top line was dropping. That was a really bad indicator to shareholders and management, since Sega's strategy under Kalinske was rapid growth. It might be a better indicator that Sega's growth in 1992 was just that incredibly good, with all of the factors in its favor (strong titles, less competition from third parties and from Nintendo, favorable exchange rate).

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    Gryson, thanks for doing all this research. I still think the Saturn as released was a horrible idea but it makes more sense now if they were already worrying by late '93. Just goes to show there's a lot happening behind the scenes that your average consumer wouldn't be aware of.

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    One could also argue that they were selling less impressive software from 93 onwards (compare the two top 1992 titles, Sonic 2 and SOR2 to Sonic 3 and SOR3 - each one half the game as its predecessor was), while their competition was doing much better now. Additionally, does that graph cover game sales that did not have to be exported due to being made in an export country? Does it take into account their over-expansion with releasing multiple new hardwares each year, stretching their software lineup thin? 25 new Megadrive titles would've probably generated more revenue than 5 Megadrive + 5 Mega CD + 5 Game Gear + 5 32x + 5 Pico games, especially considering that developers could've made better titles on the Megadrive too, due to being more familiar with the hardware, instead of needing to drop all their experience so they could focus on a different machine. The situation with the Pico was also something that caused friction between Nakayama and Kalinske (Kalinske mentions it in an interview, I think), it sold well but had so very low margins.

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    Quote Originally Posted by zyrobs View Post
    Additionally, does that graph cover game sales that did not have to be exported due to being made in an export country?
    There's some mystery about what exactly was included on the financial reports (perhaps somebody with more accounting knowledge could chime in?). Sega reported non-consolidated financials, meaning it only reported revenues and profits/losses for the main parent company and not the subsidiaries. So we don't know the financials for Sega of America. But I believe all of the manufacturing was being done by the parent company, so the revenue reported here reflects what the subsidiaries were buying from Japan.

    To answer your question, if Sega of America was manufacturing its own games/hardware, then that might not be included in the non-consolidated revenue. But as far as I know, all manufacturing was going through Japan, so the revenue values reported here should reflect worldwide sales to the subsidiaries. Ideally, the subsidiaries shouldn't order much more than they need, but I suppose if they order a surplus one period, then non-consolidated revenue for the next period might drop.

    By the way, this non-consolidated financial reporting is why Sega was able to essentially hide how bad Sega of America was doing post-1995, until 1998 when the parent company had to bail them out. I think Stolar or somebody described SOA as essentially bankrupt. In 1998, the parent company gave $300 million to SOA as a bailout. Once they did that, they had to report it on the non-consolidated financial report and that's why Sega suffered a massive loss of over $300 million in 1998.

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    Super Sexy Sega Master of Shinobi cowboyscowboys's Avatar
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    Quote Originally Posted by Gryson View Post
    Thanks!



    As I say in the article, I don't really think that's true. In 1995 Nakayama said that the Genesis was still very much part of their focus in North America. It's pretty clear from their publishing output that they hadn't killed the Genesis revenue stream:



    They also had a massive advertising campaign for Vectorman towards the end of 1995. SOA even had some strong titles released in 1996, after the third parties had mostly abandoned the system.



    The rise in the first half of 1993 isn't surprising, given Sega had just had its biggest ever worldwide advertising campaign for Sonic 2 at the end of 1992.

    I also don't think Sega was doing bad in North America. The Genesis was selling very well. Sega sold more consoles in 1993 in NA than any other year (~5 million). Nakayama's comments point to a very bad situation in Europe, though. With the worsening exchange rate and more competition from third parties (like, as you say, Mortal Kombat, SF2CE, NHL 94, Madden 94), Sega's top line was dropping. That was a really bad indicator to shareholders and management, since Sega's strategy under Kalinske was rapid growth. It might be a better indicator that Sega's growth in 1992 was just that incredibly good, with all of the factors in its favor (strong titles, less competition from third parties and from Nintendo, favorable exchange rate).
    Definitely good points made. I remember how big Vectorman was. SOA must have been pissed even after releasing Sega CD, 32x and Saturn (CD and 32x already in the grave) Sega's biggest game of Christmas season 1995 was Vectorman on Genesis 😂.

    It would be interesting to see Nintendo data from the U.S. Sometimes you just need to ride the wave and take the peaks and valley's. Nintendo got a huge shot in the arm with D.K and similarly with the GB's Pokemon. Sega was short 700,000 Genesis systems in the U.S. for the Christmas season of 1995. To me all things considered that is unforgivable. Also they should of had a far stronger line up software in 95' but it was up to the West to carry the system by itself at that point. Barring a few exceptions.
    Last edited by cowboyscowboys; 04-15-2021 at 08:42 PM.
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    Quote Originally Posted by Gryson View Post
    There's some mystery about what exactly was included on the financial reports (perhaps somebody with more accounting knowledge could chime in?). Sega reported non-consolidated financials, meaning it only reported revenues and profits/losses for the main parent company and not the subsidiaries. So we don't know the financials for Sega of America. But I believe all of the manufacturing was being done by the parent company, so the revenue reported here reflects what the subsidiaries were buying from Japan.

    To answer your question, if Sega of America was manufacturing its own games/hardware, then that might not be included in the non-consolidated revenue. But as far as I know, all manufacturing was going through Japan, so the revenue values reported here should reflect worldwide sales to the subsidiaries. Ideally, the subsidiaries shouldn't order much more than they need, but I suppose if they order a surplus one period, then non-consolidated revenue for the next period might drop.

