SEGA

Origins and entry into the video game market (1940 – 1989)

Sega Enterprises was formed in 1965 through the merger of Rosen Enterprises and Service Games Japan. Service Games Japan was previously known as Standard Games, a slot machine developer founded in Hawaii in 1940. The new company released a successful submarine-simulator game called Periscope within a year of its formation.

Originally established in Hawaii by Martin Bromely, Irving Bromberg, and James Humpert, Service Games aimed to provide coin-operated amusements for American servicemen on military bases. In 1951, Bromely suggested moving the company to Tokyo, Japan, which led to the creation of Service Games of Japan in 1952.

Meanwhile, David Rosen, an American businessman, established Rosen Enterprises in Japan in 1954 to export art. The company unexpectedly found success when it imported coin-operated instant photo booths to Japan. This led to the expansion of the business into importing coin-operated electro-mechanical games.

In 1969, Gulf + Western acquired Sega, and David Rosen continued as the CEO of the Sega division. Under Rosen’s leadership, Sega grew and thrived in the video game arcades, producing popular games like Zaxxon and Outrun.

Sega’s revenues continued to rise, reaching $214 million by 1982. In 1983, Sega released its first video game console, the SG-1000, as well as innovative arcade games like SubRoc-3D (the first 3D arcade game) and Astron Belt (the first action-based laserdisc arcade game).

However, Sega faced challenges during the American video game crash of the early 1980s, leading Gulf + Western to sell its U.S. assets to Bally Manufacturing Corporation. The Japanese assets of Sega were acquired by a group of investors led by David Rosen and Hayao Nakayama. Nakayama became Sega’s new CEO, while Rosen remained head of its subsidiary in the United States.

In 1984, Sega was bought by the Japanese conglomerate CSK, which renamed it Sega Enterprises Ltd. and took it public on the Tokyo Stock Exchange. Sega of America was established in 1986 to capitalize on the growing video game market in the United States.

Sega released the Sega Master System and the first Alex Kidd game, which served as Sega’s mascot until Sonic the Hedgehog took over in 1991. While the Master System was technically superior to the NES, it struggled to gain a foothold in the North American market due to aggressive strategies by Nintendo and ineffective marketing by Tonka. However, it found success in the European and Brazilian markets. Tectoy, responsible for the Brazilian marketing, continued selling Master System plug and play consoles to this day, making it the longest-selling console of all time.

Sega as a Major Console Manufacturer (1990 – 2001)

SEGA Mega Drive/Genesis

Main article: SEGA Mega Drive

During the second generation of video games, Sega of America, led by Tom Kalinske, launched an aggressive anti-Nintendo campaign to promote its Mega Drive console (known as the Sega Genesis in North America). The campaign featured slogans like “Genesis does what Nintendon’t” to highlight the capabilities of the Mega Drive over the competition. However, when Nintendo released its Super Nintendo Entertainment System (SNES) in 1991, Sega changed its slogan to “Welcome to the next level” to emphasize the advanced features of its console.

In the same year, Sega introduced a new game and mascot, Sonic the Hedgehog, to rival Nintendo’s Mario. With Sonic’s hip attitude and style, Sega marketed him as a “cooler” alternative to Mario. This strategic shift contributed to the success of the Genesis and briefly allowed Sega to dominate 65% of the North American market. Around this time, Sega also released the Mega-CD, an add-on feature that allowed for extra storage in games due to the CD-ROM format. One of the most popular games for the Mega-CD was Sega’s own Sonic CD.

In 1994, Sega attempted to upgrade the Mega Drive with the release of the Sega 32X. While it initially sold well, it faced challenges due to a lack of software and the anticipation surrounding the upcoming Sega Saturn and Sony’s PlayStation. Within a year, the 32X was no longer in demand and could be found in bargain bins at many stores.

Sega v. Accolade

In 1992, Sega faced a significant legal challenge in the Sega v. Accolade case. The lawsuit involved independently produced software for the Sega Mega Drive console that used a small portion of Sega’s code. The court’s verdict set a crucial precedent, ruling that copyrights do not cover non-expressive content in software that is required by another system to run the software. This ruling had broader implications for the console video game market, as it prevented hardware companies like Sega from blocking other game developers unless they paid a fee.

Sega had attempted to “lock out” game companies from creating Mega Drive games without paying a licensing fee. They implemented a hardware requirement that rejected any cartridge lacking a Sega trademark. Unlicensed companies that included the trademark in their games could then be sued by Sega for trademark infringement. However, the court ruled against Sega in this case, leading the company to change its strategy for future systems.

Despite the legal setback, Sega continued to achieve success in the gaming market. They released Virtua Racing, an arcade and Genesis game among the first to feature 3D graphics. Additionally, Sonic the Hedgehog 2 was a tremendous success, becoming the most successful game Sega had ever produced, selling six million copies as of June 2006.

