Will Sega Succumb to Sony's Sizzle?

Sega insiders have told GameSpot News some surprising information about the general economic well-being and morale of Japan's gaming giant, Sega Enterprises Ltd. From what we have heard, Sega appears to be at a pivotal point. Burned by the Saturn, enduring the effects of an overall weak Japanese economy, and pinning its hopes on the Dreamcast, Sega needs a couple of winning hands to survive.

According to a number of sources we've spoken to over the past two weeks, Sega is currently instituting salary cuts, reducing some employees' pay by as much as a third. Sega has recently reduced its internal support/administration staff by 25 percent, and while its current president, Shoichiro Irimajiri, still enjoys the support of Sega's parent CSK Corp. and specifically its chairman and CEO Isao Okawa, rank-and-file employees we've been in touch with describe a company lacking strong leadership.

One source says that while Dreamcast sales show promise (saying sales now stand at 650,000), news of Sony's next-generation PlayStation sent shock waves through Sega's hallways. Sega's next-generation arcade chip, currently called Samurai, is said to be less powerful than what PlayStation 2 will be able to deliver to the home market. This fact alone has sent Sega techs back to the drawing board and has created a feeling of gloom among many Sega employees.

Japan's economy has been of no help to Sega's bottom line either. Reports on Friday showed a fifth straight declining quarter of that country's gross domestic product (the measure of all goods and services produced in the country). The sluggish economy has had a measurable negative impact on Sega's arcade revenues, although it should be noted Sega is not the only company affected by declining consumer spending at game centers. The economy in Japan has also rendered the once-mighty cash-cow Print Club more or less moribund, another Sega source recently told us.

Declining revenues could be one of the reasons why Sega has recently expressed an interest in entering the Pachinko industry as a manufacturer of Pachinko machines. Late last month The Wall Street Journal reported that "Sega is 'keen on' becoming a full-fledged manufacturer of Pachinko machines."

As for any white knights that may be in Sega's future, talk of Yu Suzuki's monumental game Shen Mue rescuing Sega is dashed in light of what sort of sales figures are said to be required to recover that game's development costs. Just this week, a Sega source told GameSpot News that the current break-even figure stands at two million units.

One industry insider told us "Sega's going to fry, and Kutaragi will be the one holding the switch for the electric chair."