When talking about SEGA, the conversation inevitably turns to questions about what went wrong. A company that once nearly brought Nintendo to their knees was seemingly crushed and swept aside in the blink of an eye. The truth of the matter is—any success SEGA enjoyed in the console market was a fluke.
Before you tar and feather me, know that I'm a lifelong Sega fan. The company makes good games. Unfortunately it takes a bit more than good games and powerful hardware to be a success in the game industry.
SEGA was never good at marketing consoles, despite having essentially begun its life in arcades, unlike its closest competitor. In 1985, SEGA released the Mark III (known as the SEGA Master System in the US) in response to Nintendo's Famicom.
The Mark III could have won the first battle of the console war between SEGA and Nintendo. The console was superior in every way to Nintendo's machine— its graphics were vastly superior, it offered better sound, arcade ports were worlds closer to the source material than the Famicom could ever hope to be. From a hardware perspective, there was no way SEGA could lose.
Instead, Nintendo beat SEGA with a nearly five-to-one sales lead. The difference? Marketing. Nintendo of America's marketing team pulled of acts of pure genius, like tying sales of their consoles to the American toy-du-jour, Teddy Ruxpin. SEGA's team, on the other hand, sold the rights to the Master System in 1988 to Tonka. The '80s saw Nintendo become synonymous with gaming. You weren't just going to play video games, you were going to play Nintendo. When parents would shop for a Master System, they'd still call it a Nintendo. Though SEGA recovered the rights to the Master System in 1990, it was too late, and the console ceased production in North America the following year. The 8-bit era was decidedly in Nintendo's favor, despite the NES' clearly inferior hardware. At this point, all SEGA could do was pin their hopes on their next console.
In late 1988, SEGA released the Genesis in Japan, known there as the Mega Drive. With it, SEGA fired the first shot in a bit-war that would ultimately end with their exit from the console business. SEGA realized they never showed the public just how superior their Master System was. They weren't going to repeat that mistake.
SEGA was aggressive; hungry for success. This aggression was clear in every aspect of the Genesis' lifecycle, even down to design. The Genesis has the words 16-bit emblazoned in gold lettering on the console itself—a proclamation that this was the most powerful machine money could buy. This move started a playground-style my-console-has-more-bits-than-yours arms race that would exist as long as SEGA was still part of the industry. By the time SEGA exited the hardware business, you were hard-pressed to find the phrase 128-bit anywhere near mainstream marketing, let alone stamped on every console shipped.
SEGA played their hand brilliantly, positioning the Genesis as an arcade machine you could keep in your entertainment center. This wasn't even close to the truth, however. The Genesis was still far inferior to the then-reigning king of arcades, SEGA's own System 16 board. Their smartest move was marketing the Genesis to teens and young adults. Until this point in history, gaming was considered a children's activity. Games were largely marketed to parents instead of directly to gamers. SEGA changed that by going directly for players that had grown up alongside—and quite possibly grown tired of—Nintendo's franchises, and it paid off. SEGA almost vilified Nintendo in a sense, pushing the image that Nintendo games were for little kids, an image the company still has trouble shaking today.
SEGA moved to build a more mature library for the Genesis as well, focusing heavily on sports titles, including the first console release of Madden. SEGA eschewed their previous mascot, Alex Kidd in favor of the now-iconic blue hedgehog. They even posted a series of bullshit marketing ads about "blast processing" and how much faster the Genesis was than the Super Nintendo by comparison.
In reality, Nintendo's machine was superior to the Genesis in every way, but it didn't matter. The ads wooed enough gamers to keep SEGA and Nintendo at each other's throats for years to come. SEGA's smart moves in the fourth generation didn't win them the war though. By the time the Genesis was rendered obsolete it had found its way into 29 million homes. A respectable number, but far from the Super Nintendo's 49 million.
The Genesis era is often looked at by gamers as the point at which SEGA became a real player in the console market. A much more in-depth recounting of the time is given in Blake J. Harris' excellent book, Console Wars.
Adding on and Moving on
Following the failure of the SEGA CD, a new add-on to the aging Genesis was on its way. History will tell you that the 32X was a commercial and critical failure. It's not just fragmentation that led to its demise, however. Developers had absolutely no desire to support the add-on. SEGA decided to release the 32X on the same day the Saturn released in Japan, leaving it effectively dead on arrival.
