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More Marvel for Sega

Incredible Hulk, Captain America and Thor all make it onto Sega's licensing roster

Last week Sega expanded its relationship with Marvel, inking a multi-year licensing agreement for three more super heroes: Incredible Hulk, Captain America and Thor. Sega of America VP of Marketing Scott Steinberg tells us what this means for Sega's constantly evolving business and why he's confident the properties will be successful.

So what does this expanded deal with Marvel mean from a business perspective for Sega?

Scott Steinberg: It's huge for us. I think it's an emphatic exclamation mark that Sega is in the business of building big action events, and partnering with Marvel and their new business model—which is much more tightly controlling their properties and in turn having a higher degree of success and higher quality bar as a result of that control—puts us firmly in the camp of being a licensing driven company in a lot of ways. We're looking at next summer as a big window for us with Iron Man in May and Hulk in June... It gives us a pipeline of events and big marketing opportunities, and the new Marvel business model is giving us a lot more confidence that the movies are going to be big blockbusters.

Did you reach out to Marvel to secure this deal, or were they looking for a video game publisher to make these products? How did the deal come about?

The relationship started with Iron Man, so it wasn't like all these properties landed on our laps simultaneously. We had done the negotiation for the deal with Iron Man and from that, and our working relationship with the studios and the film team, stemmed elongated conversations about the other properties and the other characters. And obviously we like working with them, they like working with us, and a more substantive agreement was byproduct of those good vibes.

Did you have to compete with other publishers to get the rights to these other Marvel characters? Obviously Activision has produced a number of games for Marvel, so I would think they would have been interested as well.

Yeah, that's a great question. If you look back these past couple years, EA's had a few dances with DC [Comics] with Batman and Superman, and Activision definitely did well with Spidey, and they've done X-Men and Fantastic Four, and Vivendi had Hulk, so there's no doubt that these are competitive negotiations. I can't speak to who else was at the table; oftentimes, in most cases we have no idea.

We don't really know who they're talking to, don't really know whether Activision says, "Hey we've got two already; we're not really sure if we want more," or if THQ wants to get into it. I can't really speak to that with authority, but I do know that these [deals] are always competitive because we've been in negotiations with other studios and have not come up with the goods on occasion. Clearly, the industry continues to look at big movies and big licenses, and comic books in particular, as a high target category, but in this instance Sega came out on top.

Do you view this as sort of another sign of the "new" Sega? You guys have been targeting big licenses and Hollywood cross promotion more and more...

Right, we're nowhere near the percentage of companies that are bigger than Sega and higher on the leaderboard; some of those companies are nearly 100 percent or 60 percent plus licensed [content] in their portfolio. It seems bigger for us because we've made a few announcements, we're playing catch up a bit, and we're boldly announcing these as they're concluding. But that will not atrophy our goals to bring out new IP and to dust off the classics that Sega has in its vault. I think that's part of our uniqueness in our positioning as a publisher, that we have this incredible heritage, and we will be bringing those out as well. You probably heard that we're bringing NiGHTS back on the Wii, and there are more of those [types of] announcements to come as well.

We've kind of got a lot of things going on simultaneously, and one does not necessarily mean we are subsuming the other. In our strategy all three really have to flow for us to be successful.

And is there a certain percentage that Sega targets internally, where you'd like to have a certain number of original titles, a certain number of licensed titles and a certain number of new IP? How do you strike the right balance?

That's a great question. Very insightful. We have those conversations all the time and because we are kind of birthing the new Sega in real-time, we do not have a great percentage today of licensed properties. We don't personally and professionally feel that Sega wants to be in the 100 percent kind of business of licensed properties because of the assets we have in our vault and the fact that in this new era of next-gen we feel like we can deliver new IP and hopefully build new brands. So in the next couple years you're going to see licensing becoming a bigger percentage, but you'll never see it be a majority.

They're aren't a good enough group of licenses for us to flip a switch and have all these fall out of a tree and into our portfolio. So growing organically like this requires us to be pretty measured, and you'll probably see us still be under what the EAs and the THQs and the Activisions have because our philosophy around new IP will always hold a fair amount of resources to building new characters and new properties.

