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Sega Games Co., Ltd.
Native name
株式会社セガゲームス
Kabushiki gaisha sega gēmusu
Formerly
Sega Enterprises, Ltd.
Sega Corporation
Kabushiki gaisha
Industry Video games
Predecessor Service Games of Japan
Founded June 3, 1960; 58 years ago (June 3, 1960) (as Nihon Goraku Bussan)
Founders
  • Martin Bromley
  • Irving Bromberg
  • Richard Stewart
Headquarters Shinagawa-ku, Tokyo, Japan
Area served
Worldwide
Key people
  • Haruki Satomi
  • (Chairman and CEO)
  • Hideki Okamura
  • (President and COO)
  • Ian Curran
  • (President, Sega of America)
  • Chris Bergstresser
  • (President, Sega Europe)
Products
Owner Sega Sammy Holdings
Number of employees
≈4,865 (FY 2014)[1][2]
Parent Sega Holdings Co., Ltd.
Divisions Sega development studios
Subsidiaries
Website sega.com

Sega Games Co., Ltd. (stylized as SEGA)[a] is a Japanese multinational video game developer and publisher headquartered in Tokyo, Japan, with offices around the world. The company, previously known as both Sega Enterprises Ltd. and Sega Corporation, is a subsidiary of Sega Holdings Co., Ltd., which itself is part of Sega Sammy Holdings. Sega's North American division, Sega of America, is headquartered in Irvine, California, having moved from San Francisco in 2015. Sega's European division, Sega of Europe, is headquartered in London.

The formation of Sega is traced back to the founding of Nihon Goraku Bussan in 1960 to take over the distribution activities of Service Games of Japan. After acquiring Rosen Enterprises in 1965, the company became Sega Enterprises, Ltd., with David Rosen as its CEO. Sega developed its first arcade game, Periscope, in 1966. In 1969, the company was sold to Gulf and Western Industries, and continued its successful arcade game business. In response to a downturn in the arcade game business in 1982, Sega began to develop video game consoles, starting with the SG-1000 and Master System, but struggled to be successful against its competitors. Sega's next console, the Sega Genesis (also known as the Mega Drive) was successful and outsold its main competition, the Super Nintendo Entertainment System, four Christmas seasons in a row. Sega's next console, the Sega Saturn, struggled against competitors Sony and Nintendo, leading to development of another successor, the Dreamcast. Renamed to Sega Corporation in 2000, continued financial struggles eventually resulted in the company leaving the video game console hardware market in 2001 and a new focus as a third-party developer and publisher. In 2004, Sammy Corporation purchased Sega through a takeover and formed Sega Sammy Holdings. Sega Corporation was again renamed to Sega Games Co., Ltd., in 2015, and Sega Holdings was established as its parent.

Sega has been recognized as the world's most prolific arcade producer, and is also known for publishing several multi-million selling game franchises for video game consoles through its development studios, notably Sonic the Hedgehog, Total War, and Yakuza. In addition to video games and arcade games, Sega also has several subsidiaries that produce toys and operate entertainment centers.

History

Company origins and arcade success (1940–1982)

SEGA Diamond 3 Star

In 1940, American businessmen Martin Bromley, Irving Bromberg, and James Humpert formed a company called Standard Games in Honolulu, Hawaii, to provide coin-operated amusement machines to military bases. They saw that the onset of World War II, and the consequent increase in the number of military personnel, would mean there would be demand for something for those stationed at military bases to do in their leisure time. After the war, the founders sold that company and established a new distributor called Service Games, named for the military focus. In 1951, the government of the United States outlawed slot machines in US territories, so Bromley sent two of his employees, Richard Stewart and Ray LeMaire, to Tokyo, Japan, in 1952 to establish a new distributor. The company provided coin-operated slot machines to U.S. bases in Japan and changed its name again to Service Games of Japan by 1953.[3][4][5][6] Service Games' first use of the name Sega occurred in 1954 on slot machines, in particular on one model called the Diamond Star Machine.[7]

On May 31, 1960, Service Games of Japan was formally dissolved.[7] A few days later, on June 3, two new companies were established to take over its business activities: Nihon Goraku Bussan and Nihon Kikai Seizo.[8] Kikai Seizo focused on manufacturing Sega machines, while Goraku Bussan served as a distributor and operator of coin-operated machines, particularly jukeboxes. The two companies were merged in 1964.[7]

David Rosen, an American officer in the United States Air Force stationed in Japan, launched a two-minute photo booth business in Tokyo in 1954.[3] This company eventually became Rosen Enterprises, and in 1957, began importing coin-operated games to Japan. In 1965, Nihon Goraku Bussan acquired Rosen's company to form Sega Enterprises, Ltd. Rosen was installed as the CEO and managing director of the new company. Shortly afterward, Sega stopped its focus on slot machines and stopped leasing to military bases in order to focus on becoming a publicly-traded company of coin-operated amusement machines. As late as 1967, Sega was profiting off of coin-operated amusement machines, but was not producing its own games.[7] Products imported included Rock-Ola jukeboxes and pinball games by Williams.[9]

Sega began the transition from importer to manufacturer, with the release of the submarine simulator game, Periscope. The game sported light and sound effects considered innovative for that time, eventually becoming quite successful in Japan. It was soon exported to both Europe and the United States and was placed in malls and department stores, becoming the first arcade game in the US to cost 25 cents per play. Sega was surprised by Periscope's success, and for the next two years, Sega produced between eight and ten games per year, exporting all of them.[7]

After dealing with financial struggles and rampant piracy, in 1969, Rosen sold Sega to American conglomerate Gulf and Western Industries, although he remained as CEO following the sale. The sale price was US$10 million for 80% of Sega's stock. Rosen continued to develop his relationship with Gulf and Western chairman Charles Bluhdorn, and in 1974, Gulf and Western made Sega Enterprises, Ltd. a subsidiary of an American company renamed Sega Enterprises, Inc. During 1973, Sega would release Pong-Tron, its first video-based game.[10]

Sega prospered heavily from the arcade gaming boom of the late 1970s, with revenues climbing to over US$100 million by 1979. During this period, Sega acquired Gremlin Industries, a manufacturer of microprocessor-based arcade games.[11] In the early 1980s, Sega was one of the top five arcade game manufacturers active in the United States, as company revenues rose to $214 million.[12] In 1982, Sega introduced the first game with isometric graphics, Zaxxon, the industry's first stereoscopic 3D game, SubRoc 3D, and the first laserdisc video game, Astron Belt. Astron Belt was not released in the U.S. until 1983, after Dragon's Lair. Other notable games from Sega during this period are Head On (1979), Monaco GP (1979), Carnival (1980), Turbo (1981), Space Fury (1981), Astro Blaster (1981), and Pengo (1982).[11][13]

Entry into the home console market (1982–1989)