Arcade Successes

In 1993, Sega achieved a significant milestone with the release of Virtua Fighter, utilizing their cutting-edge arcade cabinet, the Sega Model 1. The game’s graphics and gameplay were groundbreaking at the time, earning widespread critical acclaim and becoming a massive hit with consumers. Virtua Fighter’s success led to four direct sequels, successful spinoffs, and the establishment of the 3D fighting genre. It is also recognized as one of the video games displayed at the Smithsonian Museum of American History in Washington D.C.

Following up on this success, Sega released Daytona USA in 1994, another impressive arcade game. Daytona USA’s popularity surpassed all previous records in the history of arcades, becoming the most profitable game ever released in that medium. The year also saw the release of other notable hits, such as Yu Suzuki’s Virtua Cop and Star Wars Arcade.

Despite their achievements in the arcade market, Sega’s share of the home console market dwindled to 35% by 1994. This decline was partly due to Nintendo’s release of key franchise titles for the Super Nintendo Entertainment System, including Donkey Kong Country, Star Fox, and Super Metroid. Sega also shifted its focus away from the Mega Drive to its upcoming Saturn console, as well as the release of the Sega 32X, which failed to achieve commercial success due to Sega’s attention being directed towards the forthcoming Saturn. In the same year, Sega launched the Sega Channel, a subscription gaming service delivered by local cable companies, attracting approximately 250,000 subscribers at its peak.

SEGA Saturn

Main article: SEGA Saturn

In 1995, Sega released the Sega Saturn in the American market, featuring a 32-bit processor and being the predecessor to both the PlayStation and Nintendo 64 consoles. However, poor sales in the West led to the console’s abandonment within three years. Interestingly, the Sega Saturn was a huge success in its home country of Japan, where it continued to outsell the PlayStation well into 1996 and even defeated the Nintendo 64. The Saturn’s game library heavily relied on arcade ports, with top-selling games like Virtua Fighter 2 and Sega Rally, as well as platformers such as Nights into Dreams… and Burning Rangers. The console also had several exclusive titles in the Japanese market, including Radiant Silvergun, Sakura Taisen, Last Bronx, Panzer Dragoon, and The House of the Dead. Notable RPGs like Panzer Dragoon Saga, Grandia, and Shining Force 3 were also part of the Saturn’s library.

In 1997, Sega attempted a short-lived merger with Bandai, but it was later called off due to “cultural differences” between the two companies. Around the same time, Sega announced that the Saturn was not its future and began shifting its focus to their upcoming next-generation game console, the Dreamcast. Additionally, Sega founded the entertainment fun center GameWorks in 1997 and operated the now-defunct Sega World theme parks.

Dreamcast

Main article: Dreamcast

In 1998, Sega launched the Dreamcast game console, which was competitively priced and featured impressive technology that allowed for visually stunning games compared to its competitors, the Nintendo 64 and the PlayStation. One of its standout features was an analog 56k modem, enabling gamers to play multiplayer games online on a home console for the first time. Notable titles supporting online play included Chu Chu Rocket, Phantasy Star Online (the first console-based MMORPG), and Alien Front Online, the first console game with online voice chat.

While the Dreamcast had a slow start in Japan with a limited and unpopular game library, the Western launch a year later was accompanied by a strong lineup of first-party and third-party games and a robust marketing campaign. The console was immensely successful, selling 500,000 units in its first week in North America, making it the “most successful hardware launch in history” at that time. The Dreamcast was home to innovative and critically acclaimed games such as Jet Set Radio, Seaman, Samba de Amigo, and Shenmue, which received praise from critics but struggled to gain widespread attention in anticipation of the upcoming launch of Sony’s PlayStation 2.

Despite its initial success, Sega faced financial challenges and fierce competition from Sony, Nintendo, and Microsoft. With mounting debts and market pressures, Sega officially discontinued the Dreamcast hardware in 2002, with NHL 2K2 being the final game released for the console. However, the Dreamcast’s innovative features and unique library of games left a lasting impact on the gaming industry and earned it a dedicated and nostalgic fanbase even after its discontinuation.

Shift to a software vendor (2002 – 2005)

In 2002, Sega made a significant shift away from console manufacturing and transitioned into a third-party publisher, focusing on developing games for various gaming platforms produced by other companies. Their first venture as a third-party publisher was a port of Chu Chu Rocket to Nintendo’s Game Boy Advance.

While Sega continued to produce arcade units under various names like Sega NAOMI, Sega HIKARU, and Sega Lindbergh, the company faced financial challenges and underwent ownership changes. Following the death of CSK founder Isao Okawa in 2001, Sega was put up for auction. Discussions with potential buyers, including Sammy, Namco, Bandai, Electronic Arts, and Microsoft, took place.

