Phantasy Star Online 2 Enjoys “Strong Start” in The West; Sega Announces Financial Results

Sega released its financial results for the first quarter of the fiscal year, related to the period between April 1 and June 30.

Below you can see the financial figures for the company as a whole.

Net sales dropped considerably year-on-year and the company actually incurred losses on the income side.

The consumer segment of the entertainment contents business (which is a fancy way to say console, PC, and mobile games) was the only one that performed strongly and grew year-on-year. Basically, it prevented the company from losing even more money.

This is a result of the fact that Sega’s operations are much more diversified compared to other gaming publishers, that either work only on video games or have their businesses skewed a lot more in favor of gaming.

On the other hand, Sega’s business includes arcades, pachislot, amusement parks and more, and the growth in video game sales due to the stay-at-home orders generated by the COVID-19 pandemic couldn’t offset the large losses in segments that were forced to close.

Here’s how Sega itself describes the results in the quarter.

“With regard to the pachislot and pachinko industry, the government declared a state of emergency on April 7 due to the spread of the novel coronavirus disease (COVID-19), and pachinko halls across the country suspended their operations in response to requests from local governments. After the state of emergency was lifted, although pachinko halls have
gradually resumed operations, the Group decided to postpone the sales of new titles considering the impact for the pachinko halls.

Furthermore, on May 20, the National Public Safety Commission decided on a one-year extension of the transition period for the amendment of the enforcement regulations of the Entertainment Business Act. The 21st Century Pachinko and Pachislot Industry Association, made up of 14 industry groups, agreed to gradually remove the machines based on
former standards whose approval and certification periods were due to expire.

Regarding the environment of the Entertainment Contents Business, in the consumer field (used in the previous fiscal year, the digital game software field and the packaged game software field), enjoying entertainment at home and other types of cocooning consumption grew as a result of people refraining from going out due to the impact of COVID-19, boosting demand for games. In addition, the game market is expected to further revitalize and expand on a global scale, with an increase in download sales, the upcoming launch of new platforms, revenue opportunities from new business models and services, and the development of technologies and infrastructure such as 5G and the Cloud.

As for the market for amusement centers and amusement machines, following the emergency declaration, the number of visitors was significantly decreased because amusement stores temporarily suspended operations in response to requests from local governments.

Although they have gradually resumed operating after the emergency declaration was lifted, to recover the number of visitors is expected to take substantial time.

In the resort industry, demand for both domestic and overseas travel has dropped, resulting in a drastically reduced number of tourists due to the impact of COVID-19 and travel restrictions imposed by each country.
Although the enforcement order, etc. pertaining to the “Act on the Establishment of Specified Integrated Resort Areas” have been sequentially enforced from April 2019, including the establishment of the Japan Casino Regulatory Commission in January 2020, the date of publication for the formulation of the national government’s basic policy is not yet decided due to requiring for including measures for COVID-19.”

We also get a specific explanation for the video game business. Interestingly, we learn that Phantasy Star Online 2 had a “strong” start in North America.

“In the consumer field, the effect of consumption from staying at home due to the prevention for the spread of COVID19 was observed, with strong performance of Full Game, especially in repeat sales of existing titles, sales amounted to 12,980 thousand copies (6,490 thousand copies for the same period in the previous fiscal year). In the free-to-play games (F2P*), the sales have been recorded steady performance such as “PHANTASY STAR ONLINE 2 (North American version)” was strongly launched in April 2020.”

The press release also included the expected future performance for the segment as it described the outlook for the full fiscal year.

“We expect Amusement Machine Sales and Amusement Center Operation areas to remain sluggish as those areas are heavily influenced by COVID-19. On the other hand, the Consumer area is expected to remain strong as demand for games and download sales continue to increase and expecting to record ordinary income in Entertainment Contents Business as a whole.”

Interestingly, the presentation slides mention that the publisher intends to enhance its multi-platform offering and global roll-out, meaning that Sega is interested in releasing its games for more platforms and with more simultaneous worldwide launches.

On top of that, Sega plans to aggressively expand its gaming business since it’s a growing area.

Below you can find all the presentation slides related to gaming, including breakdowns by region, digital and physical, and sales for major franchises.

The Total War series shipped 1.9 million units in the quarter. The Persona series shipped 1.2 million units. The Football Manager series shipped 900,000 units, and the Sonic series shipped 800,00 units.

If you’d like to compare, you can check out the results from the previous quarter, released in May.