|Fast facts on Sega|
|Founded: 1945 (as Service Games)|
| Headquarters: Sega of Japan: Ōta, Tokyo, Japan|
Sega of America: Irvine, California, United States
Sega of Europe: Chiswick, London, United Kingdom
Sega (セガ) is an international video game software and hardware development company currently headquartered in Ōta, Tokyo, Japan. Originating in the mid-1940s, Sega rose to fame towards the end of the twentieth century, establishing themselves as one of the largest game companies of its type in the world. "Sega" is an abbreviation of Service Games, a name used until October 1965 when it became Sega Enterprises Ltd.. In 2000, the company officially became known as Sega Corporation or simply Sega.
Sega is perhaps best known for its success in the video game arcade industry, creating a large number of pioneering games and concepts which have shaped the industry into what it is today. It is also famous for its home video game consoles and 1990s mascot, Sonic the Hedgehog. At its peak in the early 1990s, Sega were often seen as the second largest player in the video game marketplace, being neck and neck with its main competitor, Nintendo, especially in the west.
Sega currently has operations all over the world, though it is split into three main offices—Sega of Japan, Sega of America (headquartered in Irvine, California, United States) and Sega Europe (headquartered in the Chiswick area of London, England, United Kingdom), each of whom oversee operations in Japan, North America and Europe respectively. Sega belongs as part of a holding company, Sega Sammy Holdings, formed after a merger between Sega and Sammy in 2004.
Sega started off life under the name of "Service Games", originating in Hawaii in 1945 when Irving Bromberg and his son, Martin Jerome Bromberg, formed a partnership with James L. Humpert to manufacture and distribute slot machines and other coin-operated devices. They called the partnership Service Games and based their operation in Honolulu.
Irving Bromberg, the father, brought to the young company a reputation for being an innovator in coin-machine technology; as the founder of the Irving Bromberg Co. (established in 1933), he brought some of the first vending machines to Brooklyn, Boston and Washington, D.C. He also founded a business known as Standard Games Co. in Los Angeles, Calif., in 1934; this company was not related to Service Games, which targeted military bases for distribution instead of Standard Games' civilian markets. However, he was aging and his son assumed much of the management of Service Games. Bromley and Humpert were employed in the U.S. Navy Shipyard at Pearl Harbor during World War II. The two men also worked in coin-operated enterprises that called upon the technical competence of the senior Bromberg.
The Service Games organization was left with a surplus of slot machines in 1952 due to the passage by the United States Congress of the Gambling Devices Transportation Act of 1951. The measure banned slot machines on military bases within the territory of the United States, forcing the company to look into other avenues to market and sell their products. In February 1952, Bromley sent Richard Stewart, a Service Games salesman, and Raymond Lemaire, a mechanic, to Japan to promote and expand sales of Service Games machines on U.S. military reservations.
Expansion proved successful. A plant was constructed in Japan and markets were opened in Japan, Korea, the US-occupied Okinawa territory, the Philippine Islands and on the Southeast Asian mainland—anywhere where American troops were stationed in the Orient. Service Games also began selling its machines to U.S. servicemen's clubs in England and western Europe.
Meanwhile, American businessman and former Air Force officer David Rosen returned to Tokyo to establish Rosen Enterprises, Inc., in 1954, having fallen in love with Japan while being stationed there during the Korean War. Though the company was originally set up to export art, it stumbled upon a surprise hit when the company began to import coin-operated instant photo booths from America. The booths were very popular in Japan, business was booming, and Rosen Enterprises expanded by importing coin-operated electro-mechanical games.
By the early 1960s, David Rosen had a presence in 200 arcades, his imported mechanisms from Chicago and elsewhere doing successful in Japan. Looking to have his company grow, Rosen looked at nearby competitor Service Games. Meeting with Bromberg, the two entered talks to merge into one company. With Service Games already having plants built and ready for production, and with Rosen's presence in the Japanese arcade market, it made perfect sense for them to join forces. Rosen Enterprises and Service Games merged in October 1965 to become Sega Enterprises. Soon after the administrative changes, Sega began producing its own coin-op titles, which were going up against the already established American companies from which Rosen had been buying from when he was in the import business. Within three years, the new company released a submarine-simulator game called "Periscope" that became a smash worldwide. The company continued to publish more and more coin-ops, and on May 3, 1969, Gulf+Western purchased Sega, though the Sega name remained intact. This opened the door for Sega to enter other arenas in the arcade field, including a division for manufacturing pinball games, starting with Winner in 1972.
Being a company involved in the business of entertainment, it was only a matter of time before Sega would look into video game development. Seeing the success of Atari Inc.'s Pong, the early-to-mid 70's was a time of experimentation for video gaming, with Sega jumping on the bandwagon. Early efforts such as being the distributor of Pong-Tron, creating the licensed motorcycle game Fonz, and making the first fighting game Heavyweight Champ were just the beginning, with Sega becoming a part of the arcade scene, taking advantage of the booming market as it existed in the late 70's and early 80's. Sega made a small name for itself through the minor success of games such as Turbo, Zaxxon, Frogger and SubRoc-3D, the latter also being the first game to give the player a three-dimensional view. At the same time, Sega started expanding into the home console video gaming market, developing for such machines as the Atari 2600 and ColecoVision, delivering ports of their arcade hits.
Sega's success prompted the opening of an American division—Sega Enterprises—in the early '80s. This section of the company primarily dealt with the development of console software. However, Sega Enterprises was sold to Bally (a large pinball and arcade producer) in 1983, though Rosen did remain as President. The shares of the company Bally held were bought back by Rosen only a year later when, in 1984, the rest of Sega—which then consisted wholly of Sega of Japan—was sold to an outside group of investors, which included Hayao Nakayama, Shoichiro Irimajiri and the chairman of CSK, Isao Okawa. After this purchase, Sega as a whole officially became Sega Enterprises Ltd.
