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I've been concerned with the fact that Sega acquired Atlus. How will things turn out? Hard to say, but I have a lot of thoughts on the topic...

Christian Nutt, Contributor

September 20, 2013

10 Min Read

This week, Sega purchased the assets of Index Corporation, Atlus' bankrupt parent company. I was pretty vocal about the fact that I find this depressing. I chose the word "depressing" simply because I'm a curmudgeon -- I used to be a big Sega fan, and the Sega I was a fan of isn't the Sega of today. But I also think it's going to spell big changes for Atlus, and I fear those changes are not likely to be ones Atlus' fans like, by and large.

In Japan, Atlus is a notably successful niche game developer and publisher. In the West it represents something different: it's the best-loved publisher of high-quality Japanese niche games. It's a symbol of that idea, in fact. Notably, some of those games originate from Atlus Japan, and some originate with other publishers.

The Atlus games biz (in Japan and the U.S.) was the profitable part of Index (bad acquisitions tanked the company). So why do things have to change? I think change is inevitable simply because of the circumstances, and I'll explain why.

Sega West: Business

The most obvious reason that this is going to mark a big change is because this acquisition was obviously spearheaded by Sega of Japan for its own reasons; Sega in the West is not likely to have been involved in it. Now, almost certainly, it will have to be.

While many have expressed hope that Atlus U.S. could stay as it is and continue to operate profitably, the realities of business mean that it's likely that sooner or later that something will happen to the Atlus office in Irvine, California. One tenet of business is cost reduction. Sega already has publishing capabilities and localization workflows established in its San Francisco office, hundreds of miles away.

As far as Japanese games go, the signals we get out of San Francisco are mixed at best. While Sega of America recently released Hatsune Miku: Project Diva F, a niche game steeped in Japanese pop culture, it seems to have given up on the Yakuza franchise, Sega Japan's flagship.

It has also repeatedly passed up opportunities to localize the sorts of Sega games that are Atlus' bread and butter. Even as Atlus U.S. kept releasing PSP games, Sega skipped Valkyria Chronicles 3; it's also totally ignored the 7th Dragon series, a well-regarded niche RPG series for DS and PSP originally helmed by Kazuya Niinou, who was (at the time) best known as the director of Atlus' Etrian Odyssey franchise.

By the time those games hit the PSP and DS, Sega had exited those markets. But Atlus U.S. was still deep in them at the time. Why did they work for Atlus but not Sega? My guess is overhead. Sega, trimmed down, still has big costs -- it's a big publisher. Atlus U.S. is structured specifically to remain profitable while catering to a tiny niche market.

I don't know enough about Sega's finances to predict how many copies a game has to sell to be worth the bother, but I suspect that the 60 to 70k copies Shin Megami Tensei IV sold at retail in the U.S. -- according to NPD figures leaked on NeoGAF -- is below that threshold.

You can see the result of overheads in the business decisions large publishers make all the time. Mostly, their bets are big. Sega U.S. may be lean enough to make money on smaller games (unlike some others, it hasn't yet exited the console downloadable space, with Castle of Illusion having just released) but retail-packaged niche games are more demanding.

To be totally honest I'd need someone who knows more about the ins and outs of publishing to give me definitive cost breakdowns. But I know for a fact that it's tough to make a profit on games like this. Sega, as a company, does not give any external indications it's in the same "hard to make a profit" business Atlus U.S. is.

Sega West: Culture

Just as relevant, I think, is the culture of Sega in the West. This is not the company that gunned for success with the Dreamcast anymore (of course it isn't.) Over the last several years, the publisher has become increasingly westernized, and at one point had dreams of being a top-tier Western publisher on the backs of Western-developed games.

When Sega had to make a decision about continuing to fund Bayonetta 2 or Aliens Colonial Marines, it chose the latter -- despite positive rumblings out of Sega managemnet in the west about the franchise. It was Nintendo stepped in and saved Bayonetta 2. For that matter, when it had the choice between the incredibly troubled Aliens shooter or the Aliens RPG under development by Obsidian, Sega West chose the Aliens shooter.

Of course, these choices are hard to argue with on at least a superficial level  -- an Aliens shooter that wasn't a total disaster could easily have been a success that far outstripped Bayonetta 2, even back when Bayo 2 was a multiplatform release. And of course, there are factors I don't know -- for example, Sega also may have been trapped in a license contract that forced it to keep going down the Aliens road no matter what.

Still, the company acquired Relic from THQ and, before that, Creative Assembly. Nothing against these studios whatsoever; they're talented, and smart buys. But they say something about the culture of Sega West: hardcore PC, Western-focused management. If you go to Sega's website today, you're immediately confronted with a promotional image for Total War: Rome II.

