What Is Happening With The Sale Of Sega’s Arcade Business In Japan?

This story was exploding over the internet this morning, and unfortunately, I’ve been seeing a lot of comments on this that are incorrect or spreading the false idea that arcades are done in Japan and that Sega’s done with arcades as a whole. So let’s set the story straight as best we can!

For some background, GENDA is a Japanese company that specializes in operating thousands of pieces of arcade equipment throughout the country. They even have a division here in the USA called Kiddleton, a Chuck E. Cheeses-like facility in Texas.

The news that came out today that is not being correctly reported in all accounts, is that GENDA is purchasing all of the shares of SEGA Entertainment Co., Ltd. (the division of Sega responsible for site operations in Japan) and is taking over that part of the business.

What this means is that the locations are changing ownership. It does not mean that those locations are closing down (see the company statement below). They’ll likely lose the Sega name to whatever GENDA decides, which is a sad thing for anyone who wanted to visit a “real Sega arcade.” Yes, it is possible that some will close, if GENDA decides that they need to shutter poor locations, but all of them? Not at all.

UPDATE: Famitsu weighs in, detailing that a lot of the resources that Sega had spent on the operations will now shift towards their console game development business (not developing a new console, just shifting money and people into the home game development division). IT also mentions that the locations will maintain their Sega branding, so you’ll still be able to visit a “Sega arcade” when the day arrives that tourists can go back to Japan again.

Here’s a re-worked Google Translation of their explanation of what they are up to here. They are not acquiring this business to shut it down – they’re expanding their own (which could eventually mean more Japanese arcades in the country if they do well):

We aspire to make the lives of people around the world more enjoyable, by building a worldwide global entertainment network. Our goal is to increase the “total amount of fun” in the world. Currently, we are developing and expanding our amusement machine rental business, our online crane game business, our sales promotion business, China business, and US business.

SEGA Entertainment’s mission has been to create smiles and positive emotions through “fun places”. It operates 199 entertainment facilities (including 193 amusement facilities) nationwide.

As an amusement facility operating company, we are proud to be the third largest business scale in Japan. By collaborating with SEGA Entertainment, we will revitalize the industry for both manufacturers and operators.

For all the people involved, such as the end user, you can feel that “the fun will increase”.

We aim to create such an amusement industry.

I will have to do some research to see if this also includes Joypolis facilities or not – I don’t know for sure, so I’ll refrain from speculating there. UPDATE: Xavier below mentions that Joypolis operations are already run by someone else, so this latest news just expands that.

Let me emphasize that this does not mean that Sega is no longer developing new arcade machines. They have just sold their stake in one of their many divisions. What are their plans with the money that they made from this deal? I have no clue. But there is nothing I’ve read to indicate that Sega is “exiting the arcade business” as some people are proclaiming. On the contrary, Sega continues forward in building and creating new games.

One thing that we often miss in the business here is that the business model for arcades in Japan is a bit different, and it has failed. Most new equipment runs off of revenue sharing to the manufacturer/developer – even when you buy the game cabinet. This makes margins of operating the business for the operator razor-thin when you have to take into account all of the other expenses that a location faces: rent, insurance, taxes, wages, maintenance, electrical, etc. There’s only one system in Japan at the moment bucking this trend, the oft mentioned exA-Arcadia, and the lack of rev sharing is one reason why the platform has done so well over there. Sega has had their own multi-game online rev sharing platform in operation there, All.Net Pras Multi 3 (usually called APM3), but again, rev sharing is not operator friendly, so the trend is moving away from that.

From the sounds of it, GENDA is looking to take the locations in a new direction. Often those willing to make changes and adapt are the ones who thrive. We’ll keep an eye on this and see how it shakes out, but stop with the doom and gloom – overall this has a lot of potential for positive growth for Japanese arcades.