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Fast facts on Sega
Founded: 1945 (as Service Games)
Headquarters: Ota, Tokyo, Japan

Sega (セガ) is an international digital entertainment and media company currently headquartered in Ota, Tokyo, Japan. Founded in the mid-1940s, Sega experienced rapid growth in the 1980s and 1990s to become one of the dominant forces in its field. It remains to this day a major player in the worldwide video game industry, specialising in network-focused and mobile games for consumer devices such as smartphones and tablets.

"Sega" is a trading name used by various iterations of the company since the early 1950s. As of 2004 operates in conjunction with the Sammy group, under a collective holding company known as Sega Sammy Holdings. In April 2015 the Sega division was split into further sub-divisions; Sega Games, handling the video game consumer business, Sega Interactive which deals with the development and production of arcade games, and Sega Entertainment, responsible for the running of commercial venuesMedia:IR EN 2015-02-12 3.pdf[1].

In practise, all three (and several former divisions) are generally known collectively as "Sega". Furthermore Sega's operations are typically referred to by region; Sega of Japan, Sega of America and Sega Europe being the main three. While this does not accurately reflect the true corporate structure of Sega Sammy Holdings and its subsidiaries, historical organisation and frequent restructuring in recent years means this is a more straightforward method of referring to the company's operations.


Formation and early successes

Sega's flagship product of 1957, the Sega Bell.

Sega claims to have been established in 1951 (and incorporated in 1960)Media:AnnualReport2001 English.pdf[2], however in reality Sega's history begins with the establishment of "Service Games", Hawaii originating 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, primarily to US personell stationed across Asia in the years after World War II. They called the partnership Service Games (i.e military service) 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, California, in 1934 for the civillian market. 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, and had worked together in coin-operated enterprises that called upon the technical competence of the senior Bromberg.

Sega Enterprises Ltd. Tokyo office, as seen in 1965.

The United States Congress of the Gambling Devices Transportation Act of 1951 banned slot machines on military bases within the territory of the United States, forcing Service Games 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.

The result, Service Games, Japan, and over the next few years, a network of factories sprung up across South East Asia to cater for American troops stationed in the Orient. Service Games also began selling its machines in Europe, becoming one of the major players in the worldwide slot machine market.

By the early 1960s a series of money-making sell-offs left only the Japanese branch of Service Games still in operation, and in May 1960 had split into two entities, Nihon Goraku Bussan (distribution) and Nihon Kikai Seizo (manufacturing). The "Service Games" brand was no longer in use, but a condensed brand name was used by the latter - "Sega", first seen paired with the successful Sega 1000 jukebox.

The merge

The Korean war had seen American businessman and former Air Force officer David Rosen stationed in Japan, and having fallen in love with the country, returned in 1954 to establish Rosen Enterprises, Inc.[3]. Originally an art exporting business Rosen's company stumbled upon a surprise hit when it began to import coin-operated instant photo booths from America, tapping into the Japanese need for photographs as proof of identity. Talks with Bromley at Nihon Goraku Bussan proved fruitful, and the two sides merged in 1965, becoming Sega Enterprises Ltd. ("Sega borrowed from the Nihon Goraku Bussan side, and "Enterprises" coming from Rosen).

As Japanese living standards began to rise, Rosen moved into the arcade business, importing electro-mechanical games from Chicago. Soon Rosen had a presence in 200 Japanese arcades, and he sought out competitors in the interests of merging. Talks with Bromley at Nihon Goraku Bussan proved fruitful, and the two sides became Sega Enterprises Ltd. in 1965 ("Sega" borrowed from the Nihon Goraku Bussan side, and "Enterprises" coming from Rosen).


Flyer for Sega's first original coin-op, Periscope.

Equipped with brand recognition, strong distribution channels and a large arcade presence, Sega's import business boomed, and soon found itself producing its own games, starting with the 1966 smash hit, Periscope. Proving that a non-American company could make gains in the coin-op industry, Sega was acquired on May 3, 1969 by media conglomerate Gulf+Western. This opened the door for Sega to enter other arenas, importing both American-made pinball tables (before manufacturing its own starting with Winner in 1972) and Rock-Ola jukeboxes.

