Hypersonic: The Meteoric Rise and Fall of Sega by Eddy Wu STS145 Stanford University Professor Henry Lowood March 18, 2002For young adults of a certain generation, two names immediately jump to mind when you mention the home video game console market: Nintendo and Sega. However, fast forward just a few years, to a slightly younger age group, and the names will be different. Sony’s Playstation, launched in 1995 (“History of Video Games,” Gamespot.com), managed to dislodge the two big names in consoles, at its peak holding over 50% of the market share (USA Today, 2/6/02). Nintendo’s presence was still felt, with a 37% market share. However, Sega had become a marginal player, with the Dreamcast achieving 15% of the American market share at its peak (Sega.com), despite being technically far superior to its competition, the Playstation and N64. What happened to the company that brought the 16-bit revolution to consumers, the source of the first console RPG released in the United States, the mascot who at one point was more recognizable to children than Mickey Mouse (Sheff, 431)? Like both Nintendo and Sony, Sega’s roots are not originally in the home gaming market with which it is now inseparable from. The company that would come to be Sega was founded by David Rosen, an American who had moved to Japan after World War II. (PlanetDreamcast). In 1954, he formed Rosen Enterprises, an art exporter. The company’s business grew to include the importation of instant photo booths and coin-op games from the United States, the root of the gaming enterprise that would grow to be Sega. At this time, Rosen’s main competition in Japan was a company known as NihonGoraku Bussan, which provided vending machines to American servicemen stationed in Japan during the Korean War (SegaBase). Their business grew to include other coin-operated machines, such as pinball, jukeboxes, and eventually arcade games. However, the Japanese-produced games provided by Nihon Goraku Bussan couldn’t compete with the more advanced games which Rosen was importing from America. The one advantage it had over Rosen Enterprises was the large local base of support and manufacturing capability. To overcome this deficiency, Rosen decided to merge with Nihon Goraku Bussan in 1965, staying on as president of the new firm, Sega Enterprises. The “Sega” name was an amalgam of “Service Games,” the name that Nihon Goraku Bussan had marketed its products under in Japan. With the creation of this new firm, Sega as we know it today began to take shape. In 1966, they released Periscope, a submarine simulation arcade game. It was wildly successful, and Sega released it in the United States a year later, the first arcade game to charge a quarter per play (Electric Playground). Periscope’s success drew the attention of Gulf & Western, which bought out Sega in 1970, making it a wholly-owned subsidiary. Rosen again stayed on as president. Under new management, Sega continued to produce quality arcade titles such as Frogger (1981) and Zaxxon (1982). They also pioneered several technical innovations, including the Space Fury, the first color vector graphics game, and Sub-Roc, the first video game in 3D, which used principles similar to that used in 3D glasses. In addition to its arcade offerings, Sega also started Zaxxon Electric PlaygroundSub-Roc KLOV.commaking games for home consoles such as Atari and ColecoVision. Gulf and Western sold the American division of the company to Bally Manufacturing, one of the largest US video game makers. The games produced during this period were mostly ports of Sega and Bally arcade titles. In 1982, Sega’s worldwide sales reached over $214 million (System16). The most significant event in the video games industry is arguably the “great crash” of 1983. Before the crash, the video game industry was grossing over $3 billion in the United States alone, but by 1985 video game sales worldwide would only amount to $100 million (Geekcomix.com). The generally accepted explanation for this disaster is to blame Atari, the dominant console maker at the time. Through some rather unsound business decisions, Atari overproduced their game cartridges, forcing them to slash prices to get rid of all the excess inventory (Sheff, 150). The rock-bottom game prices eroded the market, affecting video game sales worldwide. Sega, along with all other video game manufacturers, lost most of its presence in the West, and only through the actions of David Rosen managed to continue operations in Japan. In 1979, Rosen had acquired a distribution company founded by Hayao Nakayama, a Japanese entrepreneur. In 1984, Nakayama and a consortium of Japanese investors bought out the Japanese assets of Sega for $38 million, forming Sega Enterprises, Ltd, with Nakayama as the president. Rosen became head of the American division, Sega of America. Even before the crash, though, Sega embarked on a new venture. According to the Sega company website, the crash taught them not to “stick with one concept too long, realizing that each generation of technology has a life and death.” In July of 1983, Sega expanded out of the arcade market, producing the SG-1000, their first home console, a 4-bit system. It was sold for about US$125. About a year later, the SG-1000 Mark II was introduced, an 8-bit machine targeting the home computer niche. Sega also released the SG-3000, which was basically a repackaged Mark II (SegaBase). Unfortunately, none of these systems achieved much success, due to technical limitations and the poor state of the industry at the time, and none of them were ever released in the United States. Eventually, they were all driven out of the Japanese market by Nintendo’s Famicom. SG-1000 SegaBase The story of Sega cannot be told without mentioning its primary competitor, Hiroshi Yamauchi’s company. Nintendo also had success in the early 80’s with arcade hits like Donkey Kong. However, after the great crash, Yamauchi saw the opportunity to expand into home consoles in Japan, and rushed development of their own machine to compete with Sega and the other companies already in the business (SegaBase). In 1983, Nintendo released the Famicom (“Family Computer”) in Japan, an 8-bit system. Because of the rushed production, the initial batch shipped with almost a 30% defect rate (Geekcomix.com), and initially was not a success. However, on the strength of its Nintendo
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