With their growing presence in the gaming market, Sega decided that, instead of simply being an arcade and third-party home gaming developer, they would attempt to throw their hat in the ring of the home console manufacturing arena. As they began development of their first home console, the landscape of the video game marketplace was about to forever change. In North America, gaming giant Atari was in a downward spiral, precipitated by the failures of their Pac-Man port and the licensed E.T. The Extraterrestrial for the Atari 2600. Along with the glut of sub-par software from numerous gaming companies, the “Video Game Crash of 1983” was in full swing. Though many doubted the viability of the gaming market in the U.S., both Europe and Japan were still growing, an opportunity arising for someone new to take Atari's crown.
The SG-1000 was released in July 1983, and though it was a marginal success, it was unable to compete with another home console that came out at the same time: the Nintendo Famicom. A far more powerful system with the strength of Donkey Kong behind it, Sega was unable to compete. Though the system was redesigned to try and better match the Famicom, it was an uphill battle Sega could not win with their current system. In the end, only 75 titles were released for the SG-1000, in comparison to the over 1000 titles the Famicom eventually amassed during its reign as the number one console on the planet.
Unlike the Famicom, however, the SG-1000 also had a computer counterpart. Known as the SC-3000, the computer was compatible with the SG-1000 software, with the added benefit of having a keyboard and being upgradeable to allow printer and floppy disk access. Because of these advantages, the SC-3000 ended up selling more units than its console-specific model.
The cartridge-based system was also distrusted in other regions of the world including Australia, New Zealand, South Africa, and parts of Asia.
Knowing that the SG-1000 had no chance of overcoming the Famicom, work on another, more powerful video game system commenced. Called the Sega Mark III, the system was technically superior to the Famicom: it boasted a greater color palette and superior video and RAM capabilities than Nintendo's console. Primarily a cartridge-based system, the Mark III was also backwards compatible with the SG-1000 software, increasing the amount of titles available at launch. In addition, the system could also play Sega Cards, credit card-sized media that were cheaper to produce than cartridges. The cards could slide into the console, a format that had previously been available on the SG-1000 II.
With such strong hardware, Sega was certain that this could be the system to topple Nintendo's dominance. However, by the time the Mark III was released in 1985, Nintendo had already acquired over ninety percent of the Japanese gaming market. Along with the release of Super Mario Bros., the system was able to strengthen their hold on the market. One important factor that also prevented the Mark III from gaining ground was the exclusivity agreements that Nintendo had with the majority of third-party developers at the time. By forcing companies to sign agreements with Nintendo to only produce content for the Famicom, very few game software developers were available to develop for Sega's 8-bit system.
Regardless, Sega began to look towards the highly coveted markets of the west, including North America. The market, having a swift recovery due to the Nintendo Entertainment System (a renamed, redesigned Famicom), was ripe for competition. Knowing that the Mark III brand name would make little sense in that market, an effort was made to redesign the system, just as Nintendo had done for the Famicom. The result was the Sega Master System, released in June 1986 in the United States. Retailing for $200, it faced the same stiff competition from Nintendo as it did back in Japan, as the $159 NES had established itself for nearly a year at that point. With only two companies offering third party support, the only real draw to the system was the exclusive Sega software, along with such gimmicks as the 3-D Glasses peripheral.
Though the system fared better than any other competitor against Nintendo (such as the Atari 7800), slow and ever-declining sales forced Sega CEO Hayao Nakayama to withdraw funds from supporting the Master System in the United States, instead selling the distribution rights to Tonka. The toy company, who had never before been a part of the video game market, knew little of the ins-and-outs, and in the end continued to let the Master System flounder.
However, Sega's decision to sell distribution rights in Europe was a completely different story. In early 1987, Frank Herman of budget software publisher Mastertronic spotted that Sega had no UK distributor for the Master System range. As a result, the company aggressively worked to sell the platform that year; as a result, they were then appointed as distributors in France and Germany and the modern incarnation of Sega Europe was born. It resulted in the Master System outselling its rival, the NES throughout the 8-bit era and was cited by some as Virgin Group's reason for investing in the company (and later buying it outright.) By 1991 nearly all of Mastertronic's turnover, and certainly all the profit, came from Sega-related business. Although staff recruitment actually rose, it was all for Sega operations. As a result, nearly all the staff moved over to Sega when they took over the business from Virgin and only a handful of games programmers stayed with Mastertronic's software publishing wing (quickly renamed Virgin Interactive Entertainment.) After the Sega takeover Frank Herman became deputy Managing Director of Sega Europe and Mastertronic co-founder Alan Sharam was named Managing Director of Sega UK.
Even though their attempts in the home console market were not as successful as they had hoped, Sega was able to do extremely well in the arcade market. OutRun, Shinobi, Space Harrier and After Burner were only a few of the titles that were cementing Sega's place in the video game world, accepting quarter after quarter with no qualms. Even though these games were released exclusively in the home market on Sega hardware, unfortunately the success on one front was unable to flow into the other. Even exclusive games such as the Alex Kidd series (Sega's first mascot and intended Mario-killer) were unable to draw in new users.
While Nintendo had a stronghold on Japan and North America, the rest of the world was not quite as defined. In Europe, Nintendo had neglected to market their system as they had elsewhere, the gaming scene over there focused more on the home computer market, with such platforms as the Commodore 64 and the ZX Spectrum being dominant. Sega saw this opportunity and became heavily involved in an aggressive marketing campaign targeting regions where Nintendo wasn't selling anything. This allowed Sega to actually beat Nintendo in terms of number of units sold in the whole of Europe, having third party support from gaming companies that wouldn't dare release the same game in North America.
Perhaps as a result, Sega of Japan decided to rerelease the Mark III in Japan under the Master System brand, along with a built in FM Sound Unit originally released as a peripheral to the Mark III. Even so, the rebranded system was unable to penetrate the Japanese market, still being a distant second place to the Famicom. The only other region that emulated the success the Master System felt in Europe was Brazil, where Tec Toy gained the rights to distribute Sega's console in 1989. Once again benefited by the lack of competition from Nintendo, the Master System soon became the console of choice in South America, with new models of the hardware being released years after Sega stopped supporting the system in the rest of the world.
Though the Master System had done well in Europe, it was clear that the system was not able to have the sort of presence across the rest of the world as Sega would have hoped, especially since most of their success was simply taking hold of markets Nintendo had neglected. Knowing that the age of the 8-bit generation was coming to an end, Sega once again looked into creating a successor to their home console system, hoping that this would not only put them on the map, but take it over completely.