    By the way, this non-consolidated financial reporting is why Sega was able to essentially hide how bad Sega of America was doing post-1995, until 1998 when the parent company had to bail them out. I think Stolar or somebody described SOA as essentially bankrupt. In 1998, the parent company gave $300 million to SOA as a bailout. Once they did that, they had to report it on the non-consolidated financial report and that's why Sega suffered a massive loss of over $300 million in 1998.
    Ah, right, the carts had to be manufactured in japan and then very likely through SoJ. I didn't think of that, good point.

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    Quote Originally Posted by Greg2600 View Post
    Look history has shown how Nintendo and then Sony were incredibly successful using 2nd-party developers to produce games with 1st party IP's. Particularly as systems aged, allowing the core designers to work on the next generation hardware's games. SEGA did not employ this enough, and then you add to their awful foray's into CD and 32X rather than go N's route with onboard chip enhancements.

    I don't think that's quite fair. SEGA used quite a lot none In-House developers to work on or make use of its IP Ancient and Traveller's Tales in particular, my issue with SEGA Japan was that they outsourced too many of their IP more so when it came to Arcade ports.
    Making the Mega CD was hardly a mistake, it was just how bad SOJ, in particular, supported it. It could and should have been a PC Engine CD Rom killer Yes, I was looking forward to new hardware come 1995, but we all need to remember the SNES came out 2 years after the Mega Drive it was always going to seem a little newer and fresher. I think 5 years is more than enough for any console,


    Also, I have no idea in the USA and I'm not going to get involved with debates on sales in Lockdown (life horrible enough as it is) but in the UK SEGA Europe were allowed to manufacture Mega Drive Cartridge's to help with supply issues and whatnot with. My auntie used to work in AB Electronic and they manufacture carts for SEGA. I remember her saying how they had Nick Alexander and staff from SEGA Japan visit the factory and I was gutted she never got their autographs

    I would have imagined SEGA America would have looked to do the same for some games in the USA, Given that all corps were moaning about the high yen with EA even refusing to make any more SNES games until Nintendo stopped pricing Carts in Yen and I remember a big bust-up with Toyota UK and Japan over such issues over the high Yen
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    Mega Driver Hedgehog-in-TrainingMaster of Shinobi Gryson's Avatar
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    Quote Originally Posted by Team Andromeda View Post
    Also, I have no idea in the USA and I'm not going to get involved with debates on sales in Lockdown (life horrible enough as it is) but in the UK SEGA Europe were allowed to manufacture Mega Drive Cartridge's to help with supply issues and whatnot with. My auntie used to work in AB Electronic and they manufacture carts for SEGA. I remember her saying how they had Nick Alexander and staff from SEGA Japan visit the factory and I was gutted she never got their autographs

    I would have imagined SEGA America would have looked to do the same for some games in the USA, Given that all corps were moaning about the high yen with EA even refusing to make any more SNES games until Nintendo stopped pricing Carts in Yen and I remember a big bust-up with Toyota UK and Japan over such issues over the high Yen
    The exchange rate problems did cause Sega to start building up local manufacturing capabilities, but I don't think this started to appear until 1994 at the earliest. Even then, the most costly parts, the chips, were still coming out of Japan as I understand it. You can spot the "Assembled in U.S.A." or "Assembled in U.K." branding on the back of carts. The PCBs were still usually branded "Made in Japan", although there was a series of later PCBs (Vectorman, Sonic Mania) that had "Made in U.S.A." branding.

    Regardless, that's clearly not the cause of the issues in 1993, since that would have been a positive thing. Building up local manufacturing is something Nakayama mentioned extensively later in 1994/1995, but for the 1993 problem, he's pretty clear about what the causes were.

    Also, we can't be sure how local manufacturing would have impacted Sega's revenue reporting. Was that revenue going directly to the parent company? We have no way of knowing how the revenue stream worked.

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    Quote Originally Posted by Gryson View Post
    but I don't think this started to appear until 1994 at the earliest.
    From I remember talking with my auntie back then. The 1st Mega Drive cart they began to manufacture at AB was Aladdin and they had a huge order that they had to get out for the expected Easter rush. Yeah sure a lot of the Parts were still from Japan, but it's not just the high yen that was a factor but the price of the workforce and its one of the main reasons so many Japanese firms looked to the South Wales Valleys in the 90's and that was low labour costs with a decent sill set Sadly that all blew apart when Labour brought in the minimum wage and the investment went east and it happened with my Factory too.
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    Quote Originally Posted by Team Andromeda View Post
    Sadly that all blew apart when Labour brought in the minimum wage and the investment went east and it happened with my Factory too.
    Funny how some people argue getting paid less is a good thing. You don’t think manufacturing being moved away from the U.K. (and indeed many countries in the world) had anything to do with China’s burgeoning economy then?
    Last edited by crazyteknohed; 04-17-2021 at 05:10 AM.

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    Quote Originally Posted by crazyteknohed View Post
    Funny how some people argue getting paid less is a good thing.
    Better than being on the dole. In most factories, you just worked your way up to get better rates of pay and you had bonuses and yearly pay raises. When the minimum wage came in that went, along with most of the Japanese factories.

    had anything to do with China’s burgeoning economy
    I suspect with China's heavy use of coal power, workers having little rights and working in sweatshop factories means its running costs are far lower than those in the West or even in Japan.
    Still, it means we all get our cheap electronics
    Last edited by Team Andromeda; 04-17-2021 at 07:01 AM.
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