In 2003, Sammy acquired the outstanding 22% of shares that CSK had, and Hajime Satomi, the chairman of Sammy, became the CEO of Sega. With the new leadership, Sega focused on its profit-making arcade business rather than its loss-making home software development. In December of the same year, Sega launched the successful Sonic Heroes, the first Sonic game released on both the Xbox and PlayStation 2.

In 2004, Sammy bought a controlling share in Sega Corporation for $1.1 billion, leading to the creation of the new company Sega Sammy Holdings, one of the largest game manufacturing companies globally. With the merger, Sega reabsorbed its second-party studios and began to reorganize them. Some Sega employees, like Tetsuya Mizuguchi, left the company in protest.

In January 2005, Sega sold Visual Concepts, a studio considered a “1.5” developer (a mid-point between first-party and second-party status), to Take-Two Interactive for $24 million. Visual Concepts was known for their Sega Sports games, including the ESPN NFL Football series. The sale resulted in Take-Two establishing the publishing label 2K Games.

Success Again (2006 – 2013)

During the latter half of 2005 and into 2006, Sega experienced strong earnings growth, thanks to successful sales in various divisions, including pachinko sales and popular software titles like Ryu Ga Gotoku (Yakuza), Mushiking, and Sonic the Hedgehog.

To appeal to Western audiences, Sega partnered with western video game studios, such as Obsidian Entertainment, to develop RPGs for the PlayStation 3 and Xbox 360. Additionally, Sega acquired British developer Sports Interactive, known for the successful Football Manager series, and American developer Secret Level, which was working on a remake of Golden Axe.

In May 2006, Sega of Japan assisted Sonic Team head Yuji Naka in starting his own company called “Prope” by providing 10% of the startup capital and the option to publish games produced by the studio.

Despite reporting a 31% rise in net profits for the period ending March 31, 2006, Sega later experienced a massive drop of 93% in profits for the period ending June 30, 2006. This decline was attributed to no significant big releases by the slot machine division. However, Sega’s software sales remained strong.

In November, Sega reported a 52% rise in profits for the period between April and September 2006 compared to the previous year. Software sales continued to increase, with notable titles performing well. Despite these successes, Sega slashed its forecasts for the year ending March 2007 by 20%, expecting a lower profit of $536.7 million compared to the initial projection of $656.7 million.

Massive growth and international expansion (2013 – present)

As of 2013, Sega has made significant strides in expanding its presence in the gaming industry. The acquisition of Atlus, Career Soft, and Relic Entertainment has contributed to the company’s growth and success. These strategic acquisitions have brought talented development teams and well-established franchises under Sega’s umbrella, allowing the company to deliver several successful games and increase its global presence.

With Atlus, known for its critically acclaimed RPGs like Persona and Shin Megami Tensei series, Sega has gained a strong foothold in the JRPG genre and attracted a dedicated fanbase. Career Soft’s addition has likely brought expertise in game development and possibly new intellectual properties to the company’s portfolio. Relic Entertainment’s acquisition has expanded Sega’s reach into the real-time strategy game market, with titles like the popular Warhammer 40,000: Dawn of War series.

With these acquisitions and other successful releases, Sega has seen significant revenue growth over the years. By 2021, the company reported $3 billion in revenue, a testament to its strong performance and the positive impact of its strategic business decisions.

Through these efforts, Sega has solidified its position as a major player in the gaming industry, with a diverse range of successful titles and a global reach. The company’s continued growth and success have garnered attention and praise from both players and industry observers.

As of 2023, SEGA owns all of the following companies:

Other

• Gulf + Western (Owner, 1969 — 1984)
• CSK (Largest shareholder, 1984 — 2004)
• Sega-Sammy Holdings (Parent, 2004 — present)

Community involvement

SEGA is highly engaged with its community, showing great tolerance and support for fan creations. They actively endorse the Sonic ROM hacking and fangame community and often back their efforts. Remarkably, many talented fan game creators, ROM hackers, modders, and music remixers have been hired by SEGA after showcasing their skills. Notably, Christian “Taxman” Whitehead, known for Sonic fangames and ROM hacks, was recruited by SEGA to develop ports of Sonic 1, 2, and CD in 2009. SEGA also frequents fan sites and communities dedicated to its games and recognizes their quality through Official SEGA Seals. They welcome anyone who runs or owns such fan communities or creates SEGA fanart, animations, music, games, mods, or hacks to share their creations via [email protected].

Charity and Philantropy

SEGA is committed to charitable efforts and actively encourages other developers to do the same. They participate in various programs to support and sponsor children’s hospitals, Stand Up to Cancer, sanctuaries for endangered animals, the Red Cross, Doctors Without Borders, War Child Gaming (an initiative for children in war zones), and initiatives assisting people with disabilities. Additionally, SEGA utilizes platforms like Humble Bundle to raise over $2 million for various charitable causes. Their dedication to philanthropy is evident in their ongoing efforts to make a positive impact on society.