Looking at the string of successes on the arcade System 16 platform, Nakayama decided that their follow-up system should also be based on 16-bit hardware. Initially codenamed “Mark V,” the name would eventually change to Mega Drive, the name meant to emphasize the positive aspects of the platform: “Mega” for the superiority of the console, and “Drive” for the speed it possessed. Knowing that Nintendo was taking its time in creating a 16-bit successor to the NES/Famicom, Sega hoped that the technological superiority of their system, along with an early lead, would be enough to knock Nintendo from the top spot and gain traction before the 16-bit wars would truly begin.
Released in Japan on October 29, 1988, the console launched with sequels to already established franchises: Space Harrier II and Super Thunder Blade. Though it wouldn't be long before the system would be host to some of their established home franchises from the Master System days such as Phantasy Star II, many early titles focused exclusive on trying to emulate their success in the arcade sphere. To people looking at the home market, though, it was clear that the Mega Drive's immediate competition was NEC's PC Engine (also known as the TurboGrafx-16 in the west). While Sega was winning the war for second place, the dominance of the Famicom still continued, superior hardware not being the key to reaching the top.
Gearing up for the launch of the system in the United States, Sega decided to walk away from their partnership with Tonka, looking elsewhere for an experienced member of the industry to help with distribution. Talks soon began with Atari but, in a move that echoed the aborted Atari/Nintendo partnership, Sega decided they would distribute the system themselves. Having to delay their initial announced release date, the company was also forced to change the name of the console, since the term “Mega Drive” was already trademarked in the U.S. In select markets on August 14, 1989, the Sega Genesis was finally released, with a nationwide rollout that September.
Knowing they had their work cut out for them, Sega hired Michael Katz as the new President of Sega of America, only one month after the console had come out. Given the set goal of selling one million Genesis units, Katz knew that their current line-up wasn't enough, especially since Nintendo still had their grasp on third-party support. Instead of relying on established names in the video game industry, he instead looked towards licensing deals with well-known personalities in pop culture. One of those approached was Joe Montana, who would become the face of the appropriately-titled Joe Montana Football. Though future installments of the series would be done by BlueSky Software, the first was worked on by none other than Electronic Arts, who was working on what would become the first successful John Madden Football at the same time. This partnership led to EA offering their support to the Genesis, making the system a powerhouse when it came to sports titles.
Soon, other prominent deals were forged, including Pat Riley Basketball, Tommy Lasorda Baseball, and Evander Holyfield's "Real Deal" Boxing. But perhaps the biggest coup was Sega getting the rights to create a game based on the biggest pop star of the era, Michael Jackson's Moonwalker. With these names in place, Sega began the first of their aggressive marketing campaigns, targeting their competition with the slogan “Sega Does What Nintendon't.”
In Japan, development to expand the Mega Drive's software lineup continued, knowing that people wanted more than just an arcade machine for a home platform. Creating such varied titles as Shining in the Darkness and Castle of Illusion Starring Mickey Mouse, the company wanted to prove that players could experience a variety of different genres on a Sega system. Sega also partnered with various home computer companies like Tecnosoft (Thunder Force, Herzog Zwei), Telenet Japan (Valis, Granada, among many others), and NCS (who would start their flagship Langrisser franchise and various other games like Shove It!) to give the console support from that market. By the time the platform was ready to be released in Europe for the winter of 1990, there were plenty of titles to insure a steady stream of quality software over the next few months. By building on to the success the Master System was able to achieve in the region, the Mega Drive was able to repeat that performance. Europe's success was fueled by their own unique advertising strategies, including the long-running “To be this good takes AGES / To be this good takes SEGA.”
Even though the Mega Drive was a hit in Europe, the system was still not able to pick up the steam Sega was hoping for in Japan and North America. Even though it was doing better than the other competitors of Nintendo, the house that Mario built was still the undisputed champion, made clear by the immediate success of the Super Famicom once it was released in Japan in 1990. Understanding the strength of a corporate mascot and how it could help define a brand, Sega began looking internally, starting a contest to come up with their version of Mario and Mickey Mouse. Though Alex Kidd was often thought of as Sega's mascot, the franchise did not define the company, as the games were always met with lukewarm success.
Making clear what they were looking for, the search was on, with numerous development groups within looking to create that iconic character that would thrust Sega into the stratosphere. One of the men who took up this call was Naoto Ohshima. Working within Sega's AM8 division, he came up with a number of character designs, including a Bart Simpson-esque human, a rabbit, a patriotic wolf, and a human character that would eventually be transformed into Dr. Eggman. However, it was a blue hedgehog originally named Mr. Needlemouse that would prove the favorite. Becoming Sonic the Hedgehog, Ohshima teamed up with programmer Yuji Naka, the two having previously worked on the Phantasy Star titles. Pitching their ideas to Sega of Japan, it wouldn't take long before the project would be approved and production went underway. With Hirokazu Yasuhara pulled in to help design and direct, all the pieces were in place.
When news reached Sega of America about the project, they immediately began to take steps to try and alter the course. Initially looking for an outside designer to create a character they felt better suited American tastes, they were afraid the game would bomb. Michael Katz, when he first learned of Sonic, couldn't fathom how to market a game based on a hedgehog, an animal that hardly anyone in the United States had heard of. Even though they looked for alternatives, the path was set at Sega of Japan, the company banking on the success of the game.
In November 1990, Hayao Nakayama approached Tom Kalinske, former president of Mattel, to be in charge of SOA. Taking the job, Tom took some time to get his bearings, looking over the industry and determining the strengths of what Sega had to offer. In March, 1991, Tom, accompanied by Shinobu Toyoda, went to the Sega of Japan brass to present his plan. Knowing that Nintendo would come out of the pen with guns blazing, the first thing Kalinske wanted to do was drop the price point of the Genesis to $149.99, making it fifty dollars cheaper than how much the Super Nintendo would be released at. Combined with even more aggressive advertising directly attacking Nintendo, Kalinske also knew that Sonic, the way it was turning out, would be able to go up directly against Super Mario World. Because of this, he wanted the current pack in title—Altered Beast—to be replaced by Sonic come the holiday season. Nakayama, at hearing this plan, went mad, saying they were crazy to suggest to take a loss on the hardware while at the same time including the one game that would have such a high profit margin. Storming out of the office, however, he paused at the door saying that if they felt it was the only way to beat Nintendo, to go ahead and do it.