Being a company involved in the business of entertainment, it was only a matter of time before Sega would look into video games. Seeing the success of Atari's Pong, Sega branched out into video game importing and later development, allying themselves with Gremlin Industries in North America. As electro-mechanical games were displaced, Sega began to make a name for itself through games such as Turbo and Zaxxon, as well as through distributing Frogger in the States.

Seeing the potential, 1984 saw Rosen and a group of outside investors (including Hayao Nakayama, Shoichiro Irimajiri and the chairman of CSK, Isao Okawa) bought back Sega, and as an independent company once more, continued to expand rapidly into the 1980s.

Video game consoles

1983 marked a turning point for Sega. after it entered an increasingly crowded Japanese video game console and home computer market with its latest invention, the SG-1000 (and computer counterpart, the SC-3000). Between 1983 and 1985 many significant recruitments were made for this new "consumer products" division that would shape the company's image in the decades that followed, and while the SG-1000 was unable to unseat Nintendo and their Family Computer, support from its arcade business kept them firmly in the game. It was also one of the few Japanese systems to make it across the border, making a limited mark on Australia, New Zealand, France, Italy, Sweden and parts of Asia.

The Sega Mega Drive with it's many add-ons: the Sega Mega-CD, 32X, Mega Modem and Karaoke.

Next came the Sega Mark III in 1985, a more competitive system ready to take on Nintendo coupled with a plan to launch overseas. In its redesigned Sega Master System form, Sega started to become a household name, appearing in various guises not only in Japan, but across North America, Europe and Brazil. While a distant second in Japan and the US, the Master System triumphed in smaller markets, not least to its unique ties to Sega's industry-leading arcade divisions.

Sega entered perhaps its most successful period of its then 40 year history with the 16-bit Sega Mega Drive in 1988, capturing not only the lion's share of the market in Europe, but regularly unseating Nintendo's dominance in the US. The invention of company mascot Sonic the Hedgehog and his ground-breaking video game revolutionised the industry at large, but did little to impress its Japanese homeland. Extensions in the Sega Mega-CD and Sega 32X struggled to gain traction, but the company saw reasonable success through it's full colour portable handheld system, the Sega Game Gear.

The early 1990s also saw Sega as a driving force behind video game content regulation, following the North American controversies surrounding Night Trap and Mortal Kombat. Sega's contribution in the US was the Videogame Rating Council - a system to highlight potentially inapprorpate games for younger children. Sega of America were at the forefront of this debate, and Tom Kalinske was happy to accept the eventual establishment of the Entertainment Software Rating Board, which has been the de-facto regulator of North American video games since 1994. Elsewhere Sega pushed its own ratings systems, and despite the creation of the Japanese Computer Entertainment Rating Organization 2002, continues to add extra warnings (entirely of its own accord) for violent content.

The R360 cabinet can rotate 360 degrees on three axes.

With the 32-bit Sega Saturn, Sega's console fortunes were reversed in Japan, unfortunately at the expense of everywhere else. While initially strong, the Saturn tore apart the firm in the US, and led to the company's first recorded loss for the year ending March 1998.

Attempts at revival were made with the internet-focused Sega Dreamcast the following November, but despite a strong selection of games and a devoted fanbase, the company found itself unwilling and unable to compete against its peers in the PlayStation 2, Xbox and Nintendo GameCube. In January 2001 the firm abandoned its home console ambitions, focusing instead as a third-party developer and publisher.


Tokyo Joypolis, the first indoor theme park opened by Sega.

In the 1980s and 1990s arcade scene however, Sega went from strength to strength, leading the market with hits such as Space Harrier, OutRun and After Burner before becoming a driving force behind 3D gaming in Virtua Racing and the massively successful Virtua Fighter. It also saw success in other areas - its UFO Catcher line of crane games continues to this day, and its networked arcade franchises such as World Club Champion Football remain unrivalled.

Since the 1960s Sega has been opening its own arcade centres, peaking in the 1990s when hundreds of Hi-Tech Land Sega, Sega World and Club Sega venues were spread across Japan. It also operates its own indoor Joypolis theme parks, and has formerly laid claim to resorts and restaurants. Sega arcades have also operated (albeit at a much smaller scale) in the US and across Europe, peaking with its line of GameWorks arcades in the early 2000s.

