Dive into the fascinating story of Sega, a company that started small in the arcade scene and grew into a major force in the gaming world. This blog explores Sega's journey from its early days, through its groundbreaking innovations, to becoming a household name with its iconic consoles and games.
Founding and Early Beginnings
Sega was founded in America by American businessmen Irving Bromberg, his son Marty Bromley, and his son's friend James Humpert in 1940 under Standard Games in Honolulu, Hawaii.
Initially, the company focused on providing coin-operated amusement machines to be sold on American military bases stationed in Hawaii.
In the early 1950s, the United States enacted laws limiting slot machine use. As a result, in May 1952, Standard Games relocated to Tokyo, Japan. Bromley and his father purchased slot machines from the U.S. government and shipped them to Japan. Once there, they set up game rooms for service members stationed in Japan and throughout Asia, rebranding their company as Service Games.
By 1960, Service Games, Taito, and Rosen Enterprises Ltd. were among Japan's three largest coin-operated entertainment companies.
Rosen Enterprises was founded by David Rosen, an American entrepreneur who found success in instant photo booths he imported from the U.S. to Japan in the early 1950s.
In 1965, Rosen Enterprises merged with Service Games. The name "Sega" is not Japanese; it comes from the first two letters of "Service" and "Games," combined with "Enterprises" from Rosen Enterprises to form Sega Enterprises, Ltd., officially marking the birth of Sega.
During the 1960s and 1970s, Sega became a major provider of various amusement machines, including jukeboxes, pinball and slot machines. However, the company's foray into arcade games set the stage for its future success.
In 1966, Sega released "Periscope," its first coin-operated arcade game. This game became a massive hit in Japan and the United States, establishing Sega as a major player in the industry. Throughout the 1970s, Sega continued to produce popular arcade games like "Moto-Cross" (later rebranded as "Fonz") and "Gun Fight."
While Sega had already established itself as a leader in the arcade game industry, the company set its sights on a new frontier in the early 1980s: the home video game market. Under Rosen's leadership, Sega transitioned from being a manufacturer of arcade machines to a major player in the home console market.
This move was critical in Sega's evolution and eventual rivalry with Nintendo.
Sega HQ
The old Sega HQ in Tokyo, a symbol of the company's rich history in the video game industry, once served as the bustling hub where iconic games like Sonic the Hedgehog were conceptualised and developed.
The old Sega HQ in Tokyo operated from 1951 until 2018. The building was demolished in 2020.
Periscope Arcade Machine
The Periscope arcade game, released by Sega in 1966, was a groundbreaking electromechanical game that simulates submarine warfare, marking one of Sega's first major successes in the arcade industry.
Fun fact: Periscope arcade game can be found as a minigame in the Sega game "Yakuza 5." This inclusion pays homage to Sega's early days in the arcade industry.
Sega Early Home Consoles
Sega launched its first home video game console, the SG-1000, in Japan on July 15, 1983. Unfortunately, it was released on the same day as the Nintendo Famicom. The system faced heavy competition in the local market and was ultimately overshadowed by the Famicom. However, it exceeded Sega's sales expectations, motivating the company to continue developing new consoles for the market.
The SG-1000 sold over two million units over its lifetime, significantly less than the Famicom's impressive sales of over 61 million units (including the NES).
In 1984, Sega released the SG-1000 Mark II exclusively to Japan. This updated system had a new look and changes, such as a front-facing expansion port and fully detachable controllers. It imitated the Famicom's design by replacing the joystick with joypads that could be stored on the side of the console.
In 1985, the company released the Sega Mark III, then launched it internationally and renamed it the Sega Master System, directly challenging Nintendo's dominance with its NES console. The Master System had more RAM and an upgraded video processor, offering better graphics and sound capabilities than the NES.
The Master System struggled to gain a significant foothold in the U.S. and Japanese markets due to Nintendo's dominance of approximately 90% of the home video game market and strict exclusive third-party game deals. Nintendo's stringent licensing policy prevented developers from creating games for other systems, so Sega had to focus on developing its games.
However, it gained popularity in Europe and South America, where Nintendo had a weaker presence, and it outsold the NES in those regions. During its peak years, the Sega Master System sold approximately 10-13 million units worldwide before it was eventually phased out.
Sega quietly removed all unsold Master System units from retailers in North America around 1987 due to poor sales performance and strong competition from the Nintendo Entertainment System. This move was part of Sega's strategy to manage inventory and reassess its approach to the market.
Sega SG1000
Sega Master System
Peter Main, vice president of marketing, Nintendo of America - The Ultimate History of Video Games Vol. 1 (New York: Three Rivers Press, 2001), p. 303.
"Yes, the Master System was a better piece of hardware than the NES. Remember, they had two extra years to develop it."
