Sega Corporation, the gaming company behind hit products Sonic the Hedgehog, Yakuza and Virtua Fighter, said it plans to soon release a Web3-based game despite news reports and speculation the company was pulling out of blockchain-based gaming.

A Bloomberg report on Friday said the company is “shelving plans to develop its own games in that genre at least for now,” citing an interview with Sega co-Chief Operating Officer Shuji Utsumi. 

However, Utsumi, who has been with the company almost 30 years and helped launch the Sega Dreamcast console in the U.S., said in an email response to questions that the company’s strategy around blockchain had been misconstrued.

Utsumi cited the development of a new blockchain-based game between Sega and social media platform Line, which was announced July 10, as an example. It would be “very strange” to assume that Sega was pulling back from blockchain technologies in light of the announcement of the deal with Line, he wrote in the email. 

Utsumi said the company’s business strategy includes Web3 — a new phase of the internet built around decentralized blockchain technologies, the metaverse, and non-fungible tokens (NFTs).

In an interview at the IVS Crypto 2023 conference in the Japanese city of Kyoto on June 29, Utsumi said that Web3 is among a number of technologies the company is exploring. 

“We are not trying to be a Web 3 company,” said Utsumi. Instead, Web3 technologies such as the blockchain and NFTs are “functions” that the company will continue to explore as a way to grow its business and expand the potential of its intellectual property (IP), he said. 

“That’s why I’d say we are Web 2.5,” he added. “2.3 or 2.7 — somewhere in the middle.”

Block investing

He said the company’s strategy is to invest in Web3 projects, which includes licensing the company’s IP for certain game titles to blockchain-based developers that it trusts to maintain its quality standards and meet the expectations of fans.

“Blockchain technology can definitely make a big contribution to the growth of the [gaming] industry, and we are seriously evaluating that potential by investing in several initiatives, be it by investing in a fund as a limited partner or by investing in the developers,” Utsumi said.

He added the strategy is a “transmedia” approach, which involves building on a specific title across various platforms, be it games for a console, arcade, PC or mobile, collectibles, film, music, or even now self-creation gaming platforms such as Roblox.

“In theory, NFTs can be a medium to connect these various transmedia activities,” Utsumi said. “It would be nice if we could connect with our fans using the blockchain, we just don’t know how yet. We are still learning.”

One example of Sega’s transmedia approach is the IP licensing agreement between Sega, blockchain game developer Double Jump Tokyo and decentralized blockchain gaming platform Oasys. Together, the three companies are developing the Sega arcade titled Sangokushi Taisen — Three Kingdoms — into a blockchain-based game. 

The hybrid digital and physical collectibles game, originally released by Sega in 2005, is based on the warring “Three Kingdoms” period of Chinese history. The gameplay allows two players to engage in battle based on the strengths of the cards in the deck they hold. A hugely popular staple of arcades in Japan and throughout Asia, the franchise has reportedly sold over 500 million units of the physical cards used in the game. 

“The business we do now will be similar to the process behind Three Kingdoms,” Utsumi said. The company will select titles, such as arcade franchises, that are popular in Asia — a market with gamers that tend to see incorporation of blockchain technology into their favorite titles as a “form of entertainment,” Utsumi said, rather than the “evil” it can be perceived as in the west.

Therefore, while there is accuracy in reports that franchises such as Sonic the Hedgehog — household names in western markets — are still some way from incorporation onto the blockchain, Sega remains in what Utsumi describes as a “searching mode” for Web3 gaming initiatives that may prove popular elsewhere.

“We are trying not to offend people, but eventually — technology-wise — the blockchain is going to be really helpful to really enhance the experience of gamers,” Utsumi said. 

“But we also understand the sentiment of Western gamers. So we are trying to figure out what is the best way by having this kind of initiative first targeted more to the Asian market.”

On Monday, Sega announced an IP licensing agreement with Line Next Inc. — an NFT-focused branch of Tokyo-based social media platform Line Corp. — for the development of “one of SEGA’s immensely popular game IPs” into a Web3 game. The IP in question has yet to be confirmed. 

Sega is part of the publicly traded Sega Sammy Holdings group, which has a market capitalization of US$4.55 billion and reported yearly revenue of US$2.68 billion in 2022, down from US$2.7 billion the prior year. The shares have risen 25% in the past 12 months.