A downturn in the arcade business starting in 1982 seriously hurt Sega, leading Gulf and Western to sell its North American arcade manufacturing organization and the licensing rights for its arcade games to Bally Manufacturing.[14][15] The company retained Sega's North American R&D operation, as well as its Japanese subsidiary, Sega Enterprises, Ltd. With its arcade business in decline, Gulf and Western executives turned to Sega Enterprises, Ltd.'s president, Hayao Nakayama,[16] a Japanese businessman who owned Esco Boueki (Esco Trading) which had been acquired by Rosen in 1979,[17] for advice on how to proceed. Nakayama advocated that the company leverage its hardware expertise gained through years working in the arcade industry to move into the home console market in Japan, which was in its infancy at the time.[16] Nakayama received permission to proceed, leading to the release of Sega's first home video game system, the SG-1000.[18] The first model to be developed was the SC-3000, a computer version with a built-in keyboard, but when Sega learned of Nintendo's plans to release a games-only console, they began developing the SG-1000 alongside the SC-3000.[19] The SG-1000 and SC-3000 were first released in Japan on July 15, 1983,[20][21][22] on the same day as Nintendo launched the Family Computer (Famicom) in Japan.[18][23] Though Sega only released the SG-1000 in Japan, rebranded versions were released in several other markets worldwide.[18][19][23][24][25] The SG-1000's launch did not prove to be successful.[24] Due in part to the SG-1000's steadier stream of releases, and in part to a recall on Famicom units necessitated by a faulty circuit, the SG-1000 chalked up 160,000 units in sales in 1983, far exceeding Sega's projection of 50,000 units.[19] By 1984, the Famicom's success began to outpace the SG-1000, in part because Nintendo boosted its games library by courting third-party developers, whereas Sega was less than eager to collaborate with the same companies they were competing with in arcades.[19]

Shortly after the launch of the SG-1000, Gulf and Western began to divest itself of its non-core businesses after the death of company founder Charles Bluhdorn,[26] so Nakayama and Rosen arranged a management buyout of the Japanese subsidiary in 1984 with financial backing from CSK Corporation, a prominent Japanese software company.[27] The Japanese assets of Sega were purchased for $38 million by a group of investors led by Rosen and Nakayama. Isao Okawa, chairman of CSK, became the chairman of Sega,[17] while Nakayama was installed as CEO of Sega Enterprises, Ltd.[27]

The Master System, released in North America in 1986 and Europe in 1987

As a result of the lack of success of the SG-1000, Sega began working on the Mark III in Japan in 1985.[28] Engineered by the same internal Sega team that had created the SG-1000,[29] the Mark III was a redesigned iteration of the previous console.[30] For the console's North America release, Sega restyled and rebranded the Mark III under the name "Master System".[31] The futuristic final design for the Master System was intended to appeal to Western tastes.[32] The Sega Mark III was released in Japan in October 1985 at a price of ¥15,000.[33] Despite featuring technically more powerful hardware than its chief competition, the Famicom, the Mark III did not prove to be successful at its launch. Difficulties arose from Nintendo's licensing practices with third-party developers at the time, whereby Nintendo required that titles for the Famicom not be published on other consoles. To overcome this, Sega developed its own titles and obtained the rights to port games from other developers, but they did not sell well.[34] By early 1992, Master System production ceased in North America. By the time of its discontinuation, Master System had sold between 1.5 million and 2 million units in the United States,[35][36] finishing behind both Nintendo and Atari, which controlled 80 percent and 12 percent of the market, respectively.[37] Sales in the United States were handicapped by ineffective marketing by Tonka, who marketed the console on behalf of Sega in the United States.[38] Contrary to its performance in Japan and North America, the Master System was eventually a success in Europe, where it outsold the NES by a considerable margin.[39][40] As late as 1993, the Master System's active installed user base in Europe was 6.25 million units.[39] The Master System has had continued success in Brazil, where new variations have continued to be released, long after the console was discontinued elsewhere, distributed by Sega's partner in the region, Tectoy.[41] By 2016, the Master System had sold 8 million units in Brazil.[42] Because Tectoy continued to produce the Master System years after its cancellation, the console is considered the longest-lived in the history of video game consoles.[43]

In the mid-1980s, Sega released Hang-On and After Burner, arcade games that make use of hydraulic cabinet functionality and force feedback control. Sega also released the 360-degree rotating machine R-360. For arcade system boards, Sega released the System series and the Super Scaler series. UFO Catcher was introduced in 1985 and is Japan's most commonly installed claw crane game.[44]

Sega Genesis/Mega Drive and mainstream success (1989–1994)

Sega released the Master System's successor, the Mega Drive, in Japan on October 29, 1988, though the launch was overshadowed by Nintendo's release of Super Mario Bros. 3 a week earlier. Positive coverage from magazines Famitsu and Beep! helped to establish a following, but Sega only managed to ship 400,000 units in the first year.[45] The Mega Drive was unable to overtake the venerable Famicom[46] and remained a distant third in Japan behind Nintendo's Super Famicom and NEC's PC Engine throughout the 16-bit era.[47] Sega announced a North American release date for the system on January 9, 1989.[48] At the time, Sega did not possess a North American sales and marketing organization, but ultimately decided to launch the console through its own Sega of America subsidiary, which launched later that year.[49]

For the North American market, where the console was renamed "Sega Genesis", former Atari executive and new Sega of America CEO Michael Katz instituted a two-part approach to build sales in the region. The first part involved a marketing campaign to challenge Nintendo head-on and emphasize the more arcade-like experience available on the Genesis,[50][51] summarized by slogans including "Genesis does what Nintendon't".[52] Since Nintendo owned the console rights to most arcade games of the time, the second part involved creating a library of instantly recognizable games which used the names and likenesses of celebrities and athletes.[53][54] Nonetheless, it had a hard time overcoming Nintendo's ubiquitous presence in consumers' homes.[55] Tasked by Nakayama to sell one million units within the first year, Katz and Sega of America managed to sell only 500,000 units.[52]

Sonic the Hedgehog has been Sega's mascot since the character's introduction in 1991

While Sega was seeking a flagship series to compete with Nintendo's Mario series along with a character to serve as a company mascot, Naoto Ohshima designed "a teal hedgehog with red shoes that he called Mr. Needlemouse."[56] This character won the contest and was renamed Sonic the Hedgehog, spawning one of the best-selling video game franchises in history.[57][58] The gameplay of Sonic the Hedgehog originated with a tech demo created by Yuji Naka, who had developed an algorithm that allowed a sprite to move smoothly on a curve by determining its position with a dot matrix. Naka's original prototype was a platform game that involved a fast-moving character rolling in a ball through a long winding tube, and this concept was subsequently fleshed out with Ohshima's character design and levels conceived by designer Hirokazu Yasuhara.[59] Sonic's blue pigmentation was chosen to match Sega's cobalt blue logo, and his shoes were a concept evolved from a design inspired by Michael Jackson's boots with the addition of the color red, which was inspired by both Santa Claus and the contrast of those colors on Jackson's 1987 album Bad; his personality was based on Bill Clinton's "can do" attitude.[60][61][62]

In mid-1990, Nakayama hired Tom Kalinske to replace Katz as CEO of Sega of America. Although Kalinske initially knew little about the video game market, he surrounded himself with industry-savvy advisors. A believer in the razor and blades business model, he developed a four-point plan: cut the price of the console, create a U.S.-based team to develop games targeted at the American market, continue and expand the aggressive advertising campaigns, and replace the bundled game Altered Beast with a new game, Sonic the Hedgehog.[55] The Japanese board of directors initially disapproved of the plan,[63] but all four points were approved by Nakayama, who told Kalinske, "I hired you to make the decisions for Europe and the Americas, so go ahead and do it."[52] Magazines praised Sonic as one of the greatest games yet made, and Sega's console finally became successful.[55] In large part due to the popularity of Sonic the Hedgehog, the Sega Genesis outsold its main competitor, Nintendo's SNES, in the United States nearly two to one during the 1991 holiday season. This success led to Sega having control of 65% of the 16-bit console market in January 1992, making it the first time Nintendo was not the console leader since December 1985.[64]

