Mike Hayes explains recent layoffs, new direction in 1UP interview

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Mike Hayes: CEO of SEGA West

Mike Hayes, the recently appointed CEO of SEGA West explains the recent layoffs to 73 of their employees between their American and European branches and about the new direction they want to take in a new interview with 1UP.com. Hit the jump for the full interview.

Yesterday, Sega laid off 73 of its employees as part of a structural reorganization to focus on digital games (such as iPhone, Facebook and Xbox Live Arcade) and move all administrative duties and traditional console game development to its London office. The news may have seemed shocking to most, but according to Sega West CEO Mike Hayes, it has been happening behind the scene for the past six months or so as part of the natural evolution of the company – and perhaps, the games industry as a whole.

1UP caught up with Hayes over the phone — volcanic ash was keeping him grounded in London — and discussed the rationale for this dramatic shift in Sega’s business strategy, as well as the future of its traditional game output.

1UP: How exactly is Sega defining digital platforms for its new Digital division?

Mike Hayes: It’s a good question, because it’s such a broad space. Digital for us is kind of really all the checkboxes you’d get. For us it’s certainly all mobile devices – iPhone, iPad, the interesting new devices we’re seeing from other players, for example Microsoft. It includes games for XBLA, for PSN, for Virtual Console. It also then goes beyond to cover distribution methods like on PC, and then it’s also going to encompass everything to do with social gaming and casual gaming. So it’s a broad spectrum, but it’s kind of everything that isn’t physically going to be shipped in a box of some sort. So naturally there are huge gray areas between what is digital and what is boxed because, but it’s broadly that definition which we’re encompassing into the new Digital group.
1UP: Why such a focus on digital?

MH: Clearly the evidence we have — both in terms of the general market and also in terms of the success we’ve had in digital so far — is that naturally it’s a growing market and it is profitable. Is it the pot of gold at the end of the rainbow? Hm, perhaps that’s a bigger debate. But certainly it’s an important sector for us to grow. So we had a lot of success so far, particularly with existing Sega IP that we’ve reinvented in the digital space. So for example Monkey Ball 1 and Monkey Ball 2 that we had on iPhone and iPad. And what we want to do is take this one step further and start to create new gaming experiences, new IP and push our level of ambition further within the digital group. What we need for this is focus within Sega, and certainly there will be more investment coming into that sector which allows us to grow our business over the next few years. This is a case of growth of digital, not contraction in the traditional part of the business. That is certainly something that’s going to continue to be the bulk of our business, certainly in the short-term, and something we’re going to continue to invest in.

1UP: So the boxed retail products are doing good for you? This isn’t a decision based on their performance?

MH: No, not at all. It’s quite interesting, if you look at Sega’s relatively short modern history when we reinvented ourselves as a multi-platform publisher, the excitement for us was being on the PlayStation 2 and Gamecube and Xbox, and we sort of travelled a path where our market share has increased significantly over the past five years in both North America and in the European territories. This is part of our ongoing expansion, which is great. We have a very strong base now in the traditional business. We still want to grow, we still want to be very competitive, but in terms of development and growing our overall market share, part of that sort of journey for Sega, sort of like chapter two, is this big digital arena. It’s new, it provides new outlets for us. We can do different things in terms of gaming experiences, which is interesting for us. So in a way it’s sort of a part of the ongoing rebirth of Sega as a multi-platform agnostic publisher of games.

We do not underestimate the continuing importance and relevance of what we call the traditional packaged goods business. That’s still earning the bulk of dollars, and that’s still a very important part of investment for us. So I want to reemphasize that, that’s a really important part of the business for us and will remain so, we guess, for many years to come.

1UP: Do you see the amount of boxed products decreasing in the immediate future?

MH: No, that’s certainly not our intention. We’re still out there, we want to talk to every developer there is that’s got a great idea or a great prototype. It’s our intention to continue to grow in that field definitely.

1UP: Why London for traditional development? Are they better equipped than the U.S.?

MH:To be clear, when we say one block is in San Francisco and the other is in London, that doesn’t get away from the fact that we want to have a successful digital business globally and continue to have a successful traditional business globally. But this is very much an administrative point. So notably with London being used to handling multi-territory business, it is better set up to have a centralized operation. And of course having digital in San Francisco naturally the Bay Area certainly being the hub of all things digital at the moment, it was practical sense to put those two in those areas. We live in a global world, and we’re a global market. That just happens to be where our administrative center is. It doesn’t lessen our ambitions in either of those sectors anywhere in the world, to be frank.

1UP: You’re describing it as an an administrative hub, does that mean Sega America will be reporting to Sega London?