With the game localized by Sega of America (much to the chagrin of Sonic Team), the original Sonic the Hedgehog was released in the United States on June 23, 1991. Almost immediately, the game became a success despite early efforts to downplay the game. Partnered with an advertising campaign in the fall and winter of 1991 that portrayed Sonic as the hip, cool alternative to Mario, units began moving at an incredible rate. Released in Japan a month later, the game was only a moderate success in its native country, unable to topple Nintendo's dominance. However, the strength of the game, along with the advertising strategy, was enough for Sega to begin taking the market by storm. Coupled with Nintendo being unable to make exclusivity agreements with third-parties anymore (a legal decision finding the practice to be unlawful), the market was able to open in a big way, with more companies deciding to develop games on the once-fledgling 16-bit console. By April 1992, Sega had secured sixty percent of the 16-bit market share in the west, and in November of that year, Sega would achieve its biggest success, with Sonic the Hedgehog 2 selling over six million units. Even in 1994, the Mega Drive was still responsible for over fifty percent of all 16-bit systems sold. Though Nintendo would catch up by the time the 16-bit console wars ended, Sega was always able to maintain a slight edge over Nintendo, at least in the United States and Europe, the two juggernauts being neck and neck through the mid-1990s.
In 1992, Sega took game publishing company Accolade to court over what they called copyright infringement. Taking note of the game piracy rampant in Asia, along with systems that companies such as Nintendo had done in the past, Sega incorporated into the Mega Drive a failsafe to prevent unauthorized software from being played. In order for software companies to be allowed to develop for the system, each would have to pay a licensing fee, which would then grant them the string of code to allow the “PRODUCED BY OR UNDER LICENCE FROM SEGA ENTERPRISES LTD.” to appear on screen whenever a game was turned on, at the same time letting software publishers to, among other things, allow the Sega Seal of Quality to appear on the boxart. This was all done in an attempt to make sure that only authorized, compatible software was playable on the system, as opposed to a pirate copy of the game.
Wanting to develop software for the system but not wanting to go through the process of licensing, gaming company Accolade instead reverse engineered the code necessary to allow their software to run on a Mega Drive. Even though the start up message would appear when turned on, the packaging for each title made it clear that it was not authorized by Sega. When Sega sued Accolade, the gaming giant won the initial injunction, forcing Accolade to take their product off store shelves. In appeal, however, the court ruled in favor of Accolade. In response, the two companies reached an out of court settlement, which also resulted in Accolade becoming an official licensee of Sega. Even though it was determined that Sega could hold no legal right to bar people from releasing software without a license, the licensing requirement continued, and was standard practice not only for Sega's later systems, but also the systems of Nintendo, Sony and Microsoft.
Enjoying the success and growing market share based on their hit franchises, Sega continued to expand their horizons, looking for ways to entice both consumers and developers to jump in on the Sega bandwagon. Knowing that Nintendo had a sometimes strict policy regarding the objectionable content allowed in their releases, Sega took a more liberal approach to what they allowed published on their various systems and add-ons. Games such as Splatterhouse 2 were allowed to maintain their violent content as long as they issued some sort of parental warning on the packaging. As family rights groups began to become more concerned about the content of gaming media aimed at their children, Sega took the liberty to create the Videogame Rating Council.
Based on the MPAA rating system, games were split up into three main categories—GA, MA-13, and MA-17. One of the first games to use this rating system was the port of the controversial arcade fighter Mortal Kombat. Though highly successful, the concept of porting the game to home consoles proved problematic, Nintendo forcing Midway to change all instances of blood into sweat, as well as removing the violent fatalities. While there was a level of censorship in the Mega Drive version, the game received an MA-13 rating, when at the same time it was revealed there was a secret code that allowed the violence to be restored. Even though the Super Nintendo version was better on a technical level, the Mega Drive version outsold it based on this one factor alone.
Controversy on video game violence reached a head, however, with the release of Night Trap, an FMV game released by Digital Pictures on the Sega Mega-CD. Full of vampires and women dressed in nightgowns, the game caused an uproar, prompting Congress to hold hearings on the matter even if they didn't fully understand what the player was meant to do in Night Trap. This prompted the entire game industry to look into regulating themselves with a rating system as Sega had already done. Though the company did try to make their system an industry standard, in the end it was decided that the independent Entertainment Software Rating Board would be formed.
Looking to continue their success while also trying to revolutionize the gaming market, Sega began exploring numerous avenues as to how they could not only extend the life of the Mega Drive, but make any peripheral a must-have purchase. The most successful of these were the Sega Mega-CD, an expansion that would allow optical media to be played on a standard Mega Drive. Though audio CDs were more than common place by this point, and laserdisc-based games had been experimented with, the idea of having a CD-based gaming system were still largely unexplored.
Though a CD add-on existed for NEC's PC Engine, Sega wanted to make sure that the games on their system would demonstrate what could be done that was impossible with the Mega Drive on its own. FMV-based games such as Double Switch, Sewer Shark and the Make My Video series showcased the video and audio capabilities of the system, while games such as Sonic the Hedgehog CD demonstrated the opportunities existing franchises could take advantage of with expanded storage capacity and graphical enhancements. Even titles that had already been released on the Mega Drive, such as Earthworm Jim by Shiny, were rereleased with enhanced audio and additional levels. Along with being the starting point for such critically acclaimed franchises such as the Lunar series, on paper it seemed like the Mega CD should be a guaranteed success, in light of the heights the Mega Drive was doing. However, the system failed to catch on, partly due to the price and partly because of the game line-up. With most titles either being FMV games or simply “enhanced” ports of current Mega Drive titles with only marginal improvements in sound, many gamers didn't see the need to expand their current Sega console.