To compete with Nintendo, Sega was more open to new types of games than its rival, but still tightly controlled the approval process for third-party games and charged high prices for cartridge manufacturing.[65] Technicians from American third-party video game publisher Electronic Arts (EA) reverse engineered the Genesis in 1989,[66] following nearly one year of negotiations with Sega in which EA requested a more liberal licensing agreement than was standard in the industry before releasing its games for the system.[67] As a result, EA signed what Hawkins described as "a very unusual and much more enlightened license agreement" with Sega in June 1990: "Among other things, we had the right to make as many titles as we wanted. We could approve our own titles ... the royalty rates were a lot more reasonable. We also had more direct control over manufacturing."[66] The first Genesis version of EA's John Madden Football arrived before the end of 1990,[66] and became what EA creative officer Bing Gordon called a "killer app" for the system.[67]

Sega was able to outsell Nintendo four Christmas seasons in a row[68] due to the Genesis' head start, a lower price point, and a larger library of games when compared to the Super Nintendo at its release.[69] Sega's advertising positioned the Genesis as the cooler console,[69] and as its advertising evolved, the company coined the term "blast processing" to suggest that its processing capabilities were far greater than those of the SNES.[70][71] According to a 2004 study of NPD sales data that presents year by year charts through 2001, the Sega Genesis was able to maintain its lead over the Super NES in the American 16-bit console market.[72] According to a 2014 Wedbush Securities report based on revised NPD sales data, the SNES outsold the Genesis in the U.S. market.[73]

In 1990, Sega launched the Game Gear to compete against Nintendo's Game Boy. The console had been designed as a portable version of the Master System, and featured more powerful systems than the Game Boy, including a full-color screen, in contrast to the monochromatic screen of its rival.[74] However, due to issues with its short battery life, lack of original games, and weak support from Sega, the Game Gear was unable to surpass the Game Boy, selling approximately 11 million units.[75]

By 1991, compact discs had gained in popularity as a data storage device for music and software. PCs and video game companies had started to make use of this technology. NEC had been the first to include CD technology in a game console with the release of the TurboGrafx-CD add-on, and Nintendo was making plans to develop its own CD peripheral as well. Seeing the opportunity to gain an advantage over its rivals, Sega partnered with JVC to develop a CD-ROM add-on for the Genesis.[76][77][78] Sega launched the Mega-CD in Japan[76] on December 1, 1991, initially retailing at JP¥49,800.[79] The CD add-on was launched in North America on October 15, 1992, as the Sega CD, with a retail price of US$299;[76] it was released in Europe as the Mega-CD in 1993.[79] In addition to greatly expanding the potential size of its games, this add-on unit upgraded the graphics and sound capabilities by adding a second, more powerful processor, more system memory, and hardware-based scaling and rotation similar to that found in Sega's arcade games.[76][80] The Mega-CD sold only 100,000 units during its first year in Japan, falling well below expectations. Although many consumers blamed the add-on's high launch price, it also suffered from a tiny software library; only two games were available at launch. This was due in part to the long delay before Sega made its software development kit available to third-party developers.[79] Sales were more successful in North America and Europe, although the novelty of FMV and CD-enhanced games quickly wore off as many of the system's later games were met with lukewarm or negative reviews.[81]

Sega also experienced success with arcade games. In 1992 and 1993, the new Sega Model 1 arcade system board showcased Sega AM2's Virtua Racing and Virtua Fighter (the first 3D fighting game), which played a crucial role in popularizing 3D polygonal graphics.[82][83][84] In particular, Virtua Fighter garnered praise for its simple three-button control scheme, with strategy coming from the intuitively observed differences between characters that felt and acted differently rather than the more ornate combos of two-dimensional competitors. Despite its crude visuals—with characters composed of fewer than 1,200 polygons—Virtua Fighter's fluid animation and relatively realistic depiction of distinct fighting styles gave its combatants a lifelike presence considered impossible to replicate with sprites.[85][86][87] The Model 1 was an expensive system board, and bringing home releases of its games to the Genesis required more than its hardware could handle. Several alternatives helped to bring Sega's newest arcade games to the console, such as the Sega Virtua Processor chip used for Virtua Racing, and eventually the Sega 32X add-on.[88]

Sega Saturn and sales difficulties (1994–1999)

Development on Sega's next video game console, the Sega Saturn, started over two years before the system was showcased at the Tokyo Toy Show in June 1994. The name "Saturn" was the system's codename during development in Japan, but was chosen as the official product name.[89] According to Kalinske, Sega of America "fought against the architecture of Saturn for quite some time".[90] Seeking an alternative graphics chip for the Saturn, Kalinske attempted to broker a deal with Silicon Graphics, but Sega of Japan rejected the proposal.[91][92][93] Silicon Graphics subsequently collaborated with Nintendo on the Nintendo 64.[91][94] Kalinske, Sony Electronic Publishing's Olaf Olafsson, and Sony America's Micky Schulhof had discussed development of a joint "Sega/Sony hardware system", which never came to fruition due to Sega's desire to create hardware that could accommodate both 2D and 3D visuals and Sony's competing notion of focusing on 3D technology.[92][95][96] Publicly, Kalinske defended the Saturn's design: "Our people feel that they need the multiprocessing to be able to bring to the home what we're doing next year in the arcades."[97] In 1993, Sega restructured its internal studios in preparation for the Saturn's launch. To ensure high-quality 3D games would be available early in the Saturn's life, and to create a more energetic working environment, developers from Sega's arcade division were asked to create console games. New teams, such as Panzer Dragoon developer Team Andromeda, were formed during this time.[98]

In January 1994, Sega began to develop an add-on for the Genesis, the 32X, which would serve as a less expensive entry into the 32-bit era. The decision to create the add-on was made by Nakayama and widely supported by Sega of America employees.[99] According to former Sega of America producer Scot Bayless, Nakayama was worried that the Saturn would not be available until after 1994 and that the recently released Atari Jaguar would reduce Sega's hardware sales. As a result, Nakayama ordered his engineers to have the system ready for launch by the end of the year.[99] The 32X would not be compatible with the Saturn, but Sega executive Richard Brudvik-Lindner pointed out that the 32X would play Genesis games, and had the same system architecture as the Saturn.[100] This was justified by Sega's statement that both platforms would run at the same time, and that the 32X would be aimed at players who could not afford the more expensive Saturn.[99][101] Because both machines shared many of the same parts and were preparing to launch around the same time, tensions emerged between Sega of America and Sega of Japan when the Saturn was given priority.[99] Sega released the 32X on November 21, 1994 in North America, December 3, 1994 in Japan, and January 1995 in PAL territories, and was sold at less than half of the Saturn's launch price.[102][103] After the holiday season, however, interest in the 32X rapidly declined.[104][105]