In fact, these days, Sonic is Sega's only meaningful Japanese franchise in the West.

Sega Japan is moving toward mobile and F2P... and then there's Sammy

And we have some evidence that Sega Japan is less interested in these kinds of games (the Atlus kind, I mean) than it used to be, too. There's not much for the 3DS (or the Vita) on its schedule for 2013, and its biggest Vita game so far, Phantasy Star Online 2, is a port of a free-to-play PC game. So far, 3DS has been a bust for the company. Sega is also deeply involved in the Japanese smartphone market, and hopes to exploit Atlus IPs to this end, too.  

PSO2. Out in Japan -- but not in the West. 

All the same, I do think Sega Japan is interested in the Atlus portable lineup. The 7th Dragon series has had three entries for a reason. More reliable mid-tier hits would bring Sega more stability (it tends to have fairly volatile up-and-down financial results.) But see above on my opinion of those games continuing to get localized under a new regime.

And then there's Sammy. The above link also says that Sammy intends to use Atlus IP for its pachinko/pachislot business, and this makes sense. I haven't been to Japan for a couple of years, but the last time I was there, you'd had to be forgiven for thinking Evangelion was a pachinko IP, not an anime IP, if you didn't know better. Persona pachinko? Apparently it already exists. Sounds weird, but it's a non-trivial part of the appeal of this purchase.

There's an element of unpredictability here. Does Sega-Sammy really want to continue the Atlus franchises, or does it want to strip-mine IP? Time will tell.

What will happen to Atlus U.S.?

As I said earlier, I fully expect Atlus U.S. to get shut down or divested by Sega. Sega has the machinery it needs to localize and publish games. We recently saw this happen with the Koei Tecmo merger, we saw it with Bandai Namco, and we saw it with Square Enix. It's just business. 

But note that I said "divested." Atlus U.S. could pivot and become an independent publisher. XSEED and Aksys, the other two notable American niche publishers, are backed by Japanese companies, but they're not controlled by them, and they bid on Japanese games from a variety of publishers and release them in the West. As I noted, Atlus U.S. already does this, so it already has the contacts and expertise to build a business out of it.  

Though I have no really deep knowledge of how it operates, I could see Sega selling Atlus U.S. but keeping a stake in it, and letting it run freely. This would actually be a best-of-both-worlds scenario, because it might let Atlus keep going with "Atlus" games (i.e. Etrian Odyssey, Shin Megami Tensei) and open up Sega games, too (we could see a first Western release for 7th Dragon, or for Valkyria Chronicles again.) That would be wonderful.

We can dream, right?

What else might happen?

Of course, not every Atlus game is a total niche title. Persona 4 Golden is widely recognized to be the most popular Vita game in the world; globally, when you add in sales of the PS2 version, it has sold at the least multiple hundreds of thousands of copies. I have a really hard time imagining that Sega would pass over a theoretical Persona 5 for the West even if it completely shuts down Atlus U.S. It's just too successful a franchise.

There is another bright spot: Sega Japan is forming a subsidiary called Sega Dream Corporation to manage the Index acquisition. If Sega Dream is run as a separate company, and has its own profit and loss center, it might, essentially, stay Atlus -- have its own U.S. office, handle its own games. That would be great.

Given that Sega has gutted its San Francisco office already in the name of cost reduction, maybe it'll keep the Atlus team together to handle the influx of Atlus' games needing localization. But I think we've seen a lot more counterexamples (the mergers/acquisitions I listed above).

We also have to think critically about what Western-focused management will think of Atlus' titles ("What the hell is a Shin Megami Tensei? What did it sell, again?") to assume that this is going to be the case, or even hope for it. The fact of the matter is that the games Atlus releases in the West, for most publishers, may as well not even exist. And Sega (in the West) hasn't reliably shown us that its attitude is different.

On Facebook, a guy I know responded to my "depressing" comment with a "isn't it great that Atlus gets to live to fight another day?" Of course it is. Anything is better than the death of a great studio. But I think for Western fans of the company and the kind of games it publishes, the future is anything but certain.

Some people asked me who I'd rather see acquire Atlus. Personally, I'd hoped that Nintendo would purchase the company. Atlus has been a great supporter of the 3DS and is working together with the company on a Fire Emblem/Shin Megami Tensei crossover game for the Wii U.

Namco Bandai, meanwhile, has put increasing emphasis on its Tales of RPG franchise, so from a Western fan's perspective, it seemed like a safer home. And I saw GungHo as a dark horse candidate, since it has the capital to buy studios (and already owns another portable RPG-focused studio, Game Arts.) But obviously these were not to be.

The truth of the matter is that it's too early to predict what will happen. I'm trying not to be cynical here, just realistic.

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