MH: As CEO, I’m based in London. So technically that’s been happening ever since I got the position last summer in any case. But there are certain things, so for example we will put the Global Brand group in London. However, a lot of that has happened already anyway. So really a lot of the day-to-day operations we have working out of San Francisco in the traditional business actually is going to remain relatively unchanged.

1UP: It sounds like you’re saying that this move has been happening for some time, and we just haven’t seen it on the outside?

MH: Yeah, that’s absolutely right. Actually the efficiency and new opportunity of digital turned out to be reasonably convenient bedfellows in that we could take both and look at managing cost and look at how do we grow the business further. So it’s something we’ve been working on probably for the last six months.

1UP: I’m seeing that 36 jobs were cut in San Francisco, are these cuts entirely because of the move to digital or is there more to it?

MH: It’s part of looking at the efficiencies of the company overall, and by putting some of the central work in London, we can make efficiencies in various departments. I’m happy to say that London and San Francisco stem from where Sega used to be as a hardware company, when they were more like two separate companies, and that’s the legacy a little bit of what we have in operation, and that’s probably something that’s not really seen by the outside world, nor should they probably be overly concerned about it.

So, my job really has been to…you know, we’re truly in a global business, and digital absolutely has made sure that’s defined fully. So, I mean to think of how can I have core administrative hubs to manage everything outside of Japan, China and Korea. So there was a lot of duality, there was a lot of doing the same work twice. And you’ll see in Europe, likewise a similar number of people have unfortunately been made redundant, but that’s because there was a lot of copying between both San Francisco and London. So it’s kind of a natural question of how do we become more efficient and affective as an operation, and that’s what the exercise has been. There’s nothing specific, as to where 30 of those 36 positions come from, it’s being something generally within most of the departments in the company.

1UP: I’m having a hard time wrapping my head around why 37 jobs were cut in London based on the explanation I’m hearing, which is that this was an organizational shift to London.

MH: Not everything is moved to London, so for example take QA and localization as very good and truly staff-heavy operation. Within the process there was a lot we were duplicating. So for example there’s a lot of what was being done in London that was copying what was being done in America. So there are those positions that don’t necessarily need to be as highly staffed as they have been. So that’s particular in Europe where we’ve become more efficient by putting more of the emphasis on QA and localization out of the San Francisco office. But the administrative hub of the package business is now going to move more into London. So for example the Brand Management team that we had in America – not all, but a lot of that – is not required because a lot more of that will not be done by the team in London. By really working people’s objectives and their hours, we find that people can be more effective and do more. So it’s a little bit of everything in terms of how we’ve managed to reduce those numbers and become more efficient with the reorganization.

1UP: Have these shifts affected release dates?

MH: No, not at all.

1UP: So Sonic 4 is still on track?

MH: (laughs) Sonic 4 is still on track, yeah. The only reason I chuckle is that we’re in videogames. I’ve never ever yet seen a development schedule that is always on time, do you know what I mean? But in terms of the reorganization, it is certainly not affecting any of our development schedules.

1UP: Was the closing of Secret Level because of the shift to digital?

MH: It was a broader thing. We’re pleased with Iron Man 2 that they worked on, but the truth of the matter is that we couldn’t find another appropriate project to give them. It was something you may recall we did with our racing studio here in London, about three years ago. It was a good team, but we were unable to find them their next project.

1UP: So you’ve let a lot of people go, but it is a reorganization and a change in focus, so does this mean you’re also hiring?

MH: There is one key position, we’re looking to hire a senior person into the digital group, preferably with good PC experience. And yes we will be hiring more people into the digital group over the next 6-12 months.

1UP: So there is a long-term plan to grow the digital team?

MH: The term I like to use is “controlled profitable growth.” You can either go off and spend whatever it was, $300 million dollars like EA did to get into the business. Or you can just cover a middle field, and that’s really where we want to be. So we’re very prepared to invest in development and personnel, but I want to do it in a very controlled manner over a period of time. The main reason of course being that, you know, is digital the big gold rush? It’s exciting, I think it’s going to be very successful, but there’s also a lot of unknowns, and I think you need to be a little cautious not to overly rush into that. So you will see a lot more from us over the next twelve months in what we’re doing, particularly in new projects that we’ll be announcing over the next few months. So, yep, we’re on an upward curve in terms of investment and people, but it’s going to be very controlled over the next year.

1UP: Do you see this shift in focus on digital over retail as a strategy specific to Sega or to the industry as a whole?
MH: I think it’s an inevitability. Digital is there, digital devices are there. I don’t think digital and retail need to be mutually exclusive at all, I think a publisher can successfully support both of those, and that’s exactly what we intend to do.

[Link: 1UP @ http://www.1up.com/do/feature?pager.offset=0&cId=3178958 ]
[Thanks: ShadiWulf]

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