Sega released the Saturn in Japan on November 22, 1994, at a price of ¥44,800.[106] Virtua Fighter, a faithful port of the popular arcade game, sold at a nearly one-to-one ratio with the Saturn console at launch and was crucial to the system's early success in Japan.[86][107][108] Fueled by the popularity of Virtua Fighter, Sega's initial shipment of 200,000 Saturn units sold out on the first day,[108][109][110] and was more popular than the PlayStation in Japan.[108][111] In March 1995, Sega of America CEO Tom Kalinske announced that the Saturn would be released in the U.S. on "Saturnday" (Saturday) September 2, 1995.[112][113] However, Sega of Japan mandated an early launch to give the Saturn an advantage over the PlayStation.[114] At the first Electronic Entertainment Expo (E3) in Los Angeles on May 11, 1995, Kalinske gave a keynote presentation in which he revealed the release price of US$399 (including a copy of Virtua Fighter[115]), and described the features of the console. Kalinske also revealed that, due to "high consumer demand",[116] Sega had already shipped 30,000 Saturns to Toys "R" Us, Babbage's, Electronics Boutique, and Software Etc. for immediate release.[112] The announcement upset retailers who were not informed of the surprise release, including Best Buy and Walmart;[117][118][119] KB Toys responded by dropping Sega from its lineup.[112] The Saturn's release in Europe also came before the previously announced North American date, on July 8, 1995, at a price of 399.99.[120] European retailers and press did not have time to promote the system or its games, harming sales.[121] The Saturn's U.S. launch was accompanied by a reported $50 million advertising campaign that included coverage in publications such as Wired and Playboy.[122][123][124] Early advertising for the system was targeted at a more mature, adult audience than the Sega Genesis ads.[125][126] Because of the early launch, the Saturn had only six games (all published by Sega) available to start as most third-party games were slated to be released around the original launch date.[127][128][129] Virtua Fighter's relative lack of popularity in the West, combined with a release schedule of only two games between the surprise launch and September 1995, prevented Sega from capitalizing on the Saturn's early timing.[130][131][132]

Within two days of its September 9, 1995 launch in North America, the PlayStation sold more units than the Saturn had in the five months following its surprise launch, with almost all of the initial shipment of 100,000 units being sold in advance, and the rest selling out across the U.S.[133][134] On October 2, 1995 Sega announced a Saturn price reduction to $299.[135] Notwithstanding a subsequent increase in Saturn sales during the 1995 holiday season, new games were not enough to reverse the PlayStation's decisive lead.[136][137] By 1996, the PlayStation had a considerably larger library than the Saturn, although Sega hoped to generate interest with upcoming exclusives such as Nights into Dreams.[132] Within its first year, the PlayStation secured over 20% of the entire U.S. video game market.[138] On the first day of the May 1996 E3 show, Sony announced a PlayStation price reduction to $199,[139] a reaction to the release of the Model 2 Saturn in Japan at a price roughly equivalent to $199.[140] On the second day, Sega announced it would match this price, though Saturn hardware was more expensive to manufacture.[141][142]

In spite of the launch of the PlayStation and the Saturn, sales of 16-bit hardware/software continued to account for 64% of the video game market in 1995.[143][144] Sega underestimated the continued popularity of the Genesis, and did not have the inventory to meet demand for the product.[145][143] Sega was able to capture 43% of the dollar share of the U.S. video game market and sell more than 2 million Genesis units in 1995, but Kalinske estimated that "we could have sold another 300,000 Genesis systems in the November/December timeframe."[145] Nakayama's decision to focus on the Saturn over the Genesis, based on the systems' relative performance in Japan, has been cited as the major contributing factor in this miscalculation.[146] According to Sega Technical Institute head Roger Hector, after Sony's release of the PlayStation, the atmosphere at Sega became political, with "lots of finger-pointing".[147]

Due to long-standing disagreements with Sega of Japan,[148][149] Kalinske lost most of his interest in his work as CEO of Sega of America.[150] On July 16, 1996, Sega announced that Shoichiro Irimajiri had been appointed chairman and CEO of Sega of America, while Kalinske would be leaving Sega after September 30 of that year.[151][152] A former Honda executive,[153][154] Irimajiri had been actively involved with Sega of America since joining Sega in 1993.[151][155] Sega also announced that David Rosen and Nakayama had resigned from their positions as chairman and co-chairman of Sega of America, though both men remained with the company.[151][156] Bernie Stolar, a former executive at Sony Computer Entertainment of America,[157][158] was named Sega of America's executive vice president in charge of product development and third-party relations.[151][152] Stolar, who had arranged a six-month PlayStation exclusivity deal for Mortal Kombat 3[159] and helped build close relations with Electronic Arts[149] while at Sony, was perceived as a major asset by Sega officials.[152] Finally, Sega of America made plans to expand its PC software business.[151][154]

Stolar was not supportive of the Saturn due to his belief that the hardware was poorly designed, and publicly announced at E3 1997 that "The Saturn is not our future."[149] While Stolar had "no interest in lying to people" about the Saturn's prospects, he continued to emphasize quality games for the system,[149] and subsequently reflected that "we tried to wind it down as cleanly as we could for the consumer."[158] At Sony, Stolar opposed the localization of certain Japanese PlayStation games that he felt would not represent the system well in North America, and advocated a similar policy for the Saturn during his time at Sega, although he later sought to distance himself from this perception.[149][159][160] These changes were accompanied by a softer image that Sega was beginning to portray in its advertising, including removing the "Sega!" scream and holding press events for the education industry.[132]

The Saturn failed to take the lead in the market as its predecessor had. After the launch of the Nintendo 64 in 1996, sales of the Saturn and its games were sharply reduced,[158] while the PlayStation outsold the Saturn by three-to-one in the U.S. in 1997.[161] As of August 1997, Sony controlled 47% of the console market, Nintendo 40%, and Sega only 12%. Neither price cuts nor high-profile game releases proved helpful.[158] Following five years of generally declining profits,[162] in the fiscal year ending March 31, 1998 Sega suffered its first parent and consolidated financial losses since its 1988 listing on the Tokyo Stock Exchange.[163] Due to a 54.8% decline in consumer product sales (including a 75.4% decline overseas), the company reported a net loss of ¥43.3 billion (US$327.8 million) and a consolidated net loss of ¥35.6 billion (US$269.8 million).[162] Shortly before announcing its financial losses, Sega announced that it was discontinuing the Saturn in North America to prepare for the launch of its successor.[164][158] The Saturn would last longer in Japan and Europe.[154] The decision to abandon the Saturn effectively left the Western market without Sega games for over one year.[165] Sega suffered an additional ¥42.881 billion consolidated net loss in the fiscal year ending March 1999, and announced plans to eliminate 1,000 jobs, nearly a quarter of its workforce.[166][167] With lifetime sales of 9.26 million units,[168] the Saturn is considered a commercial failure,[169] although its install base in Japan surpassed the Nintendo 64's 5.54 million.[170] Lack of distribution has been cited as a significant factor contributing to the Saturn's failure, as the system's surprise launch damaged Sega's reputation with key retailers.[171] Conversely, Nintendo's long delay in releasing a 3D console and damage caused to Sega's reputation by poorly supported add-ons for the Genesis are considered major factors allowing Sony to gain a foothold in the market.[172][173]

The Sega World Sydney building in 1998

Aside from the Saturn, Sega made forays in the PC market with the 1995 establishment of SegaSoft, which was tasked with creating original Saturn and PC games.[174][175] The mid-1990s also saw Sega making efforts to expand beyond its image as a strictly kids-oriented, family entertainment company, by publishing a number of games with extreme violence and sexual themes, and introducing the "Deep Water" label to mark games with mature content.[176] In 1996, Sega operated a number of in-door theme parks not only in Japan with Joypolis, but also overseas, with Sega World branded arcades in the UK and Australia.[177][178] From 1994 to 1999, Sega participated in the pinball market when it took over Data East's pinball division.[179]

Dreamcast and continuing struggles (1999-2001)