Even though the Mega CD stagnated in Japan and fared only slightly better in the rest of the world, ways to expand the capabilities of the core Mega Drive were always on the table. While most were released exclusively in Japan, such as the Mega-CD Karaoke and the Sega Mega Modem (the latter of which was used for the Sega Meganet, an early precursor to online console gaming), others were supported worldwide, such as the Sega Channel. Launched in 1994, the cartridge add-on allowed anyone with cable television to play games through the subscription service. With demos, full games, and even some titles exclusive to subscribers, the Sega Channel lasted in the United States until 1998, discontinued after Sega stopped supporting the console.
However, perhaps the most infamous add-on experiment to the Mega Drive was the Sega 32X. Conceived of in early 1994 by Hayao Nakayama, the CEO wanted something to be ready for Christmas of that year to serve as a transition between the Mega Drive and the 32-bit console that would ultimately become the Sega Saturn. During discussions with Tom Kalinske, his assistant Joe Miller, and various members of the Sega of Japan board, it was proposed by console designer Hideki Sato that a slightly enhanced version of their popular 16-bit unit be released, with an enhanced color pallet and an added 32-bit processor. Hearing this, Miller suggested an alternative—instead of having an entirely new system which was barely an evolution of the first, why not create a device that could be attached to current hardware to provide those features? Though at first resistant to the idea, Nakayama decided to back it, having Sato work with Miller and the rest of Sega of America to develop the system, this being the first time the two sides of the company collaborated on potential hardware.
Once released, the system fell into obscurity almost from the beginning. Though it did exactly what it advertised, the attachment cost far more than what was originally intended. That, coupled with the impending release of the Sega Saturn, soon found the hardware without a purpose, most third-parties ignoring it entirely to focus on development for the true successor to the Mega Drive. Because of its non-existent impact on the market, plans for the Sega Neptune were immediately scrapped. Similar to how the CDX was a combination of the Mega Drive and Mega CD, the Neptune was meant to combine the Mega Drive and 32X, at the same time being what Nakayama originally envisioned. Though working prototypes existed, the system would never see the light of day. In the end, only thirty-four games were released on the peripheral (six of those being for the Mega CD 32X), the failure of the system just the first of many obstacles Sega would face in the coming years.
Even as Sega basked in the success of the Mega Drive, both sides of the Pacific were looking ahead to the future, knowing that the 16-bit era, just as the 8-bit one beforehand, would have its time to end. Sega of America was the first to think about what the future would hold, having formed a working partnership with Sony during the Sega CD era. As the two would work together on producing titles for the CD add-on, it wasn't long before the two sides starting talking about the future of gaming. Mickey Schulhoff and Olaf Olafsson of Sony spoke with Kalinske about the possibility of a joint venture between the two companies to pool resources and create the next generation of consoles, though the plan was vetoed by Sega of Japan before it could fully get off the ground.
Instead, Sega of Japan's R&D division began their own internal efforts into deciding just what the next generation of Sega would provide. Exploring their options, work began on two separate consoles, though only one would reach a point where it was ready for the masses. The first of these, codenamed Project Jupiter, was intended to be a cartridge-based system, similar to what the Nintendo 64 would become. The second, known as Project Saturn, is what eventually evolved into the final Sega Saturn. Work on both of these projects began in 1993, and while Sega of Japan informed Sega of America of the Saturn's progress, they kept the existence of the Jupiter from their western counterparts.
This secrecy was just yet another example of the growing rift between the two sides of Sega Enterprises. Upset that their successes nowhere near matched their American counterparts, Nakayama began to constantly compare the two in upper management meetings. The CEO would ask his peers time and again why they couldn't replicate what the U.S. was doing, especially since they had been around longer. This animosity continued on, with those working at SOJ determined to prove themselves. At the same time, SOA was contacted by Jim Clark of Silicon Graphics Inc, who had just purchased a company with technology they felt would be perfect for a video game console. Interested, SOA contacted SOJ, telling them about the chipset SCI was working on. Flying over, they instructed the company to improve certain aspects, and once they did so a second meeting was arranged. Still deemed unsatisfactory by Sega of Japan, SCI turned elsewhere, eventually their hardware becoming part of the Nintendo 64.
With SOA eventually learning of the Jupiter's existence, it looked for a moment that the system would be the way Sega was going to take things, even ordering the Sega Technical Institute to develop the next Sonic game on the proposed hardware, though no specs were even solidified. It wouldn't be much longer before the project was canceled, spurred by a hardware failure on the part of NVIDIA. Instead, all focus moved to the Saturn project.
The project was once again led by Hideki Sato, who was in charge of the 27-member “Away Team,” responsible for the design of the Saturn. Initially designed as a 2D powerhouse, the final version of the hardware sported dual Hitachi processors, to also allow 3D capabilities, supposedly come about by a demand from the Sega brass in response to what the Sony PlayStation was purporting to be. Either way, Sega wanted to make sure their console appealed to every region of the word, not satisfied with having their systems only succeed in specific regions, such as the Master System in Europe and the Mega Drive in the United States.
In November 1994, the Sega Saturn was released in Japan, only six weeks before the PlayStation and with very few release titles. Almost immediately, third party developers were put off by the difficulty of programming on the system. With no Developer's kit to speak of and having its design based on quadrilaterals as opposed to the industry standard triangle, many developers turned to Sega's competitors to design games. However, Sega still had a trump card up their sleeve, at least in Japan—the arcade market.
Even though their home systems hadn't made much of a dent in Japanese consumers, the string of arcade titles helped keep Sega relevant in their homeland. Though Virtua Racing was actually the first title on Sega's new Sega Model 1 arcade board, it was 1993's Virtua Fighter that became a cultural phenomenon in Japan. The brainchild of AM2's Yu Suzuki (who had been responsible for earlier titles like Hang-On and Space Harrier), it met with immediate success. Followed with Virtua Fighter 2 only a year later, Sega knew the best way to support their 32-bit system was to port their biggest arcade hit. Having Virtua Fighter be one of the launch titles, the Saturn was able to establish itself in Japan in ways the Mega Drive was never able to accomplish.