Is Sega looking to go in the other direction with Hollywood as well—that is, leverage Hollywood to turn its game properties into movies?

I can't really talk about that. It's not core to our business and core to our strategy right now. It's part of our past for sure, but going forward this management team is more worried about creating new IPs and building out great licensed properties.

I imagine getting these new Marvel licenses cost quite a bit for Sega. What are your thoughts on the risks associated with the investment, not just from a monetary standpoint but also because the games are tied to the movie experience and if one of the movies tanks it could have a negative impact on Sega's game as well?

Without question, there is risk. You can't compare the risk of making a game to the risk of opening up a burrito shop. In the interactive entertainment space, we're in the business of managing risk because that's just the life we lead. And new IP absolutely has risk; it's a different kind of risk, but it's super high risk as well. For classic IP, it's probably the least risky of those three different scenarios. But from an entertainment standpoint, we recognize that Marvel has changed their business fundamentals by carving out their studio group as a separate controlled entity that keeps their properties closer to their vest than before. So a part of our expectation is—and this is a risk mitigator—that they are putting together the teams that in their mind (and ours) will be building "AAA" movie properties and blockbusters. And that is one of the tipping points that enabled us to set up this multi-character deal with them, because we feel their structure and their approach is new and different, and it mitigates their risk and our risk and it increases the chances of a "AAA" blockbuster being a product of their effort.

From that obviously we have a much more positive environment for a game to be launched when a movie is doing north of let's say $200 million and is well-reviewed and has an audience, and that audience overlaps with our game audience extremely well. That in conjunction with getting enough lead time and putting the resources and assets to bear to build a good game—build a game that's reflective of what's going on in the movie theater and with the creators of the movie—is a new and different part of the model in next-gen because the graphical fidelity of what you'll see in the theater and what you'll see in your home theater has never been closer. That's a new and different part of our industry that's really made Hollywood stand up and take notice, and we're much more integral to the creative process with these than prior generations.

And each of these projects is going to be tailored to take advantage of the different consoles and handhelds, right?

That's right. Whether it's a true renaissance period for video games and movies only history will tell. I think there's a lot of alchemy there that gives gamers renewed hope that publishers will be building games that are closer to interactive movie type experiences... the ability to live vicariously through these action heroes and play them is a real promise that's going to lower hanging fruit than ever before. That's why I think the batting average in this industry has been a lot better of late. If you go back and look at the 16-bit [offerings], the quality of the games were definitely suspect, and in part that was because of the timing. Game [companies] heard about certain movies six months before they were releasing in theaters, and even back in the old 16-bit days you couldn't really make a good game in six months. Now the studio guys are recognizing to a much higher degree how important the video game business is to their marketing efforts. We're getting in on the ground floor, hence Thor and Captain America, which haven't even been announced relative to talent and theater date and yet we're talking about them as video game properties right now.

I know that Sega has been focusing on Western markets more and more, but do you think these super hero characters will have appeal in the Eastern markets as well?

Yeah, that's tough to answer—I mean, we hope [it appeals] and Marvel hopes. And that's part of the effort, to build them as stronger characters and properties in the Eastern markets. It's one of the reasons I think Sega was able to secure these, because we do truly have global distribution and global reach. In some instances, as you pointed out earlier, the video game business counterpunches off of what happens in the cinema. Marvel and their distribution partners have to build movie hits in these markets and then that lays the groundwork for the interactive world to have some hits and blockbusters. But clearly, Marvel understands that the Asian markets are different. Obviously, comics are completely different there than here in the West, but only time will really tell [if it will appeal to them].

So does that affect marketing and production in terms of figuring out how many to ship to certain territories as the release nears?

That's a decision our Japanese team would have to make. They will work with Marvel's marketing partners in those different territories, and it'll be a judgment call relative to how many theaters the movie opens up to and just the overall expectation. What typically happens for us is we make retail presentations and pitches along with the Marvel folks to all the major retailers, and our goal is obviously to make these movie launches into retail events as well as consumer events, and get the Targets, and the Wal-marts and the Best Buys and all the toy licensing partners that Marvel will have in place for these movies, combine all of our efforts and truly be a straight arm at the point of purchase. And that's what they'll need to try to do in the Asian markets as well.

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