Despite taking massive losses on the Saturn, including a 75 percent drop in half-year profits just before the Japanese launch of the Dreamcast, Sega felt confident about its new system. The Dreamcast attracted significant interest and drew many pre-orders.[180] Sega announced that Sonic Adventure, the next game starring company mascot Sonic the Hedgehog, would arrive in time for the Dreamcast's launch and promoted the game with a large-scale public demonstration at the Tokyo Kokusai Forum Hall.[181][182][183] However, Sega could not achieve its shipping goals for the Dreamcast's Japanese launch due to a shortage of PowerVR chipsets caused by a high failure rate in the manufacturing process.[180][184] As more than half of its limited stock had been pre-ordered, Sega stopped pre-orders in Japan. On November 27, 1998, the Dreamcast launched in Japan at a price of JP¥29,000, and the entire stock sold out by the end of the day. However, of the four games available at launch, only one—a port of Virtua Fighter 3, the most successful arcade game Sega ever released in Japan—sold well.[185] Sega estimated that an additional 200,000-300,000 Dreamcast units could have been sold with sufficient supply.[185] Irimajiri hoped to sell over 1 million Dreamcast units in Japan by February 1999, but less than 900,000 were sold, undermining Sega's attempts to build up a sufficient installed base to ensure the Dreamcast's survival after the arrival of competition from other manufacturers.[186] Prior to the Western launch, Sega reduced the price of the Dreamcast to JP¥19,900, effectively making the hardware unprofitable but increasing sales.[180]

In America, Sega of America's senior vice president of marketing[187] Peter Moore, a fan of the attitude previously associated with Sega's brand, worked with Foote, Cone & Belding and Access Communications to develop the "It's Thinking" campaign of 15-second television commercials, which emphasized the Dreamcast's hardware power.[188][189][190] According to Moore, "We needed to create something that would really intrigue consumers, somewhat apologize for the past, but invoke all the things we loved about Sega, primarily from the Genesis days."[188] On August 11, Sega of America confirmed[191] that Stolar had been fired, leaving Moore to direct the launch.[192][193][194] Prior to the Dreamcast's release, Sega was dealt a blow when EA—the largest third-party video game publisher—announced it would not develop games for the system. EA executive Bing Gordon claimed "[Sega] couldn't afford to give us [EA] the same kind of license that EA has had over the last five years", but Stolar recounted that EA president Larry Probst wanted "exclusive rights to be the only sports brand on Dreamcast", which Stolar could not accept due to Sega's recent $10 million purchase of sports game developer Visual Concepts.[195][188] While the Dreamcast would have none of EA's popular sports games, "Sega Sports" games developed mainly by Visual Concepts[196] helped to fill that void.[188]

The Dreamcast launched in North America on September 9, 1999 at a price of $199—which Sega's marketing dubbed "9/9/99 for $199".[197][186][189] Eighteen launch games were available for the Dreamcast in the U.S.[189][198][199] Sega set a new sales record by selling more than 225,132 Dreamcast units in 24 hours, earning the company $98.4 million in what Moore called "the biggest 24 hours in entertainment retail history".[188] Within two weeks, U.S. Dreamcast sales exceeded 500,000.[188] By Christmas, Sega held 31 percent of the North American video game marketshare.[200] On November 4, Sega announced it had sold over one million Dreamcast units.[201] Nevertheless, the launch was marred by a glitch at one of Sega's manufacturing plants, which produced defective GD-ROMs.[202] Sega released the Dreamcast in Europe on October 14, 1999,[201] at a price of GB₤200.[180] While Sega sold 500,000 units in Europe by Christmas 1999,[180] sales did not continue at this pace, and by October 2000, Sega had sold only about 1 million units in Europe.[203]

Though the Dreamcast launch had been successful, Sony still held 60 percent of the overall video game market share in North America with the PlayStation at the end of 1999.[201] On March 2, 1999, in what one report called a "highly publicized, vaporware-like announcement"[204] Sony revealed the first details of its "next generation PlayStation", which Ken Kutaragi claimed would allow video games to convey unprecedented emotions.[205][206] The same year, Nintendo announced that its next generation console would meet or exceed anything on the market, and Microsoft began development of its own console.[207][208][209]

Sega's initial momentum proved fleeting as U.S. Dreamcast sales—which exceeded 1.5 million by the end of 1999[210]—began to decline as early as January 2000.[211] Poor Japanese sales contributed to Sega's ¥42.88 billion ($404 million) consolidated net loss in the fiscal year ending March 2000, which followed a similar loss of ¥42.881 billion the previous year and marked Sega's third consecutive annual loss.[212][213] Although Sega's overall sales for the term increased 27.4%, and Dreamcast sales in North America and Europe greatly exceeded the company's expectations, this increase in sales coincided with a decrease in profitability due to the investments required to launch the Dreamcast in Western markets and poor software sales in Japan.[212] At the same time, increasingly poor market conditions reduced the profitability of Sega's Japanese arcade business, prompting the company to close 246 locations.[212][214]

Moore stated that the Dreamcast would need to sell 5 million units in the U.S. by the end of 2000 in order to remain a viable platform, but Sega ultimately fell short of this goal with some 3 million units sold.[200][215] Moreover, Sega's attempts to spur increased Dreamcast sales through lower prices and cash rebates caused escalating financial losses.[216] Instead of an expected profit, for the six months ending September 2000, Sega posted a ¥17.98 billion ($163.11 million) loss, with the company projecting a year-end loss of ¥23.6 billion.[217] This estimate was more than doubled to ¥58.3 billion,[218] and in March 2001, Sega posted a consolidated net loss of ¥51.7 billion ($417.5 million).[219] While the PS2's October 26 U.S. launch was marred by shortages, this did not benefit the Dreamcast as much as expected, as many disappointed consumers continued to wait for a PS2—while the PSone, a remodeled version of the original PlayStation, was the best-selling console in the U.S. at the start of the 2000 holiday season.[200][220][221] According to Moore, "the PlayStation 2 effect that we were relying upon did not work for us ... people will hang on for as long as possible ... What effectively happened is the PlayStation 2 lack of availability froze the marketplace".[222] Eventually, Sony and Nintendo held 50 and 35 percent of the US video game market, respectively, while Sega held only 15 percent.[180] According to Bellfield, Dreamcast software sold at an 8-to-1 ratio with the hardware, but this ratio "on a small install base didn't give us the revenue ... to keep this platform viable in the medium to long term."[223]

Shift to third-party software development (2001–2003)

Sega's financial trouble in the 1998–2002 period[224][225][226][227]

In late 1999, Sega Enterprises chairman Isao Okawa spoke at an Okawa Foundation meeting, saying that Sega's focus in the future would shift from hardware to software, but adding that they were still fully behind the Dreamcast. On November 1, 2000, Sega changed its company name from Sega Enterprises to Sega Corporation.[228]

On May 22, 2000, Okawa replaced Irimajiri as president of Sega.[229] Okawa had long advocated that Sega abandon the console business.[230] His sentiments were not unique; Sega co-founder David Rosen had "always felt it was a bit of a folly for them to be limiting their potential to Sega hardware", and Stolar had previously suggested that Sega should have sold their company to Microsoft.[231][232] In September 2000, in a meeting with Sega's Japanese executives and the heads of the company's major Japanese game development studios, Moore and Bellfield recommended that Sega abandon its console business and focus on software—prompting the studio heads to walk out.[233]