Meanwhile in the United States, Sega of America was busy planning the launch of the system stateside. Originally announced to be released on “Saturnsday” (September 2, 1995), the launch date was unexpectedly pushed up five months ahead of schedule, the move a direct response to Sony's PlayStation intending on being released only one week after the September release of the Saturn, with a price tag one hundred dollars cheaper. Though the pieces for a successful launch weren't in place, the Saturn was rushed out for select retailers, hoping the lead time would ensure Sega's place in the home gaming world.
Only 80,000 Saturn's were sold before the release of the PlayStation, while the release of Sony's console became an instant hit, beating the Saturn's share in the North American market in a matter of days. Ironically, the notion of using hip advertising aimed at a demographic that wouldn't otherwise have played a videogame helped out Sony, Sega's American marketing instead becoming a surreal mixture of imagery that attempted to stay cool and attack the competition, but instead had an almost creepy feel that no longer talked of the merits of the games.
Back in Japan, while the Saturn was not doing the numbers of the PlayStation, it was still doing phenomenal for a Sega console in the region. Because of Sony's preference for 3D over 2D, many two-dimensional games were able to find a home on Sega's system, including a number of RPGs that appealed to the Japanese market. Coupled with the continued porting of other AM2 franchises such as Daytona USA and Virtua Cop and original franchises including Sonic Team's NiGHTS Into Dreams, the Saturn was able to find its niche. Their appeal only grew when Sega found the perfect advertising pitchman—Segata Sanshiro. Played by Hiroshi Fujioka, the character was a Judo master who would seek out those who weren't playing a Sega Saturn, attacking them until they did so. For the first time that decade, Sega of Japan proved themselves, with the number of Saturn titles sold actually outnumbering the number of PlayStation titles for an extended period of time, in spite of the PlayStation's larger user base.
In 1996, Tom Kalinske left Sega of America, replaced by Bernie Stolar, who had previously worked with Sony and was involved in the PlayStation's success. Once in charge, Stolar prevented numerous titles from Japan's Saturn library to be released in the United States, the majority of those being RPG titles, believing they were too ingrained in the Japanese culture and would not appeal to American audiences. After looking over the state of the Saturn in the west, Stolar began to push Sega into looking towards the future, designing a new console to take an even bigger jump against the competition. In 1997, Stolar made an unexpected move, stating publicly that the future of Sega did not lie with the Saturn. Even though the Saturn was still doing well in Japan, Sega as a whole began the process to research and develop what would become Sega's last gaming console.
Though rumors of a new system had begun back in 1996, talk grew in 1997 even amid the backdrop of a failed merger between Sega and Bandai. Just as had been done before the Saturn was announced, Sega pursued two separate options—the Sega of America-led “BlackBelt,” and the Sega of Japan-led “Dural.” It was eventually decided to drop the “BlackBelt” and focus on the Japanese-developed system, which changed its codename to “Katana.” The goals of the system were simple: to be easy to develop, to be technologically superior, and to also regain the Sega brand trust in the United States, following the performance of the Mega CD, 32X, and Saturn.
Wanting to provide greater freedom with development, Sega partnered up with Microsoft, having a modified version of Windows CE be just one developing choice for games on the system, which would also allow easier PC ports for the platform. The system was officially announced by SOA's Bernie Stolar in May 1998, where it's final name was revealed to the world—the Sega Dreamcast. At the same time, some of the revolutionary details of the system were expanded upon for the gaming press, including the screened memory card known as the Virtual Memory System, which would later be renamed to the “Virtual Memory Unit” because of the pre-existing use of the VMS acronym.
With the Dreamcast gearing up for its Japanese debut that December, one move Stolar pushed was that Sega as a whole discontinue support of the Saturn, including in Japan where it was still a viable gaming option. Though Japan was resistant to the idea, they did throw their all into the production and advertising of the Sega Dreamcast, including ending the Segata Sanshiro advertising campaign, having the character sacrifice himself to protect Sega and the Dreamcast in his final television commercial. However, even with Virtua Fighter 3tb as one of the launch titles, the system arrived with lackluster sales, as both the consumer market and third-party software companies did not see the need for the system to be released just yet, echoing Sega of Japan's initial resistance.
With some analysis fearful of Sega's position, it was feared that the American launch would be a repeat performance. Having the western launch not happen until September 9, 1999, however, it gave plenty of time for Sega to prepare themselves. Moving away from the advertising they had done in the Saturn years, once again promotion focused on the games, offering them up as not only hip but technologically superior to anything out there. The date of the release was able to become a marketing ploy, as well as the “It's Thinking” tagline, meant to also emphasize the built-in online capabilities of the system, the first home console to be ready for the Internet right out of the box. Even though Stolar was let go right before the release of the system, the huge publicity push behind the Dreamcast allowed it to be an instant success. With games such as Namco's Soul Calibur, the continued legacy of Sega's sports division with NFL 2K and the return of the gaming icon that had allowed the Mega Drive to be a success in the first place, Sonic Team's Sonic Adventure, the system ended up taking in $97 Million USD on its first day, taking into account not just system sales but peripherals and games. This amount set the record for the most amount of money spent on entertainment in a single day, beating out the previous record holder, Star Wars Episode I: The Phantom Menace.
However, the success was not to last. Even with a string of high quality arcade ports and new franchises being set up, the console was unable to completely overcome the Sony monolith. With no support from companies such as Square Enix and Electronic Arts, there was a gap in the system's library that was painfully noticeable. Newer game franchises such as Jet Set Radio and Space Channel 5, though critically acclaimed, failed to catch on new Dreamcast adopters. Things were made noticeably worse when Sega invested millions into Shenmue, a game designed from the start to have numerous sequels. Following the story of Ryo Hazuki, the game was a hybrid of different genre's with an incredible amount of attention to detail. The first game's budget alone was $47 Million USD, becoming the most expensive title produced in history. Headed by Yu Suzuki, Sega was willing to take the chance on the game, based on his numerous successes in the arcade market. However, while also a critic favorite, the title and it's eventual sequel ended up becoming a cult classic and not the phenomenon they were hoping for, unable to earn back its production budget.
The financial woes of Sega became more and more apparent, the company having suffered a loss back during the Japanese release of the Dreamcast that simply added to the losses they had been suffering through the 32-bit era. In an attempt to stall their financial woes, the decision was made for the various development studios to separate from Sega. While they would still create material for the Dreamcast, they would become semi-autonomous, with Sega Enterprises as a whole becoming Sega.