The 16-bit Systems
The fourth generation of game consoles kicked off with the Japanese release of the NEC PC Engine in 1987. This was the first home gaming console to feature 16-bit graphics. Despite having an 8-bit CPU, it wasn't a true 16-bit system, but it showcased a significant visual improvement over the older 8-bit consoles. The console was rebranded as the TurboGrafx-16 for its North American release on August 29, 1989.
The P.C. Engine was a collaboration between NEC and Hudson Soft. It gained popularity for its impressive graphics and extensive game library and became the country's second-best-selling console of its era.
During 1986-1988, Sega spent two years developing a more powerful new console with twice the processing power of the NES/Famicom.
Sega's new system, called the Sega Mega Drive, featured an impressive array of hardware. At its core was the 16-bit Motorola 68000 processing chip, the same chip that powered Apple's Macintosh computer. This chip could handle twice as much data per cycle as the 8-bit MOS Technology 6502 chip used in Nintendo's Famicom.
The Mega-Drive was a true 16-bit gaming system. It had a 512-color palette and could display up to 64 colors on screen at once, unlike the NES's 52-color palette. The system also had a separate 8-bit processor for sound. This led to games with more detailed characters, advanced graphics, and faster action, making the console competitive with arcade machines.
The company launched the new system in Japan on October 29, 1988, but its debut was overshadowed by the release of Super Mario Bros. 3 a week earlier. The immense hype around SMB3 captured gamers' attention, reducing the excitement for Sega's new console.
Sega then turned its attention across the Pacific with one goal: to sell one million Mega Drive units. Interestingly, David Rosen employed a strategy similar to Nintendo's early approach in the U.S. market. He approached Atari Corporation with a proposal for Atari to manufacture, market, and distribute the Sega Genesis. Although they were close to finalising the deal, disagreements led to its collapse, prompting Sega to do it themselves.
Due to trademark issues, it was renamed the Sega Genesis at its North American launch in 1989. Europe received its launch a year later, in 1990.
The Sega Genesis was initially launched in Los Angeles and New York in August 1989. The system's retail price was $189, and it came with a single controller and came bundled with the game Altered Beast. Five additional games were available at launch, and a second wave arrived one month later.
Altered Beast showcased the power of the 16-bit processor, with characters half the size of the screen and enhanced graphics. Many consumers were impressed by the improved detail and vibrant colours in the Genesis games. The graphics were smoother and more intricate, creating a more immersive visual experience. Genesis was often compared to other consoles, particularly the NES, and its superior graphics gave it a competitive edge.
In late 1989, as Sega expanded Genesis's reach to a nationwide audience, Sega of America appointed Michael Katz as its new president and CEO. Katz, who had previously served as the president of the Video Game Division at Atari Corporation, brought a wealth of experience and expertise in marketing to Sega. With a reputation for innovative marketing strategies and a deep understanding of the video game industry, Katz played a critical role in promoting the Sega Genesis and establishing it as a strong competitor in the U.S. market.
Sega Genesis/Mega Drive
The Console War
Don James, vice president of design, Nintendo of America. - The Ultimate History of Video Games Vol. 1 (New York: Three Rivers Press, 2001), p. 405.
"Sega came out slamming us in their commercials. They were naming us by name, and that was really a big deal. It's like somebody calling your team "crap." We took it goo-naturedly and competed the best we could."
Katz's initial task as Sega's head was to establish an identity for the Genesis. Sega pursued a strategy to showcase the Genesis's superior arcade-quality graphics, sound, and overall performance compared to the NES.
The company then developed an aggressive marketing campaign that challenged Nintendo head-on with the slogan, "Genesis does what Nintendon't".
Nintendo later responded to the campaign with "Play It Loud" and "Now You're Playing with Power".
Genesis Does What Nintendon't article
The company aimed to enhance the Sega Genesis's image by leveraging celebrity endorsements to make it appear more exciting and popular.
Some of the celebrities who endorsed Sega were:
- Joe Montana, the legendary NFL quarterback.
- Arnold Palmer, the golf legend.
- Evander Holyfield, the heavyweight boxing champion.
- Pat Riley, the renowned NBA coach.
- Michael Jackson is one of the most famous celebrity endorsements of Sega. The pop star had a close relationship with Sega.
Genesis Michael Jackson Moonwalk (1990)
These endorsements helped Sega increase the visibility and appeal of its systems and games, especially in the competitive North American market.
They bundled popular games with the console and used competitive pricing strategies to attract players.
Sega targeted older gamers by positioning the Genesis as more mature and cooler than Nintendo's family-friendly image.
Michael Katz, former CEO of Sega of America. - The Ultimate History of Video Games Vol. 1 (New York: Three Rivers Press, 2001), p. 424.
"And so Nakayama-san was not happy that we hadn't sold a million units. In January, about fourteen months after I started there, I was replaced by Tom Kalinske, who, of course, I'd known from Mattel, where we had worked together."
