History of Sega

Formation and early successes

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

Sega's history begins with the establishment of "Service Games", Hawaii originating on September 1, 1946 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 personnel 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.

Sega Enterprises Ltd. Southern Japan regional office, in Suita, Osaka as seen in 1967.

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.

In May 1960, Service Games, Japan was liquidated, becoming two separate entities, Nihon Goraku Bussan (distribution; trading as "Uta Matic, Inc.") and Nihon Kikai Seizo (manufacturing; "trading as "Sega, Inc.")

. Nihon Goraku Bussan became a sizable company in its own right during the 1960s, having become one of the largest jukebox distributors in Japan thanks to a deal which saw it import stock from Rock-Ola.

Nihon Goraku Bussan's dominance in the jukebox led to the next logical step - producing jukeboxes within Japan, allowing products to be sold at vastly reduced prices. The company also continued to use the "Sega" brand, creating the first entirely original product to bear the name, the Sega 1000 jukebox in 1960.

The merge and Periscope

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.

. 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. As Japanese living standards began to rise, Rosen moved into the arcade business, importing electro-mechanical games from Chicago. By 1961, the American arcade industry had declined, due to stagnation and lack of innovation from Chicago manufacturers. This led to Rosen Enterprises producing its own electro-mechanical arcade games, with engineer Hisashi Suzuki leading development, along with assistance from other Japanese engineers at Nihon Goraku Bussan.

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)

. In 1965 the core of the newly formed Sega's business was still in the jukebox sector, but this began to change with the release of the 1966 smash hit, Periscope. Proving that a non-American company could make gains in the coin-op industry, Sega would continue to produce innovative electro-mechanical arcade games

, and even begin opening rented "gun corners" and "game corners" in Japan to profit from them - the first two appeared in Hibiya, Tokyo, and Umeda, Osaka, in 1965, and continued with larger examples such as Golden Center Game Corner in Yokohama during 1968.

Gulf+Western

Sega's rapid rise led to David Rosen wanting to take Sega public in Japan. However, he was hestitant to do so, as it would have been both the first foreign-owned company to do so in the region and the first in the coin-op industry

. Instead, media conglomerate Gulf+Western acquired Sega on May 3, 1969, opening the door for Sega to enter other arenas, such as importing American-made pinball tables (before manufacturing its own starting with Winner in 1972), and later get rights to properties from Paramount Pictures (another Gulf+Western company). Sega became an American company in 1974 after making its first public stock offering (Sega Enterprises, Inc. becoming the head office, with Sega Enterprises Ltd. relegated to a Japanese subsidiary)

, opening up a factory on the west coast the following year. Its first overseas amusement facilities, Sega Centers, were created shortly afterwards in the USA, acting as one of the first concerted efforts by the company to develop clean, inoffensive arcades, often located in indoor shopping malls. 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. Gremlin would be acquired by Sega in 1978

, before becoming Sega Electronics in 1982

. Financial troubles at Gulf+Western led to Sega Electronics being sold to Bally Midway in 1983

, meaning Sega was no longer developing products in North America. Seeing the potential of the Japanese arm, David Rosen, Hayao Nakayama (of Esco Boueki, purchased by Sega in 1979) and chairman of CSK, Isao Okawa bought the Japanese arm back from Gulf+Western in April 1984

, turning it into a subsidiary of CSK. For the second time this century, Sega was Japanese again.

Becoming a consumer brand

For much of its life, Sega was a name associated solely with the coin-operated amusement industry, selling (and housing) equipment to be enjoyed in public venues by passing customer. The early 1980s, however, saw the company start targeting home consumers, creating products which could be bought and kept by individuals. The decision did not come without immediate problems - potential early growth in the sector was stunted in the United States after the infamous market "crash", but this did not deter efforts.

In addition to Sega Electronics devoting part of its business to producing video games for home consoles and computers, 1982 saw Sega announce a plan to distribute the ColecoVision console in Japan.

The deal ultimately fell through, but Sega still entered this increasingly lucrative market with its own console, the SG-1000, alongside the SC-3000 microcomputer in June 1983. Arcade operations saw a decline during this period, with the P.J. Pizzazz franchise quickly aborted after its creation, though new openings continued in Japan.

In addition to shifting market conditions, Sega's console efforts were hampered from day one by the hugely successful Nintendo Famicom, however, their arcade heritage kept endeavours afloat. Sega managed to get the SC-3000 distributed in Australia, New Zealand and parts of Europe, and with the release of Robo Pitcher, Sega began what would become a sizable business in the Japanese toy market. For much of the world, however, Sega's big break came from its response to the Nintendo Entertainment System in the United States - a souped-up console later known as the Sega Master System.

While the Master System's impact was undoubtedly muted from its US launch by Tonka in 1986, the console saw unexpected success in markets where Nintendo were less interested, with Western Europe and Brazil, backed by Mastertronic and TecToy, being particularly receptive to the machine. As a result of popular titles like Alex Kidd in Miracle World and Wonder Boy, Sega's console displaced previous industry leaders Atari Corporation and their Atari 7800, becoming the second most popular home system in the world.

In the arcades, Sega's Japanese R&D teams were revolutionising the industry with Hang-On, Space Harrier, OutRun and After Burner (all of which would subsequently see Master System conversions), and by 1987, 40,000 coin-operated machines were being used in 2,000 locations across the world.