The fifth console generation is arguably the best in history. Optical media came into mainstream use, games graduated to 3D, the analog stick became a standard control scheme and a little gray box—stop me if you've heard of it—called the PlayStation launched.
The Saturn was doomed from the moment it was announced. SEGA thought they were being sly by announcing a September release date, only to—surprise!—make their new console available immediately. The only problem with this plan was SEGA forgot to tell retailers or developers about it. This resulted in shops not knowing when to stock the console or whether or not they even had it, and a launch lineup that consisted of four titles, all of them first-party.
To add insult to injury, SEGA priced the Saturn at $399, a full $100 more than the PlayStation. The situation was so grim from the start, that Sony's then-president Steve Race took the stage at E3, said "two-ninety-nine" and walked offstage.
The Saturn never recovered from SEGA's early bad decision making, selling only 9.5 million consoles. The Saturn was eclipsed by the Nintendo 64, which was in turn eclipsed by the enormously successful PlayStation. The Saturn's issues would come back to haunt SEGA during its best, most creative period in the console business.
Too Little Too Late
The Dreamcast was the machine that should have brought SEGA back from the brink. It was a capable console that offered some of the best experiences the company had ever crafted. On top of that, the Dreamcast enjoyed robust third-party support, something the Saturn had lacked almost entirely.
Where there were holes in its lineup, SEGA stepped up to fill them. The Dreamcast didn't get support from EA, so SEGA made 2K Sports, which many considered to be superior to EA's Madden offerings of the day. SEGA's final console was home to more gems than their last ten years of consoles combined. Players were treated to a plethora of amazing first- and third-party offerings. Games like Phantasy Star Online, Shenmue, Space Channel 5, Jet Set Radio, Samba de Amigo and Seaman showed the world what SEGA could do when their back was against the wall, but sadly, it just wasn't enough.
While the Dreamcast got off to a good start, selling some 1.5 million consoles in its first few months on the market, SEGA clearly spent too much cash getting the console to market. In January 2000, Dreamcast sales saw a sharp decline. Sony's PS2 hype machine was in full effect, promising Toy Story-like graphics and internet capabilities that would rival those shown in The Matrix.
I'm not making that up.
SEGA tried everything they could to stay in the race. Beyond heavily discounting the console, they actually began giving it away to anybody who signed up for SegaNet, their failed ISP. SEGA's efforts, however, were in vain. Gamers burned by the Saturn's early demise and wooed by Sony's promises of a better life had already moved on. In February 2001, SEGA exited the hardware business, officially declaring the Dreamcast dead.
The Sammy Merger
By late 2001, the situation at SEGA was dire. So dire in fact, that shortly before his death, Isao Okawa, SEGA's former donated nearly 700 million dollars to help SEGA out of the debt it was in. Rumors around the internet pointed to a possible sale of the company to one of its competitors, with the company being linked to a possible Nintendo or Microsoft acquisition most frequently.
In the end, SEGA did meet with both companies, but never got past talking. Sammy, an arcade company that specializes in pachinko machines ended up buying SEGA's stock and merging with the company, putting its CEO in charge of the former console giant.
Since the 2003 takeover, SEGA has lost a couple key players. Yuji Naka, the man largely credited with the creation of Sonic the Hedgehog, left the company in 2006. Yu Suzuki, SEGA's answer to Miyamoto, departed the company in 2011, having released a handful of mobile and social games since the Sammy takeover.
Where Are They Now?
More recently, SEGA has been pulling back from the console game business, releasing more titles on Steam, while publicly stating that they intend to ramp this up. Puzzlingly, SEGA's most successful PC game, Phantasy Star Online 2 remains absent for American players , despite being announced for release nearly two years ago.
Under Sammy's rule, SEGA has shifted their focus nearly entirely to arcade titles. In Japan, the company's arcade glory days never really ended. SEGA operates arcades in the country, and even have their own theme park. A few months ago, the company announced a number of layoffs and planned to scale back the amusement business, leaving the future of Joypolis, Japan's SEGA-operated theme park in question.
SEGA's continued movement away from the console industry as a whole—and their focus on smartphone and online PC games— means there's next to no chance of a new SEGA console in our entertainment centers in the near future. Not only that, it means our days of playing as some of gaming's most iconic characters on consoles might be over as well.
The company that got its start in Japanese arcades returned to the business that made it famous; or, it never really left, actually. The SEGA of today might not be the one we thought we knew, or the one we want, but it's the same company it always has been, for better or worse. Okay, mostly worse.