Don’t expect an asset soon

The Microsoft-Sega deal isn’t what you think it is.

Sonic the Hedgehog creator Sega made a shocking announcement on Halloween 2021: a “strategic alliance” with Microsoft and Xbox. Once a leading video game console manufacturer that competed directly with Nintendo and Sony, Sega is now in a unique and unprecedented position.

While the reality of this deal isn’t as groundbreaking or drastic as it might initially seem, it sets a precedent that could extend into something far more meaningful.

Kantan Games CEO Serkan Toto theorizes that this could be the start of a long-term partnership between the two companies, something that has been rumored for decades.

“Japanese companies are obsessed with long-term relationships, says Toto” Inverse“and it could help Microsoft deepen a potential partnership over time.”

What could a long-term Sega-Xbox partnership look like? Let’s dive in.

What happened – On October 31, Sega released a press release revealing the deal:

“SEGA Corporation and Microsoft Corporation have agreed in principle to a strategic alliance that will explore ways for SEGA to produce large-scale, global games in a next-generation development environment built on Microsoft’s Azure cloud platform.”

Sega plans to develop a “supergame” initiative of global online games with a focus on community and IP usage. It’s quite a jargon-filled press release, so many questions remain about this deal.

A long-standing rumor – Microsoft has been struggling in the Japanese market for a long time, so a partnership with a leading Japanese video game maker would be an attractive option. In 2019, Xbox head Phil Spencer told GamesIndustry.Biz that the team wanted to expand its presence as a first party there by acquiring a Japanese studio.

There is evidence that Microsoft has been eyeing Sega for a while, and the two companies even discussed such an acquisition in the early 2000s. Former Microsoft exec Joachim Kempin, who worked at the company between 1983 and 2003, explained this in 2013. off to IGN:

“There was always talk about maybe buying SEGA or something like that; that never happened, but we were actually able to license what they call Windows CE, the younger brother of Windows, to run on their system and make that their platform. But for Bill [Gates] this wasn’t enough, he thought SEGA didn’t have enough muscle to eventually stop Sony, so we did our own Xbox thing. There were some talks, but it never got off the ground because SEGA was a completely different bird. It was always Sony and Nintendo, right? And Nintendo was having some financial problems at the time, so Sony came up with the PlayStation and bang! They left and everyone else stayed behind.”

Rumors of a possible acquisition were once again circulating after Microsoft struck a deal in 2020 with ZeniMax, the parent company of Bethesda Game Studios.

The partnership is primarily focused on Microsoft Azure, the cloud technology that made Project xCloud possible. Microsoft

Don’t call it acquisition – Microsoft and Xbox Game Studios have made a lot of purchases in recent years, acquiring studios like Double Fine, Obsidian Entertainment, and ZeniMax. However, this is not an acquisition. Sega has entered into a long-term partnership with Microsoft to take greater advantage of Microsoft’s Azure cloud platform.

It’s quite tricky for a western company like Microsoft to acquire a Japanese studio, so don’t expect a Sega acquisition in the near future. Still, this deal strengthens the ties between the two companies and gives Microsoft its best partnership in Japan.

Exclusivity matters — The deal is even less clear about the possibility of Sega exclusivity on Xbox platforms. Specific games are not mentioned in the agreement, although the “supergame” idea that Sega is proposing is very similar to the Fantasy Star Online 2, that is an exclusive Xbox console in the west. This approach can also be applied to other active Sega franchises, such as Sonic, Valkyria Chronicles, Virtua Fighter, and Yakuza.

If Microsoft’s cloud technology is intrinsically essential to a Sega game, it wouldn’t be too surprising if that title became an exclusive title or had a day-one launch on Game Pass.

“The statement is very vague, but it does mention that the planned alliance also extends to ‘creating new strategic titles’,” notes Toto. “Microsoft can fund future Sega games, especially since both partners worked together on a technical level as far back as 1998, when Windows became Dreamcast’s operating system.”

In the press release announcing the deal, Xbox Game Creator Experience & Ecosystem VP Sarah Bond said Microsoft will partner with Sega and “explore new ways to create unique gaming experiences for the future using Microsoft cloud technologies.” That seems to suggest a closer partnership for certain games, though we probably won’t know for sure until Microsoft and Sega announce one.

This deal will allow Sega to develop more online-focused games, such as Fantasy Star Online 2. Sega

Cloud matters — We spent a lot of time saying what this deal isn’t, but at a grassroots level it’s actually for a partnership that allows Sega to partner with Microsoft to develop games using Microsoft Azure cloud technology. That’s the same cloud service that makes Xbox Game Pass possible for browsers, iOS and Android, as well as many other Microsoft products.

By using Azure, Sega believes it can create a development platform that supports extensive network infrastructures and can provide more “diverse work styles” to its employees. The first effects of this collaboration will mainly be seen and used on the developer side.

From a consumer perspective, we can expect more Sega games to use cloud technology. That said, cloud gaming still has a long way to go in Japan, according to Toto.

“Cloud gaming is just a small segment of the $15 billion Japanese gaming market,” he says. “According to data from Kadokawa, cloud gaming will hit just $23 million in 2021 and is expected to grow to about $120 million by 2024 in Japan. In other words, cloud gaming providers in Japan have a lot of work to do in the future.”

Thanks to Xbox Game Pass, Xbox Cloud Gaming has been more successful than competitors like Google Stadia and Amazon Luna. Microsoft

A perfect partner — When it comes to cloud technology in gaming, Microsoft is the leader. Even Sony uses Microsoft Azure technology. For Japanese developers watching the emerging cloud gaming trend, Microsoft Azure provides a solid foundation from which to build and support games.

Sega President Yuki Sugino put it succinctly in the press release:

“By considering a strategic partnership with Microsoft, we seek to further advance our game development so that fans around the world can enjoy our titles; in this regard, we aim to build an alliance that leverages both SEGA’s powerful game development capabilities and Microsoft’s advanced technology and development environment.”

Again, this announcement is limited to Sega’s future use of cloud technology. The relationship between these companies could become even closer in the future and this could be an important step on that path. We’ll just have to wait.

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