With the rising costs of development on current generation hardware, do you think it is going to be a lot harder for those smaller independent developers to stay afloat without a lifeline from EA, Activision, or another big publisher?

I think you can be an independent developer if you are managing your business properly. It is just my opinion, but I think a lot of independent developers who struggle do so because... Well, there are a number of reasons. I think the biggest one is that they don't know how to run a business.

I think a comparison to the music industry is appropriate here. You've got artists and engineers and designers all working together to make a product. That's great. If you give them enough leeway, they are going to be able to do that and be successful. The issue is that it doesn't necessarily mean those guys know how to run a business. They might not know how to manage 40 people. That's a tough task for anyone.

Managing 5 people is a challenge to do it appropriately, so to manage 40 or 50, 60 or 100 people, all working for one goal, is definitely a challenge and I think that some studios, not all, suffer from lack of managerial skills and business smarts to get them through that aspect of running a business...a business that is taking in millions and millions of dollars in investment money from other people.

But that said, if you make good product, and if you manage your business well, being an independent studio is certainly a viable option. Being internal definitely offers a lot of security and is not a bad way to go.

I don't know if it is absolutely necessary to own studios. There are advantages--you don't have to pay royalties, although you usually end up paying some kind of bonus structure, and of course there is goodwill money, or however the acquisition takes place.

I can see it both ways. Sega definitely looks at acquiring studios, and we've acquired a few. Sports Interactive and Creative Assembly in Europe. We built a racing studio in Europe as well. We acquired Secret Level and have been growing that studio considerably since the purchase, and they're working on two big games for us--Iron Man and Golden Axe.

But at the same time we have great relationships with external partners, and as long as those external partners pipe is filled, and they've got work they have to do, and people are paying their bills on time, they are fine being independent. Some times that's a better way to go.