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Sega, Electronic Arts in Distribution Talks

A sales venture in North America could help the struggling Japanese video game maker cut costs.

May 28, 2003|Alex Pham | Times Staff Writer

Sega Corp.'s president said the Japanese video game company is discussing a joint venture with rival Electronic Arts Inc. to distribute games in North America.

"We will consider forming a sales joint venture in the United States if necessary," Sega's new president, Hisao Oguchi, told Reuters on Tuesday in Tokyo. He said Sega was weighing a proposal by Redwood City, Calif.-based EA, but did not elaborate.

EA, maker of the popular "Madden" series, did not reply to requests for comment.

Sega, which gets half its video game sales from North America, has been seeking a buyer. Until recently, Sega was in discussions with two suitors, Sammy Corp. and Namco. Both negotiations abruptly ended last month.

Sega, whose games include "NFL 2K3," has been struggling financially. After five years of net losses, Sega last week posted a $26.4-million profit for the fiscal year ended March 31, buoyed by its arcade business in Japan. Sales, however, fell 4% to $1.7 billion for the year.

Oguchi, who took over as president last week, said he plans to cut Sega's development ranks -- currently 1,000 people -- by as much as 20%.

A deal for EA to distribute Sega's games in North America could help it to cut costs further, analysts said. Sega has already laid off a portion of its San Francisco office, which handles regional sales, marketing and distribution.

"It's an intriguing possibility," said Edward Williams, an analyst with Gerard Klauer Mattison in New York. "But it raises so many questions and provides so few answers."

A big question is what Sega would do with its San Rafael, Calif., development studio, Visual Concepts. The studio makes sports games such as "NFL 2K3" that compete against EA's "Madden" series.

"If Sega partners with EA, that would probably mean the end of Sega's involvement in sports," said P.J. McNealy at GartnerG2 in San Jose.

EA shares gained $2.42 to $65.60 on Nasdaq.

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