On January 23, 2001, a story ran in Nihon Keizai Shimbun claiming that Sega would cease production of the Dreamcast and develop software for other platforms.[234] After initial denial, Sega of Japan put out a press release confirming they were considering producing software for the PlayStation 2 and Game Boy Advance as part of their "new management policy".[235] On January 31, 2001, Sega announced the discontinuation of the Dreamcast after March 31 and the restructuring of the company as a "platform-agnostic" third-party developer.[236][237] The decision was Moore's. Sega also announced a Dreamcast price reduction to $99 to eliminate its unsold inventory, which was estimated at 930,000 units as of April 2001.[238][239] After a further reduction to $79, the Dreamcast was cleared out of stores at $49.95.[240][241] The final Dreamcast unit manufactured was autographed by the heads of all nine of Sega's internal game development studios as well as the heads of Visual Concepts and Wave Master and given away with 55 first-party Dreamcast games through a competition organized by GamePro magazine.[242] Okawa, who had previously loaned Sega $500 million in the summer of 1999, died on March 16, 2001; shortly before his death, he forgave Sega's debts to him and returned his $695 million worth of Sega and CSK stock, helping the company survive the third-party transition.[243][244][245] He also talked to Microsoft about a sale or merger with their Xbox division, but those talks failed.[246] As part of this restructuring, nearly one-third of Sega's Tokyo workforce was laid off in 2001.[247] By March 31, 2002, Sega had five consecutive fiscal years of net losses.[248]

Sammy takeover and business expansion (2003–2015)

In August 2003, Sammy, one of the biggest pachinko and pachislot manufacturing companies, bought the outstanding 22% of shares that CSK had,[249] and Sammy chairman Hajime Satomi became CEO of Sega. In the same year, Hajime Satomi stated that Sega's activity will focus on their profitable arcade business as opposed to their loss-incurring home software development sector.[250] After the decline of the global arcade industry around the 21st century, Sega introduced several novel concepts tailored to the Japanese market. Derby Owners Club was the first large-scale satellite arcade machine with IC cards for data storage. Trading card game machines were introduced, with games such as World Club Champion Football for general audiences and Mushiking: King of the Beetles for young children. Sega also introduced internet functionality in arcades with Virtua Fighter 4 in 2001, and further enhanced it with ALL.Net, introduced in 2004.[251]

During mid-2004, Sammy bought a controlling share in Sega Corporation at a cost of $1.1 billion, creating the new company Sega Sammy Holdings, an entertainment conglomerate. Since then, Sega and Sammy became subsidiaries of the aforementioned holding company, with both companies operating independently, while the executive departments merged. According to the first Sega Sammy Annual Report, the merger of the two companies happened due to the companies facing difficulties. According to chairman Hajime Satomi, Sega had been operating at a loss for nearly 10 years[252] and lacked a clear financial base. Sammy feared stagnation and overreliance of its highly profitable pachislot and pachinko machine business, and wanted to divesify its business in new fields, using Sega's broader range of involvement in different entertainment fields.[253] Sega Sammy Holdings was structured into four parts, three of which were Sega: Consumer Business (video games), Amusement Machine Business (arcade games), Amusement Center Business (Sega's theme parks and arcades) and Pachislot and Pachinko Business (Sammy's pachinko and pachislot business).[254]

In 2005, Sega sold Visual Concepts to Take-Two Interactive,[255] and purchased UK-based developer Creative Assembly, known for its Total War series.[256] In the same year, Sega Racing Studio was also formed by former Codemasters employees.[257] In 2006, Sega Europe purchased Sports Interactive, known for its Football Manager series.[258] Sega of America purchased Secret Level in 2006, which was renamed to Sega Studio San Francisco in 2008. In early 2008, Sega announced that they would re-establish an Australian presence, as a subsidiary of Sega of Europe, with a development studio branded as Sega Studio Australia. In the same year, Sega launched a subscription based flash website called "PlaySEGA" which played emulated versions of Sega Genesis as well original web-based flash games.[259] It was subsequently shut down due to low subscription numbers. In 2013, following THQ's bankruptcy, Sega bought Relic Entertainment, known for its Company of Heroes series.[260] Sega has also collaborated with many western studios such as Bizarre Creations, Backbone Entertainment, Monolith, Sumo Digital, Kuju Entertainment, Obsidian Entertainment and Gearbox Software. In 2008, Sega announced the closure of Sega Racing Studio, although the studio was later acquired by Codemasters.[257] Closures of Sega Studios San Francisco and Sega Studios Australia followed in 2010 and 2013, respectively.[261][262]

The Sonic the Hedgehog series continued to be internationally recognized, having sold 150 million in total,[1] although the critical reception of games in the series has been mixed.[263] In 2007, Sega and Nintendo teamed up using Sega's acquired Olympic Games license, to create the Mario and Sonic at the Olympic Games series, which has sold over 20 million in total. In the console and handheld business, Sega found success in Japan with the Yakuza and Hatsune Miku: Project DIVA series of games, amongst others primarily aimed at the Japanese market. In Japan, Sega distributes games from smaller Japanese game developers and localizations of Western games.[264][265] In 2013, Index Corporation was purchased by Sega Sammy after going bankrupt.[266] After the buyout, Sega implemented a corporate spin-off with Index, and re-branding the video game assets of the company as Atlus, a wholly owned subsidiary of Sega.[267]

For amusement arcades, Sega's most successful games continued to be based on network and card systems. Games of this type include Sangokushi Taisen and Border Break. Arcade machine sales incurred higher profits than their console, portable, and PC games on a year-to-year basis until 2010s.[268] In 2004, the GameWorks chain of arcades became owned by Sega, until the chain was sold off in 2011. In 2009, Sega Republic, an indoor theme park in Dubai, opened to the public. In 2010, Sega began providing the 3D imaging for Hatsune Miku's holographic concerts.[269] In 2013, in co-operation with BBC Earth, Sega opened the first interactive nature simulation museum, Orbi Yokohama in Yokohama, Japan.[270]

Due to the decline of packaged game sales both domestically and outside Japan in the 2010s,[271] Sega began layoffs and reduction of their Western businesses, such as Sega shutting down five offices based in Europe and Australia on July 1, 2012.[272] This was done in order to focus on the digital game market, such as PC and mobile devices.[273][274] The amount of SKU gradually shrunk from 84 in 2005 to 32 in 2014. Because of the shrinking arcade business in Japan,[275] development personnel would also be relocated to the digital game area.[276] Sega gradually reduced its arcade centers from 450 facilities in 2005,[277] to around 200 in 2015.[278] In the mobile market, Sega released its first app on the iTunes Store with a version of Super Monkey Ball in 2008. Since then, the strategies for Asian and Western markets have become independent. The Western line-up consisted of emulations of games and pay-to-play apps, which were eventually overshadowed by more social and free-to-play games, eventually leading to 19 of the older mobile games being pulled due to quality concerns in May 2015.[279][280] Beginning in 2012, Sega also began acquiring studios for mobile development, with studios such as Hardlight, Three Rings Design, and Demiurge Studios becoming fully owned subsidiaries.[281][282][283]

In the 2010s, Sega established operational firms for each of their businesses, in order to streamline operations. In 2012, Sega established Sega Networks for its mobile games; and although separate at first, it merged with Sega Corporation in 2015. Sega Games was structured as a "Consumer Online Company" , while Sega Networks focuses on developing games for mobile devices.[284] In 2012, Sega Entertainment was established for Sega's amusement facility business, and in 2015, Sega Interactive was established for the arcade game business.[285] In January 2015, Sega of America announced their relocation from San Francisco to Atlus USA's headquarters in Irvine, California, which was completed later that year.[286]