Sega's New CEO
Tom Kalinske replaced Michael Katz as CEO of Sega of America in 1990. Kalinske's leadership was instrumental in transforming Sega's marketing strategies and driving the success of the Sega Genesis in the United States. Before Michael Katz was replaced by Tom Kalinske in mid-1990, Sega sold approximately 500,000 units of the Genesis in North America.
Kalinske was the president and CEO of Mattel's toy operations for around 20 years. During his tenure, he successfully revitalised the Barbie brand, growing its worth from $42 million to $550 million. He was also responsible for overseeing the Hot Wheels brand and launching the Masters of the Universe toy line.
According to a 1995 article, Sega Enterprises CEO Hayao Nakayama encountered an old acquaintance, Tom Kalinske, on a business trip in Tokyo. Nakayama immediately offered Kalinske the position of CEO of Sega of America.
Kalinske developed a four-point strategy;
- Reduce the system's cost from $189 to $149, with the eventual goal of $100.
- Assemble a U.S.-based team to create games more suited to American tastes.
- A massive media push with increased exposure through T.V. commercials ensures that parents and children see it more frequently.
- Replace Altered Beast with a new game called Sonic The Hedgehog, which was still in development at the time, as the bundled game.
Tom Kalinske and friend
Sonic The Hedgehog
Sega wanted to create a new mascot to compete with Nintendo's Mario and boost the popularity of its Sega Genesis console. They aimed to design a character that showcased the Genesis hardware's speed and graphics capabilities. Much of Kalinske's plan relied heavily on Sonic the Hedgehog.
Three individuals were responsible for the creation of Sonic the Hedgehog.
- Game designer Yuji Naka programmed Sonic to move quickly and smoothly through levels, taking full advantage of Genesis's processing power.
- Naoto Ohshima, the character designer, envisioned a blue hedgehog with spikes resembling a mohawk to symbolise speed and edginess. The blue colour matched Sega's logo, while Sonic's red shoes were inspired by Michael Jackson's boots, aiming for a design that would stand out.
- Hirokazu Yasuhara, the game's level designer, focused on creating environments that complemented Sonic's speed with loop-de-loops, springs, and slopes for fluid and fast-paced gameplay.
Their combined talents brought Sonic to life with innovative gameplay mechanics and a distinctive visual style.
Naka sought to design a game similar to Super Mario Bros. but with a more straightforward approach. While Mario games required two buttons, Sonic would only need one. Instead of coins, Sonic would collect rings. Naka gave Sonic a distinct "attitude"—if the player remained idle, Sonic would impatiently glare at the screen and tap his foot. The emphasis was on speed, setting Sonic apart from Mario's slower, friendlier demeanour.
When Sega launched Sonic The Hedgehog in 1991, it received an astonishing response. The media hailed it as one of the greatest games ever created and a testament to Genesis's capabilities beyond the side-scrollers like Golden Axe and Moonwalker for which it had been known.
As Kalinske had planned, the game was released bundled with the Sega Genesis, replacing Altered Beast. Consumers who had recently bought the older package with Altered Beast were given a grace period during which they could mail in and receive a free copy of Sonic the Hedgehog, effectively getting an extra game at no additional cost.
Sonic the Hedgehog and the lower entry cost to the Genesis helped push the Sega Genesis to be the number one best-selling console for four years. Sonic became iconic and was in every household. In later years, it had multiple sequels, spinoffs, cartoons, and merchandise.
The Sega Genesis achieved significant sales success. By the mid-1990s, Sega had sold around 30 million units of the Genesis worldwide. This period marked the height of Sega's competitive edge against Nintendo, particularly in North America.
Nintendo's 16-bit console
Despite Nintendo was still selling its 8-bit NES, considered outdated compared to the 16-bit NEC PC Engine (TurboGrafx-16) and Sega Mega Drive/Genesis, Nintendo was in no rush to release a new system. The immense popularity of Super Mario Bros. 3 kept players glued to the NES, and its strong sales continued to support the console's market presence.
However, to stay competitive, Nintendo needed to upgrade its hardware to match the capabilities of the new 16-bit systems from Sega and NEC. Gamers were starting to expect more advanced graphics, sound, and gameplay experiences that the 8-bit NES couldn't deliver, placing it at a disadvantage.
Nintendo eventually released its 16-bit console, the Super Famicom, in Japan in November 1990 and named it the Super Nintendo (SNES) in North America in August 1991. The SNES boasted advanced graphics and sound capabilities, allowing it to display more colours, produce superior sound effects, and support larger, more complex games.
The fight was about to become much more intense with the release of the new system. The 16-bit console war between Sega and Nintendo was about to begin.
If you're interested in learning more, be sure to check out my other post, where we'll explore this legendary battle in more detail: Sega vs Nintendo.
Stay Retro!
David - My Retro Game Hub
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