Sega Stock Takes Plunge

The Associated Press is reporting that Moody's Investors Service today downgraded its long-term debt rating of Sega Enterprises to junk bond status.

Moody said that part of the reason for the downgrade was the fear that "Sega's earnings will continue to be pressured by intense competition from financially stronger competitors, which have substantial market positions in the home video game business."

Sega's rating fell from Baa2 to Ba1 status and affects some US$857 million (120 billion yen) worth of the company's outstanding bonds.

The downgrade also caused Sega stock to fall 115 points to 2,440 on the Tokyo Stock Exchange Friday.

Sega's launch of the Dreamcast in Japan later this year may not help the company either. With Japan's current economic troubles, luxury items (such as video game systems and arcade gaming) aren't in as great a demand as they usually are. Therefore the launch could fizzle out as Japanese families and gamers spend less on their hobbies.

What this could lead to, hypothetically, is an early release of the Dreamcast in the US. With the yen pulling in very weak against the dollar, it could do Sega well to launch in the US closer to the Japanese launch in order to prop the company up with profits from the strong dollar.

This situation has many drawbacks, however. First, Sega would not be launching at the time it originally announced, sending developers into a scramble to deliver product at a faster pace. If a US launch was pushed up, the company might be without the kinds of launch titles Bernie Stolar has said the system will have at launch. The system would be without its Heat.net multiplayer network. Plus, the company wouldn't have ample time to ramp up marketing efforts.

All around, an early launch would do very little for Sega except ensure that its financial situation did not drop much further.

One thing's for sure - Sega is going to need a quick save from its current problems.

Sega of America could not be reached at press time for a comment on the company's situation.