Over the course of the existence of Sega Sammy Holdings to 2015, Sega's operating income generally saw improvements compared to Sega's past financial difficulties, but was not profitable every year of operation.[287]

Sega operating income 2005-2015, Japanese yen in millions
Business year 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Amusement Machine Sales[287] 7,423 12,176 11,682 7,152 6,890 7,094 7,317 7,415 1,902 -1,264 -2,356
Amusement Center Operations[287] 5,472 9,244 132 -9,807 -7,520 -1,338 342 355 1,194 60 -946
Consumer Business[287] -8,809 9,244 1,748 -5,989 -941 6,332 1,969 -15,182 -732 2,089 4033

Company changes (2015–present)

Club Sega game center in Akihabara, Tokyo

In April 2015, Sega Corporation was reorganized into Sega Group, one of three groups of Sega Sammy Holdings. Sega Holdings Co., Ltd. was established, with four business sectors under its organization. Haruki Satomi, son of Hajime Satomi, took office as president and CEO of the company in April 2015.[288][289]

Sega announced at the Tokyo Game Show in September 2016 that they acquired the intellectual property and development rights to all the games developed and published by Technosoft from Kazue Matsuoka.[290][291] Factors that influenced the acquisition included the former Technosoft president stating that they did not want the Technosoft brand to desist, and so handing over the intellectual properties to Sega was the only other option. Sega and Technosoft also had an established collaboration during the Genesis/Mega Drive era and so this pre-established relationship was also a factor when acquiring the brand rights to Technosoft games.[292]

In April 2017, Sega Sammy Holdings announced a relocation of head office functions of the Sega Sammy Group and its major domestic subsidiaries located in the Tokyo metropolitan area to Shinagawa-ku by January 2018. Their stated reasoning was to promote cooperation among companies and creation of more active interaction of personnel, while pursuing efficient group management by consolidating scattered head office functions of the group, including Sega Sammy Holdings, Sammy Corporation, Sega Holdings, Sega Games, Atlus, Sammy Network, and Dartslive.[293] In October 2017, Sega of America announced its own online store, known as the Sega Shop.[294] In August 2018, Ian Curran replaced John Cheng as president and COO of Sega of America. Curran had previously worked at THQ and Acclaim Entertainment.[295]

Corporate structure

Sega's main headquarters is located in Shinagawa-ku, Tokyo, Japan, and the group operating from its headquarters is referred to as Sega of Japan. Additionally, Sega has offices in Irvine, California as Sega of America, and in London as Sega of Europe.[296] In 2007, Sega announced the establishment of an office in Australia, replacing former distributors Ozisoft and THQ in the region.[297] In other regions, Sega has contracted distributors for its games and consoles, such as Tectoy in Brazil.[24]

Relations between the different regional offices of Sega have not always been smooth.[298] In the 1990s, some of this conflict may have been caused by Sega president Nakayama and his admiration for Sega of America; according to Kalinske, "There were some guys in the executive suites who really didn't like that Nakayama in particular appeared to favor the US executives. A lot of the Japanese executives were maybe a little jealous, and I think some of that played into the decisions that were made."[299] By contrast, author Steven L. Kent wrote that Nakayama bullied American executives and that Nakayama believed the Japanese executives made the best decisions. He also stated that Kalinske, Stolar, and Moore dreaded meeting with Sega of Japan executives during their times as CEO of Sega of America.[300]

Subsidiaries of Sega Holdings Co., Ltd.

Since the establishment of the Sega Group structure in 2015, Sega Games Co., Ltd., is responsible for the home video game market and consumer development.[301] Sega Games also includes Sega Networks, which handles game development for smartphones.[288] Sega currently develops and publishes games for major video game consoles, and has not expressed interest in re-entering the console market. According to former Sega of Europe CEO Mike Brogan, "There is no future in selling hardware. In any market, through competition, the hardware eventually becomes a commodity. The future is in software. Sega's fault was to think that its core business was selling consoles, but consoles tend to be a one-time buy for most consumers, until the next version comes along. Software is a repeat purchase, so there's far more profit in it. If a company has to sell hardware then it should only be to leverage software, even if that means taking a hit on the hardware. I think some of the senior people in Sega never really understood that."[302]

Sega Interactive Co., Ltd. is the current company responsible for Sega's arcade game business.[301] Since beginning production of arcade games, Sega remains the world's most prolific arcade producer, with over 500 games in over 70 franchises on more than 20 different arcade system boards since 1981.[303] Sega Toys Co., Ltd. serves as a producer of toys. Sega Toys have created toys for children's franchises such as Oshare Majo: Love and Berry, Mushiking: King of the Beetles, Lilpri, Bakugan, Jewelpet, Rilu Rilu Fairilu, Dinosaur King and Hero Bank. Products by Sega Toys released in the West include the Homestar and the iDog. Sega Toys also inherited the Sega Pico handheld system and produced software for the console.[304] Sega has operations of bowling alleys and arcades through its Sega Entertainment Co., Ltd. subsidiary. The company's DartsLive subsidiary is involved with the manufacture of electronic darts games, while Sega Logistics Service is focused on the distribution and repair of arcade games.[301] On December 22, 2010, Sega Sammy Holdings acquired the remaining outstanding shares of TMS Entertainment, thus making TMS Entertainment a wholly owned subsidiary of Sega Sammy Holdings.[305] In April 2017, Marza Animation Planet, Sega's re-branded CG production division was restructured into TMS Entertainment.[306] In 2003, Sega had plans of broadening its franchises to Hollywood co-operating with John Woo,[307] but plans fell through.[308] In 2015, Sega and the Japanese advertising agency Hakuhodo, formed a joint venture called Stories LLC with the purpose of creating branded entertainment for film and TV. Stories LLC has exclusive licensing rights to adapt Sega properties into film and television.[309][310] Properties in production reportedly include Shinobi, Golden Axe, Virtua Fighter, The House of the Dead, and Crazy Taxi.[311][312]

First-party research and development

As a games publisher, Sega has produced a high number of games through its research and development teams. The Sonic the Hedgehog franchise, maintained through Sega's Sonic Team division, has become one of the best-selling franchises in the history of video games.[1] Some historical titles produced by Sega, such as those from Sega Technical Institute from 1991 to 1996, and titles produced by Sega's subsidiary companies in the Dreamcast era, have been considered notable for their creativity.[313]

Sega's software research and development teams originated with one development division operating under Sega's head of R&D, Hisashi Suzuki. As the market increased for home video game consoles, Sega expanded with three Consumer Development (CS) divisions, while after October of 1983, arcade development expanded to three teams: Sega DD#1, 2, and 3. Sometime after the release of Power Drift, the company restructured its teams again as the Sega Amusement Machine Research and Development Teams, or AM teams. Each of the arcade divisions was segregated from one another, and a rivalry existed between the arcade and consumer development divisions.[314] In what has been called "a brief moment of remarkable creativity",[313] in 2000, Sega restructured its arcade and console development teams into nine semi-autonomous studios headed by the company's top designers.[315][316][317] Studios included United Game Artists (UGA), Hitmaker, Smilebit, Overworks, Sega AM2, and Sonic Team.[313][318] Sega's design houses were encouraged to experiment and benefited from a relatively lax approval process.[319] Early in 2003, Sega president Hideki Sato and COO Tetsu Kamaya announced they were stepping down from their roles, with Sato being replaced by Hisao Oguchi, the head of Hitmaker. As part of Oguchi's plan, he announced his intention to consolidate Sega's studios into "four or five core operations."[320] Prior to the acquisition by Sammy, Sega began the process of re-integrating its subsidiaries into the main company.[321] Some of Sega's former first-party studios remain; for example, Sonic Team exists as Sega's CS2 research and development division after the merger of Sega Studios USA.[322]

