Sega keen to improve profitability of digital titles after disappointing year

Sega has released its financials for the full-year ended March 31, 2019, and the company has lamented the performance of its digital games. 

Focusing on the company's Entertainment Contents division -- which houses its video game operations -- net sales rose by 5.6. percent year-on-year to 219.6 billion yen ($1.97 billion), while operating income decreased by 33.6 percent to 9.9 billion yen ($88.9 million). 

Breaking that down, sales in the digital area actually rose to 40.8 billion yen ($366.4 million) from 38.5 billion yen ($345.8 million), but operating income fell to -1.3 billion yen (-11.7 million) from 3.3 billion yen ($29.6 million).

Sega explained its failure to launch more new titles meant it struggled to offset declining catalog sales. The company had initially hoped to launch 12 new digital games by the end of this fiscal year, but only managed to churn out eight. 

As the graph below shows, that resulted in a worse-than-expected decline in operating income, and the company now plans to improve the profitability of its digital games roster by transferring resources to more lucrative areas, lowering operating costs, and launching six new titles by March 2020. 

On the packaged software front, sales decreased slightly to 54.6 billion yen ($490.3 million) from 57 billion yen ($511.9 million), while operating income rose to 8.2 billion yen ($73.6 million) from 6.5 billion yen ($58.4 million). 

Despite that decline in revenue, unit sales were actually up. In terms of packaged games, Sega sold 23.4 million units during FY2019 compared to 17.3 million units in FY2018, with robust repeat sales of catalog titles largely responsible for that upswing. 

Looking ahead, Sega expects to see a significant rise in packaged sales during the next fiscal year due to the launch of several big-name games like Team Sonic Racing, Total War: Three Kingdoms, and Mario & Sonic at the Olympic Games Tokyo 2020. It also anticipates more sales on the digital front, and hopes new releases like Sega Pocket Club Manager, League of Wonderland, and Kemono Friends 3 can lead the charge.

If all goes to plan, the company expects to see net sales of 259 billion yen ($2.32 billion) and operating income of 11 billion yen ($98.8 million) within its games division by the end of the next fiscal year on March 31, 2020.

Briefly looking at how the company performed as a whole, consolidated sales rose by 2.5 percent year-over-year to 331.6 billion yen ($2.98 billion), while profits fell by 70.4 percent to 2.6 billion yen ($23.4 million) over the same period.