Perhaps the final nail in the coffin for Sega's time in the hardware market was the impending release of the PlayStation 2. Though Sega briefly considered making the optical drive in the Dreamcast support DVD's, they opted instead to use the proprietary GD-ROM format, as it was a cheaper alternative. However, as the hype for the PlayStation 2 began, Sony started to make promises as to the technological capabilities of the system, promising the original PlayStation experience but far greater. Featuring a DVD-Drive, it was also poised to be the cheapest DVD player on the market. Soon, both consumers and developers across the globe started to back away from the Dreamcast, having a “wait and see” attitude, market speculation leaning once again to the electronics giant Sony.
Unable to stay afloat if they continued as they were, Sega announced on January 31, 2001 that they were ceasing production of the Dreamcast. Though games were still being developed for the console by the company, the writing was clearly on the wall, with hyped titles such as Phantasy Star Online and Sonic Adventure 2 unable to save the system. With the PlayStation 2 becoming another instant hit and eventually one of the most successful consoles of all time, Sega bowed out of the hardware business, with NFL 2K2 being the last title released in North America. While new titles were still being published in Europe and Japan, Sega made it clear they had no plans to create another home console. With Puyo Puyo Fever being the last First-Party title released in 2004, what Sega had hoped would save them financially simply turned into the last factor forcing them to return to the world of third party software development.
On March 21, 2001, what was once unthinkable was finally a reality. Announcing their focus on software only two months prior, the first Sega game to be released on a Nintendo console became available. Being a port of the Dreamcast title Chu Chu Rocket on the Game Boy Advance, it was only the first of many titles to be released on hardware Sega once considered the competition. Any game early enough in development was moved from the Dreamcast to other hardware, and existing titles were quickly ported over to try and recoup the losses Sega had been incurring.
Only two days before, Isao Okawa, President of Sega Japan, passed away, only days after donating $695.7 million USD to the company in an effort to get it out of the red. Even still, the fiscal reports released in March 2002 still put the company below the line of profitability for the fourth straight year. Although not nearly as far in the red as it had been the year previous, it was still painfully obvious that even after dropping out of the hardware market, that company was still in serious financial trouble. Though Okawa had briefly talked with Microsoft about the possibility of having Sega merge with their gaming division before his death, nothing had come of those talks.
Also in early 2001, it was announced that Sega had plans to port Saturn games over to the original PlayStation. A GameWeek interview conducted with Charles Bellfield (Sega's VP of marketing) at Toy Fair 2001 in New York revealed that Sega would announce specific Saturn title ports in April to be released in summer 2001. The Saturn ports would be priced at $19.99.
Two games were eventually released by Sega on the Playstation (MiniMoni. Shakka to Tambourine! Dapyon! and Puyo Puyo Sun Ketteiban). Puyo Puyo games were released on several platforms over the years so it's presence on the PlayStation isn't that unusual. The Sega releases for the PlayStation did not come out until 2002-2003.
Though brief discussions continued on with former interests Microsoft, Bandai and even Electronic Arts, on February 19, 2003, Sega announced to the world their impending merger with Sammy Corp., an arcade rival who specialized in Pachinko machines. Only nine weeks after signing an agreement in principle with Sammy, gaming giant Namco made public their own intentions with Sega, making a counter offer to have Sega merge with them. Within a month, both talks fell through, with Sega withdrawing from the Sammy merger and delaying talks with Namco, which prompted that company to withdraw their offer, making it clear that it definitely was not the right time to merge if Sega did not know what it wanted to do with itself.
In August of that year, Sammy once again became interested in Sega, buying the holdings CSK still held with Sega. Once purchasing the 22 percent outstanding stock in the company, Sammy Chairman Hajime Satomi became the CEO of Sega Japan, announcing the company's main focus would be in the arcade sphere.
In the middle of 2004, Sammy bought a controlling interest in Sega, at the reported cost of $1.1 Billion USD. In the wake of this purchase, Sega Sammy Holdings was created, with Sega being a subsidiary of that company. Because of the company's restructuring, the development studios that had become semi-autonomous back in 2000 were remerged into Sega proper. One of those studios, Visual Concepts, would soon be sold to Take-Two Interactive.
Previously, Sega operated only in the "Consumer Business", "Amusement Machines Business", and "Amusement Center Business". After the merger, the "Pachinko and Pachislot Machine Business" was added and provided nearly two thirds of the revenue, providing Sega with financial stability.
After the merger of two companies, Sega had immadiate growth in both sides of the world. In Japan, the arcade market experienced growth spearheaded by the multiplayer set-ups of Derby Owners Club, kids card game business of Mushiking and internet features of Virtua Fighter 4. In 2006, record revenue was recorded despite the dissapearence of an international market. In the console and handheld business more and more games aimed at the Japanese climbed the charts, spearheaded by the big budgeted Yakuza series. On the Western side, acquisitions of Creative Assembly and Sports Interactive and other Western partnerships resulted into solid sales. The Sonic the Hedgehog franchise continues to be popular selling millions with each title, altough the critical reception has been very mixed.
Internationally, Sega was recognized as the world's no.1 arcade producer in 2010 by the Guiness World Records, having produced 530 arcade games, more than any other company in the world. This further cemented the legacy initiated by David Rosen in the 1960's.
In 2012, the enviorment of the business has changed dramatically, with the arcade market declining, packaged games no longer providing the core of the companies revenue both in Japan and in the West. Sega then entered a restructuring phase with the following measures: Focusing on core franchises in the packaged game market, with a drop of 140 SKU in 2007 to 49 SKU's in 2013. Sega closed and downsized several international branches, however as a trade strengthenedtheir digital business and made further large acquisitions in the Western and Japanese market.