Legal history

Sega v. Accolade

After the release of the Sega Genesis in 1989, video game publisher Accolade began exploring options to release some of their PC games on the console. At the time, Sega had a licensing deal in place for third-party developers that increased the costs to the developer. According to Accolade co-founder Alan Miller, "One pays them between $10 and $15 per cartridge on top of the real hardware manufacturing costs, so it about doubles the cost of goods to the independent publisher."[323] To get around licensing, Accolade chose to seek an alternative way to bring their games to the Genesis.[324][325] As a result of piracy in some countries and unlicensed development issues, Sega incorporated a technical protection mechanism into a new edition of the Genesis released in 1990, referred to as the Genesis III. This new variation of the Genesis included a code known as the Trademark Security System (TMSS).[324] Accolade successfully identified the TMSS file. It later added this file to the games HardBall!, Star Control, Mike Ditka Power Football, and Turrican.[325] In response to the creation of these unlicensed games, Sega filed suit against Accolade in the United States District Court for the Northern District of California, on charges of trademark infringement, unfair competition, and copyright infringement. In response, Accolade filed a counterclaim for falsifying the source of its games by displaying the Sega trademark when the game was powered up.[326][327] Despite winning an injunction in the initial district court case, as a result of Accolade's appeal, the Ninth Circuit overturned the district court's verdict and ruled that Accolade's decompilation of the Sega software constituted fair use.[328] Ultimately, Sega and Accolade settled the case on April 30, 1993. As a part of this settlement, Accolade became an official licensee of Sega, and later developed and released Barkley Shut Up and Jam! while under license.[329] The terms of the licensing, including whether or not any special arrangements or discounts were made to Accolade, were not released to the public.[330] The financial terms of the settlement were also not disclosed, although both companies agreed to pay their own legal costs.[331]

1993 United States Congressional hearings

In 1993, the American media began to focus on the mature content of certain video games. Games such as Night Trap for the Sega CD, an add-on, received unprecedented scrutiny. Issues about Night Trap were brought up in the United Kingdom, with former Sega of Europe development director Mike Brogan noting that "Night Trap got Sega an awful lot of publicity ... it was also cited in UK Parliament for being classified as "15" due to its use of real actors."[332] This came at a time when Sega was capitalizing on its image as an edgy company with attitude, and this only reinforced that image.[333] By far the year's most controversial game was Midway's Mortal Kombat, ported to the Genesis and SNES by Acclaim. In response to public outcry over the game's graphic violence, Nintendo decided to replace the blood in the game with "sweat" and the arcade's gruesome "fatalities" with less violent finishing moves.[334] Sega took a different approach, instituting America's first video game ratings system, the Videogame Rating Council (VRC), for all its current systems. Ratings ranged from the family friendly GA rating to the more mature rating of MA-13, and the adults-only rating of MA-17.[334] With the rating system in place, Sega released its version of Mortal Kombat, appearing to have removed all the blood and sweat effects and toning down the finishing moves even more than in the SNES version. However, all the arcade's blood and uncensored finishing moves could be enabled by entering a "Blood Code". This technicality allowed Sega to release the game with a relatively low MA-13 rating.[335] Meanwhile, the tamer SNES version shipped without a rating.[335] The Genesis version of Mortal Kombat was well-received by gaming press, as well as fans, outselling the SNES version three- or four-to-one,[334][336][337] while Nintendo was criticized for censoring the SNES version of the game.[335] Executive vice president of Nintendo of America Howard Lincoln was quick to point out in United Stated congressional hearings in 1993 that Night Trap had no such rating. In response, Sega of America vice president Bill White showed a videotape of violent video games on the SNES and stressed the importance of rating video games. At the end of the hearing, Senator Joe Lieberman called for another hearing in February 1994 to check on progress toward a rating system for video game violence.[334] Although experiencing increased sales, Sega decided to recall Night Trap and re-release it with revisions in 1994 due to the Congressional hearings.[338] After the close of these hearings, video game manufacturers came together to establish the rating system that Lieberman had called for. Initially, Sega proposed the universal adoption of its system, but after objections by Nintendo and others, Sega took a role in forming a new one. This became the Entertainment Software Rating Board, an independent organization that received praise from Lieberman.[334]

See also

Notes

  1. ^ Originally short for Service Games

References

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  84. ^ Donovan, Tristan (2010). Replay: The History of Video Games. Yellow Ant. p. 267. ISBN 978-0956507204. One of the key objections to 3D graphics that developers had been raising with Sony was that while polygons worked fine for inanimate objects such as racing cars, 2D images were superior when it came to animating people or other characters. Virtua Fighter, Suzuki's follow-up to Virtua Racing, was a direct riposte to such thinking ... The characters may have resembled artists' mannequins but their lifelike movement turned Suzuki's game into a huge success that exploded claims that game characters couldn't be done successfully in 3D ... Teruhisa Tokunaka, chief executive officer of Sony Computer Entertainment, even went so far as to thank Sega for creating Virtua Fighter and transforming developers' attitudes. 
  85. ^ Mott 2013, pp. 226, 250. "Virtua Racing ... was perhaps the first to treat polygons not as a graphical gimmick but as an opportunity to expand the boundaries of traditional driving games ... It's like witnessing the discovery of fire ... [Virtua Fighter] establish[ed] the template that future 3-D fighters would follow".
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  88. ^ McFerran, Damien. "Retroinspection: Sega Saturn". Retro Gamer (34): 44–49. 
  89. ^ "EGM Interviews SEGA SATURN Product Manager HIDEKI OKAMURA". EGM2. 1 (1): 114. July 1994. Hideki Okamura: [Saturn] was just a development code name for hardware that was adopted by the Japanese development staff. The name has become common knowledge and it has a nice ring to it. 
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  108. ^ a b c "Sega and Sony Sell the Dream". Edge. 3 (17): 6–9. February 1995. The December 3 ship-out of 100,000 PlayStations to stores across Japan ... was not met with the same euphoria-charged reception that the Saturn received ... Saturn arrived to a rapturous reception in Japan on November 22. 200,000 units sold out instantly on day one ... Japanese gamers were beside themselves as they walked away with their prized possession and a near-perfect conversion of the Virtua Fighter coin-op ... Sega (and Sony) have proved that with dedicated processors handling the drive (the SH-1 in the Saturn's case), negligible access times are possible. 
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  119. ^ cf. "Is War hell for Sega?". Next Generation. 2 (13): 7. January 1996. Tom Kalinske: We needed to do something shocking because we were $100 more than the other guy ... I still think [the surprise launch] was a good idea. If I had it to do over again would I do it a little differently? Yeah, definitely. I wouldn't take the risk of annoying retailers the way we did. I would clue them in and do an early launch in a region or three regions or something so we could include everybody. 
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  126. ^ "Sega TV: Turn On, Tune In, Buy Hardware". Next Generation. No. 14. Imagine Media. February 1996. p. 74. 
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