However, as arcades began to decline in the late 1990s, so too did Sega focus in the arcade market. Forced to innovate to keep customers, Sega's operations have significantly downsized in recent years, however it remains among the biggest players in the scene and continues to influence its home video game endeavours. Equally many of its arcade hits such as Daytona USA and Sega Rally Championship remain in active service more than twenty years after release.

Merger with Sammy

The demise of the Dreamcast saw Sega focus its efforts as a third-party video game manufacturer, aiming to be the largest of its kind by March 2004[4]. But financial troubles eventually saw it merged with pachinko-firm Sammy, leading it to operate under a collective Sega Sammy Holdings holding company.

In the third party era, Sega has had little mass market success in the western market, with the exception of the long-standing Sonic The Hedgehog franchise which has endured wide flunctations of quality. On the flip-end, Sega has been successfull at carving out niches with the western PC strategy market, as well mobile and arcade titles aimed at Asian audiences.

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Mega Drive/Genesis

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.

Al Nilsen, Vice-President of Sega of America, showing off Michael Jackson's Moonwalker.

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.”

Sonic the Hedgehog

Main Article: Game Development:Sonic the Hedgehog (16-bit)
Boxart to the original Sonic the Hedgehog.

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.

The original core members of Sonic Team, 20 years later.

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.

Sega Saturn

Main Article: Sega Saturn
The 32-bit Sega Saturn.

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 original Virtua Fighter, which played a key role in the Sega Saturn's success in Japan.

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.

The greatest Sega Master, Segata Sanshiro.

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.

Sega Dreamcast

Main Article: Sega Dreamcast
Promotional imagery of a near-final Sega Dreamcast.

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.

Promotional art from Shenmue.

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.

Third Party Existence

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.[1] The Saturn ports would be priced at $19.99.[2]

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.

Sega Sammy Holdings

The Sega Sammy Group logo.

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.

External links


  1. File:IR EN 2015-02-12 3.pdf
  2. File:AnnualReport2001 English.pdf, page 3
  3. File:NextGeneration US 24.pdf, page 9
  4. File:Edge UK 104.pdf, page 7
Japanese Sega companies, studios and subsidiaries
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Service Games Sega Enterprises, Ltd. Gulf+Western CSK Sega-Sammy Holdings
Service Games, Japan Nihon Goraku Bussan Sega Enterprises, Ltd. Sega Corporation Sega Holdings
Nihon Kikai Seizou
R&D1 AM1 Sega Software R&D Dept. 1 WOW Entertainment Sega WOW AM1 R&D1 Sega Interactive R&D1
AM2 Sega Software R&D Dept. 2 Sega AM2 R&D2 Sega Interactive R&D2
AM3 Sega Software R&D Dept. 3 Hitmaker AM3
AM4 Mechatronics R&D4, Product Sega Interactive Product R&D
AM5 Mirai R&D Family Entertainment
N. Pro. R&D
DigitalRex AM Plus
AM Annex R&D Dept. #5 Sega Rosso
AM 11 R&D Dept. #4 Amusement Vision New Entertainment R&D CS1 R&D3, Div. 1 | Ryu Ga Gotoku Studio Sega Games R&D1 | Ryu Ga Gotoku Studio
CS | Sonic Team | Team Andromeda
CS1 | Team Andromeda | Team Vega R&D Dept. #6 Smilebit Sega Sports Design R&D Dept.
PC Software R&D
CS2 R&D Dept. #7 Overworks Global Entertainment R&D Dept. 2 Sega CS3 R&D3, Div. 3 Sega Games R&D3
CS3 | Sonic Team R&D Dept. #8 | Sonic Team Sonic Team Global Entertainment R&D #1 | Sonic Team Sega CS2 | Sonic Team R&D3, Div. 2 | Sonic Team Sega Games R&D2 | Sonic Team
R&D Dept. #9 United Game Artists
Sega Digital Studio Wave Master
Mobile Content R&D Sega Networks