In the mobile business, Sega made first strides when the iPhone was released with a Super Monkey Ball app which climbed the No.1 spot in the charts. In the emerging and growing F2P market Sega made it's first strides with Kingdom Conquest in 2010. Another key strategy of the F2P market was the development and release of the PC Online game, Phantasy Star Online 2. The game became the most successfull in the franchise since it's introduction in 1987. In terms of aquisitions, Sega made a purchase with Relic Entertainment resembling it's purchase with Creative Assembly in 2005. The major Japanese acquistion came in the form of Index Corporation, which also contained Atlus, a publisher and developer of niche IP rather than the purchased million seller IP of before. Index was split into with it's video gaming business being established as Atlus.
In light of these recent changes, Sega Sammy decided to consolidate and restructure their four operating segments. The Pachinko and Pachislot segment by Sammy remained, providing the main financial strengh of the group. The "Entertainment Contents Business" contains all of Sega's businesses. The main financial strengh of the segment is the new Sega Games, the successor of Sega Corporation, which ecompasses their mobile, PC and console game´businesses. This company is headed by the son of Sega Sammy CEO, Haruki Satomi. Haruki Satomi, made his first strides as VP of digital business at Sega of America, as well as heading mobile worldwide since 2012. The new "Resorts" business venture from Sega Sammy, utilizies Sega's theme park assets to promote it.
Currently, Sega is aiming to archive the profits they had in 2006 consistently, with the digital game business, centered around mobile and PC Online games, being they key to archiving it. However the company has re-assured that the commitment to their former core market, being console and arcade games, has not been diminished.
|Sega Development Studios|
|Japan Production and Engineering Department 1965-1984|
|Japan R&D; 1984-1990|
|Team Shinobi, Sega AM2|
|Japan, 1990 - 1998|
|Amusement Machine R&D||Consumer R&D|
|Sega AM1 | Sega AM2 | Sega AM3 | Sega AM4 | Sega AM5 (Emotion Engine R&D) | AM Annex formed in 1996||Sega CS1 (Team Andromeda | Team Aquila | Team Ara) | Sega CS2 | Sega CS3 (Sonic Team) | Mega CD Software R&D formed 1991 | RPG Project Office formed 1993 | 32X Software R&D formed in 1994 | PC Software R&D formed in 1995|
|R&D1 (WOW Entertainment) | R&D2 (Sega AM2) | R&D3 (Hitmaker) | R&D4 (Sega Mechatronics) | R&D5 (Mushiking Team) formed 2001 | R&D6 (Smilebit) | R&D7 (Overworks) | R&D8 (Sonic Team) | R&D9 (United Game Artists) | R&D10 (Wave Master) | R&D11 (Amusement Vision) | R&D12 (Sega Rosso)|
|Japan, 2004 - 2008|
|Amusement Machine R&D||Consumer R&D|
|Sega AM1 | Sega AM2 | Sega AM3 | Sega AM Product | Sega AM Plus | Family Entertainment R&D||Sega GE1 (Sonic Team) | Sega GE2 | Sega GE3 | Sega NE | Sports Design R&D | Mobile R&D|
|Japan, 2008 - current|
|Amusement Machine R&D||Consumer R&D|
|Sega AM1 | Sega AM2 | Sega AM Product | Mobile R&D formed 2010 (Sega Networks) | N. Pro. R&D formed 2013||Sega CS1 (Ryu ga Gotoku Studio | Sega CS2 (Sonic Team) | Sega CS3 (Online R&D formed 2010) | Mobile R&D formed 2010 (Sega Networks)|
|Three Rings Design | Relic Entertainment | Demiurge Studios|
|The Creative Assembly | Sports Interactive | Hardlight|
|Sega Studios China formed 2002|
|SEGA Executive and R&D Management|
|Chairmen||Isao Okawa (1984-2001) | Hajime Satomi (2004-current)|
|Presidents||Hayao Nakayama (1984-1998) | Shoichiro Irimajiri (1998-2001) | Hideki Sato (2001-2003) | Hisao Oguchi (2003-2008) | Okitane Usui (2008-2012) | Naoya Tsurumi (2012-current) | Hideki Okamura (2014-current) | Haruki Satomi (2015-current)|
|R&D Managers||Hisashi Suzuki (1983-2003) | Hideki Sato (1988-2001) | Yoji Ishii (1989-1999) | Tomio Takami (1988-1996) | Shinobu Toyoda (1989-2008) | Rikiya Nakagawa (1990-2003) | Yu Suzuki (1990-2009) | Hisao Oguchi (1990-2003) | Makoto Oshitani (1992-1999) | Hiroshi Aso (1992-current?) | Shoichiro Irimajiri (1992-1998) | Yukifumi Makino (1992-2004) | Shun Arai (1995-2002) | Noriyoshi Ohba (1995-2004) | Yuji Naka (1995-2006) | Tetsuya Mizuguchi (1995-2003) | Toshihiro Nagoshi (1998-current) | Masao Yoshimoto (1999-current) | Kenji Sasaki (1999-2005) | Hiroshi Kataoka (2001-current) | Mie Kumagai (2000-current) | Takayuki Kawagoe (2000-2013) | Kazunari Tsukamoto (2003-2008) | Hiroshi Uemera (2001-2013) | Makoto Uchida (2002-current) | Yukio Sugino (2004-current) | Hideki Okamura (2005-2008) | Masanao Maeda (2005-2012) | Hiroyuki Miyataki (2005-current) | Okitane Usui (2005-2008) | Akinori Nishiyama (2005-current) | Akira Nishino (2005-current) | Takaya Segawa (2005-current) | Atsushi Seimiya (2005-current) | Osamu Ohashi (2008-current) | Youchi Shimasato (2008-current) | Naoya Tsurumi (2010-2012) | Masayoshi Kikuchi (2010-current) | Yasuhiro Nishiyama (2010-current) | Takashi Iizuka (2010-current) | Haruki Satomi (2010-2015)|
|Sega West Executives||David Rosen (1975-1996) | Bruce Lowoy (1986-1988) | Bruce Lowoy (1986-1988) | Michael Katz (1989-1991) | Robert Deith (1991-2001) | Tom Kalinske (1991-1996) | Bernie Stolar (1996-1999) | Peter Moore (1999-2003) | Naoya Tsurumi (2001-2009) | Simon Jeffery (2005-2009) | Mike Hayes (2009-2012) | Jürgen Post (2012-current) | John Cheng (2012-current)|