Changing a Strategy, Avertising a Crisis
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Holmes Report
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Changing a Strategy, Avertising a Crisis

Sega’s global management team made the strategic decision to get out of the hardware business and focus on the company’s true strengths – creating and publishing video games for all game consoles.

Paul Holmes

Sega, a leading worldwide video game publisher, had launched three video game consoles in the last ten years, all of which had failed in terms of long lasting success. Their most recent console was the Sega Dreamcast, which launched in 1999 with record-breaking sales and critical acclaim, but fell flat in regards to sales by holiday 2000 due to the impending launch of Sony’s PlayStation 2.  As a result, Sega’s global management team made the strategic decision to get out of the hardware business and focus on the company’s true strengths – creating and publishing video games for all game consoles, while relying on the team at Access Communications to ensure that Sega’s reputation wasn’t marred by scathing headlines and negative attitudes toward the company.  Through a series of intensive PR tactics including media relations, corporate counsel, and internal communications, Access was able to help Sega avert some negative news, amidst numerous crisis that erupted before the announcement.
 
CHALLENGES
 
Because this would be the fourth time that Sega had to “abandon” a hardware system that millions of consumers had purchased, communications surrounding this announcement were critical.
 
The biggest challenge was that the Access PR team had to carefully manage a worldwide strategy announcement, working with Sega’s Japanese and European counterparts.  Unfortunately, Sega has struggled with worldwide PR cohesion on many levels for a long time, due partially to the fact that neither Japan nor Europe had PR departments.  Additionally, it was not uncommon for there to be news leaks out of the Japanese or European offices.  Unfortunately, this news did indeed leak out via the Japanese press one week before the announcement, causing challenges for the Access PR team to ensure that pre-briefed media and analysts did not break their NDAs.
 
Another challenge was that there were still millions of Dreamcast game consoles that needed to be sold-through at retail by the end of the year.  While it was imperative to stress Sega’s new strategy, it was also important to stress the value of Dreamcast at its new low price with 200 games available at retail (until they sold out of their allocations).  This situation put Sega in an awkward position of being simultaneously a hardware manufacturer and a third party game publisher– a very confusing message.
 
RESEARCH
 
Because we knew that it was very likely this news would not be received well by the consumer press (as they would feel “burned” by Sega for abandoning Dreamcast), Access PR felt it very important to manage expectations for press coverage.  To that end, Access conducted an in-depth analysis of the coverage from the last ten years in which other companies stopped manufacturing consumer products.  Luckily, Access PR has also had first-hand experience with this situation, as the Agency’s first job with Sega was to guide Sega through their abandonment of their Sega Saturn hardware system, just five years ago! 
 
The research that we conducted greatly helped in managing expectations with the client.  Access PR advised them that because Sega has a stigma of abandoning game systems, it is very likely that would be in the headline or mentioned in the story, even if key messages were conveyed.  In addition, we reviewed detailed tracking notes for industry analysts, noting that most of them recommended to Sega in the past that they could be more successful being solely a software company.  Using that research, we were able to counsel Sega that the analysts would play a critical role in influencing the business press into realizing this is the best decision for Sega.  This analysis was complied into an “expected message playback” grid that was sent to the client and used in post-analysis.
 
OBJECTIVES
 
Communications objectives were: 1) to ensure that analysts and media saw this new strategy as the “right move” for Sega; 2) to minimize the negative backlash by press and consumers, driving consumers to retail to purchase Sega Dreamcast (short term) and games (long term); 3) to position Sega as having the potential to build toward becoming the world’s leader in interactive entertainment and 4) to position Sega’s new strategy as planned vs. reactive and the executive team as strategic for making this announcement. 
 
STRATEGY AND EXECUTION: Crisis Tactics
 
There had been rumors about Sega exiting the hardware business for the last three months, due primarily to leaks out of Japan.  Unfortunately, one week prior to the announcement, the Jiji Press and Nikkei out of Japan released news stories stating that “unnamed sources” have confirmed Sega will exit the hardware business.  Despite the fact that no Sega executives were quoted confirming this, news spread like wildfire on a worldwide basis.  The Access PR team had to prevent further stories from running, seeing that Sega did not confirm the news.   This was an extremely difficult and awkward time, especially since three days later the team was authorized by Japan to start our media pre-briefings.  The primary challenge was to convince media to stay true to their non-disclosure agreements, even through rumors and unconfirmed stories continued to run rampant worldwide.
 
Crisis Desk & Statements – Access PR worked at Sega for the entire week managing the crisis desk, pulling in executives as needed for comment, sending out statements and trying to appease media and relieve frustration.
Exclusives – To help save media relationships, Access PR was able to negotiate bits of “exclusive” news for various media outlets on upcoming games, first looks at those games and other marketing news for the future.
 
Media and Analyst Pre-Briefings under NDA – Access PR selected 20 key business, gaming and consumer media and analysts worldwide for pre-briefings, a tactic which was key to ensuring that the correct messaging was replayed in the stories.  When pre-briefings began and we were confirming the unconfirmed reports and rumors, many media were frustrated that they could not break the NDA. However, Access PR counseled Sega executives to be as honest as possible with media, explaining that if they broke the news early, that would put Sega of America in a compromising situation with Japan.  Japan could not afford to have any news break early because of rules of the Tokyo Stock Exchange.
 
Nightly “Risk” Reviews – Access PR led nightly conference calls with Japan and Europe to discuss which media were at risk of breaking the NDA.  Access would immediately spend the next day discussing concerns with each media outlet to ensure that no one broke their NDA.
As the news crossed the wire, Access facilitated a conference call in which there were 200 media/analyst participants.  In addition Access PR also handled all communications with internal Sega employees, retailers, customer service, hardware partners and direct consumers. 
 
RESULTS AND MESSAGE ANALYSIS
 
Because of Access’ deliberate, proactive crisis-aversion tactics, excellent media results ensued and all objectives were met.  More than 200 stories broke within 24 hours of the announcement with outlets including CNN, Wall Street Journal, SF Chronicle, and local news stations in 25 states.  90% of these stories included Sega’s key messages. Of media outlets that were pre-briefed, more than 95% conveyed key messages.    In addition, Sega’s stock increased more than 20% and the Japanese stock was upgraded to “buy” status because this news was positioned as extremely positive.  Crowning Access’ efforts, sales of Sega Dreamcast consoles increased by 25% in the month after the announcement. This allowed Sega to track toward successfully clearing its warehouses. 
Business press coverage was overwhelmingly positive, with stories noting that this was the “right thing for Sega.”  Analysts were quoted in 50% of coverage saying:
  • “Sega has some killer software. Companies are quaking at the prospect of Sega ‘s reincarnation as a game powerhouse.” ING Barings
  • “Dreamcast is the best deal today and the best deal for the next nine months.” – PC Data

        “Investors have applauded the shutdown of the 128-bit Dreamcast as crucial for profitability.” – Reuters

  • “By freeing itself from the Dreamcast albatross, Sega will be able to exploit its true strengths. Sega is best known for its quirky games. ‘Bringing that innovation to other platforms is definitely a plus,’ said Schelley Olhava, analyst with research firm IDC.” – San Francisco Chronicle
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