The mid to late 1980s also saw Sega reassert itself in the amusement operations sector with the branded Hi-Tech Land Sega and Hi-Tech Sega "game center" chains in urban areas of Japan, as well as the Time-Out venues that had been bought out by the company in the USA.

The golden years

How to win friends and influence people - the Sega Mega Drive was released in Japan during October 1988, later arriving in its two more successful territories, North America and Europe, in 1989 and 1990.

While the Master System had proven Sega's credentials on the home video game stage, it was its successor, the Sega Mega Drive which saw Sega become a global brand at the turn of the 1990s. Strong (and often aggressive) marketing in key markets, new company recruits like Tom Kalinske, and cutting-edge technology caused the Mega Drive to out-pace market leaders Nintendo in most of the world, creating one of the most memorable "console wars" of all time. By 1991 Sega was selling products in over 44 different countries across the world

, employing 1,695 people

and expanding exponentially against the odds of the bubble economy bursting in Japan, partially due to the success and capitalisation of their new mascot, Sonic the Hedgehog. The popularity of the character's games led to the company's American and European presences growing considerably, though the gains made in the latter market were partly negated by a sudden lull during 1993, and Nintendo continued to dominate in Japan. As the demographic of video games began to shift for the first time, Sega were involved in a number of controversies as the supporters of several then-boundary pushing titles like Mortal Kombat, yet such was their gravitas, these did not damper their reputation.

Tokyo Joypolis, opened to the public in Odaiba during July 1996, continues to operate as the flagship example of a now-smaller number of Sega-branded amusement facilities located in Japan.

In the arcades too, Sega was innovating - the releases of Virtua Racing and Virtua Fighter, powered by the Model 1 board, brought the company's offerings into the third-dimension, and the highly advanced Mega Visor Display used in the VR-1 attraction offered a brief glimpse of a virtual reality future. Sega had also finally created a thousand-strong network of facilities across multiple continents by the mid 90s, the basis of which were their Sega World and GiGO chains in Japan. The venues found initial success in providing high-tech video amusements to wide demographics of people, acting as a continuation of previous smaller scale initiatives to improve the image of arcades. Sega's rapid expansion in this sector culminated in the launch of the Amusement Theme Park concept, which involved the tentative plans for 100 indoor Sega theme parks around the world by 2000. Large flagship locations opened during the 1990s included Tokyo Joypolis, SegaWorld London, and Sega World Sydney, as well as the separate GameWorks offshoot of entertainment centers specifically created for the Americas.

At its peak, Sega had ambitions to become the Japanese equivalent to Disney, but rash decisions came at a price - the lukewarm reception of the Sega Mega-CD and particularly the Sega 32X dented consumer confidence, internal politics created schisms, and the inability in the west to counteract the effects of the PlayStation caused a great strain on the company's home consumer division. While Sega were still continually breaking records in the arcades with the Model 2 and 3 and introducing novel new chain concepts such as Club Sega and Sega Arena in Japan, initially strong attendance was tapering, and the infrastructure that supported the venues was failing. Towards the end of the 1990s the company constantly shedded executives, closed hundreds of its once-profitable amusement centers, and put its hopes in a new online millennium with the Sega Dreamcast and Sega NAOMI arcade hardware - the former console and the latter's games were hits among fans, but not enough to dissuade five years of continuous financial losses. A planned merger with Bandai was pulled, and Sega were forced to downsize.

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Shift to third party development

Big names at Sega, circa 2001 (clockwise from top left): Rikiya Nakagawa, Yu Suzuki, Toshihiro Nagoshi, Kenji Sasaki, Shun Arai, Tetsuya Mizuguchi, Tetsu Kayama, Yuji Naka, Yukifumi Makino, Hisao Oguchi and Noriyoshi Oba.

A story ran in Nihon Keizai Shimbun on January 23, 2001 claiming that Sega would stop manufacturing Dreamcast consoles and develop software for other platforms. After denying this at first, Sega put out a press release confirming they were considering producing software for the PlayStation 2 and Game Boy Advance as part of a "new management policy". On January 31, Sega announced that the Dreamcast would be discontinued after March 31 and that the company would be restructured as a "platform-agnostic" third-party developer.

A port of the Dreamcast title Chu Chu Rocket on the Game Boy Advance was the first title Sega released for a Nintendo console. In addition to this, 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! in 2002 and a re-release of Compile's Puyo Puyo Sun Ketteiban in 2003. The latter had previously been published for the Playstation by Compile in 1997.

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., 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.

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.

In Japan, Sega's arcade market went on to go well with the multiplayer set-ups of Derby Owners Club, kids card game business of Mushiking and internet features of Virtua Fighter 4. 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.

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. The new "Resorts" business venture from Sega Sammy, utilizies Sega's theme park assets to promote it.

Detailed history

• Jukeboxes
• Slot machines

Video game consoles

• History of the Sega Master System
• History of the Sega Mega Drive
• History of the Sega Game Gear
• History of the Sega Mega-CD
• History of the Sega 32X
• History of the Sega Saturn
• History of the Sega Dreamcast

See also

• Historical misconceptions. Sega frequently gets its own history wrong.