NEWS - Wednesday, April 23, 2003


(RUMOR) - Microsoft Looking to Buy Sega?

Microsoft tends to look outside Redmond to beef up its Xbox game titles, and has snapped up some rising game developers over the past several years. Now, Japanese game maker Sega is entertaining offers from corporate suitors, and Microsoft is thought to be one of the interested parties. Japan’s Yomiuri newspaper this week reported that Microsoft has approached Sega about buying a stake in the company. Microsoft and Sega will not comment, but the speculation has boosted Sega’s flagging share price and given rise to much discussion about what such a partnership could mean. Some observers have said it would benefit both sides. Microsoft could include Sonic the Hedgehog games in its catalog of so-called first-party titles, which are often more lucrative than relying on independent, third-party developers, while Sega would have the financial backing and stability it needs. Others have said the two companies are too diverse, and that Sega is too large to be successfully integrated. Sega is already juggling merger offers, even after announcing in February that it planned to combine with Sammy, which makes machines for playing a Japanese form of pinball called pachinko. The share prices of both companies fell after the announcement. Last week, Sega announced it has received an offer from Japanese rival Namco. Sega said Monday it is moving forward with the Sammy deal, but that its board of directors will discuss both proposals at its next meeting in June. Video-game maker Electronic Arts, a leading American game developer, is also thought to be interested in buying at least a significant stake in Sega. Sega’s share price has plummeted over the past six months. Last November, the one-time game-console maker slashed its profit outlook by 72 percent to $41 million for its fiscal year ended March 31. In January, Sega of America President Peter Moore resigned to join Xbox. Moore didn’t bring Sega along with him, but some analysts said a Microsoft-Sega deal makes sense, particularly because Microsoft is not known for developing its own original games. "They don’t have enough original content for the Xbox as they could use," said Billy Pidgeon, a senior analyst for the Zelos Group. Sega’s Sonic the Hedgehog series has great potential, said Arvind Bhatia, a Southwest Securities analyst who follows the video-game industry. Microsoft might want to offer Sonic games and other titles as Xbox exclusives, he said. The Mario franchise, for example, has been a bedrock for Nintendo. "What Microsoft really needs right now is what we call a ’killer app’-type title," Bhatia said. "The only one they’ve been able to come out with is ’Halo.’ " Developing big games is a difficult business, in part because game creation is expensive and labor-intensive and also because the whims of game players are unpredictable. One of the best ways to produce games is to go out and acquire content, said video-game analyst David Cole, and Sony, Microsoft and Nintendo are all looking for acquisition candidates. Microsoft has acquired a handful of game developers, including U.K.-based Rare and American companies Digital Anvil and Bungie Studios. "It’s a constant battle," he said. "You’re trying to build up all that product line and trying to get the newest products." A Microsoft-Sega deal might run into problems because an acquisition of that size would be very expensive and difficult for Microsoft to digest, Cole said. It also goes against the current trend of picking up product from smaller, more agile developers.
Source: http://seattletimes.nwsource.com/

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