Company origins (1940–1982)
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; mostly slot machines to military bases located which they saw as a potential market since due to the onset of World War II, the number of men stationed at the military bases had increased and they would have needed something to pass their spare time. After the war, the founders sold that company and established a new distributor called Service Games due to military focus. In 1951, when the government of 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. This company provided coin-operated slot machines to U.S. bases in Japan and changed its name again to Service Games of Japan by 1953.
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. This company eventually became Rosen Enterprises, and in 1957, began importing coin-operated games to Japan. On May 31st, 1960, Service Games Japan was closed. Three days later, two new companies were established to take over its business activities, Nihon Goraku Bussan and Nihon Kikai Seizo. By 1965, Rosen Enterprises grew to a chain of over 200 arcades. Rosen then orchestrated a merger between Rosen Enterprises and Nihon Goraku Bussan, becoming chief executive of the new company, Sega Enterprises, which derived its name from Service Games.
Within a year, 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, becoming the first arcade game in the US to cost 25 cents per play.
In 1969, Rosen sold Sega to American conglomerate Gulf and Western Industries, although he remained as CEO following the sale. Under Rosen’s leadership, Sega continued to grow and prosper, and in 1974, Gulf and Western made Sega Enterprises, ltd. a subsidiary of an American company renamed Sega Enterprises, Inc., allowing them to take the company’s stock public.
Golden age of arcade games (1978–1983)
Sega prospered heavily from the arcade gaming boom of the late 1970s, with revenues climbing to over US$100 million by 1979. In 1982, Sega’s revenues surpassed $214 million. That year they 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 wasn’t released in the U.S. until 1983, after Dragon’s Lair.
Entry into the home console market (1982–1989)
In 1983-4, Sega published Atari 2600 versions of some of its arcade games and also Tapper from Bally/Midway. Carnival, Space Fury, Turbo, and Zaxxon were licensed to Coleco as launch titles for the ColecoVision console in 1982. Some of these and other titles were licensed to different companies for 8-bit computer versions. The Atari 8-bit computer port of Zaxxon is from Datasoft, for example, while the Commodore 64 port is from Synapse.
An overabundance of games in 1983 led to the video game crash, causing Sega’s revenues to drop to $136 million. Sega then designed and released its first home video game console, the SG-1000 for the third generation of home consoles. G&W sold the U.S. assets of Sega Enterprises that same year to pinball manufacturer Bally Manufacturing, and in January 1984, Rosen resigned his post with the company.
The Japanese assets of Sega were purchased for $38 million by a group of investors led by Rosen, Robert Deith, and Hayao Nakayama, a Japanese businessman who owned Esco Boueki (Esco Trading) an arcade game distribution company that had been acquired by Rosen in 1979. Nakayama became the new CEO of Sega, Robert Deith chairman of the board, and Rosen became head of its subsidiary in the United States. In 1984, the multibillion-dollar Japanese conglomerate CSK bought Sega, renamed it to Sega Enterprises, headquartered it in Japan, and two years later, shares of its stock were being traded on the Tokyo Stock Exchange. David Rosen’s friend, Isao Okawa, the chairman of CSK, became chairman of Sega.
Sega also released the Sega Master System and the first game featuring Alex Kidd, who would be Sega’s unofficial mascot until he was replaced by Sonic the Hedgehog in 1991. While the Master System was technically superior to the NES, it failed to capture market share in North America and Japan due to highly aggressive strategies by Nintendo and ineffective marketing by Tonka, who marketed the console on behalf of SEGA in the United States. However, the Master System was highly successful in Europe, Australia, New Zealand, and Brazil with games still being sold well into the 1990s alongside the Mega Drive and Nintendo’s NES and SNES.
In the mid-1980s, Sega released Hang-On and After Burner, arcade titles 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. Sega was also one of the first to introduce medal games with World Bingo and World Derby in the 1980s, a sub-industry within Japanese arcades up to its current day.
Expansion and mainstream success (1989–2001)
With the introduction of the Sega Genesis in North America in 1989, Sega of America launched an anti-Nintendo campaign to carry the momentum to the new generation of games, with its slogan “Genesis does what Nintendon’t.” This was initially implemented by Sega of America President Michael Katz. When Nintendo launched its Super Nintendo Entertainment System in North America in August 1991, Sega changed its slogan to “Welcome to the next level.”
The same year, Sega of America’s leadership passed from Katz to Tom Kalinske, who further escalated the “console war” that was developing. As a preemptive strike against the release of the SNES, Sega re-branded itself with a new game and mascot, Sonic the Hedgehog. This shift led to a wider success for the Genesis and would eventually propel Sega to 65% of the market in North America for a brief time. Simultaneously, after much delay, Sega released the Sega CD in Japan in 1991 and in North America in 1992 as a hardware add-on to the Genesis, greatly reducing space limitations on their games. Sonic the Hedgehog 2 was also released in 1992 for the Genesis, and became the most successful game Sega ever produced, selling over six million copies in total. During this period, local North American development also increased with the establishments of Sega Technical Institute in 1990, Sega Midwest Studio in 1992, Sega Multimedia Studio in 1993, and the acquisition of Interactive Designs in 1992.
In 1990, Sega launched the Game Gear to compete against Nintendo’s Game Boy. However, due to issues with its short battery life, lack of original titles, and weak support from Sega, the Game Gear was unable to surpass the Game Boy, selling approximately 11 million units. The Game Gear was succeeded by the Sega Nomad in 1995, and discontinued in 1997.
In 1992, Sega introduced the Model series of arcade hardware, which saw the release of Virtua Fighter and Virtua Racing, which laid the foundation for 3D racing and fighting games. In 1994, Sega released the Sega 32X in an attempt to upgrade the Genesis to the standards of more advanced systems at the time. It sold well initially, but had problems with lack of software and hype about the upcoming Sega Saturn and Sony‘s PlayStation. Within a year, it was in the bargain bins of many stores.
On November 22, 1994, Sega launched the Sega Saturn in Japan. It utilized two 32-bit processors. However, poor sales in the West led to the console being abandoned by 1998. The lack of strong titles based on established Genesis franchises, along with its high price in comparison to the Sony PlayStation, were among the reasons for the console’s failure. Notable titles in Japan include Sakura Wars, Panzer Dragoon, and arcade ports such as The House of the Dead, Virtua Fighter 2 and Sega Rally Championship. Sega made forays in the PC market with the establishment of SegaSoft in 1995, which was tasked in creating original PC titles.
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.
In December 1994, Sega Channel, a subscription gaming service delivered by local cable companies affiliated with Time Warner Cable, was launched in the United States, through which subscribers received a special cartridge adapter that connected to the cable connection. At its peak, the Sega Channel had approximately 250,000 subscribers. Various technical issues began disrupting the service in late 1997, eventually leading to the Sega Channel being discontinued worldwide in 1998.
On November 27, 1998, Sega launched the Dreamcast in Japan. The console was competitively priced, partly due to the use of off-the-shelf components, but it also featured technology that allowed for more technically impressive games than its direct competitors, the Nintendo 64 and PlayStation. An analog 56k modem was also included, allowing for online multiplayer. It featured titles such as the action-puzzle title ChuChu Rocket!, Phantasy Star Online, the first console-based massively multiplayer online role-playing game (MMORPG), Quake III Arena and Alien Front Online, the first console game with online voice chat. The Dreamcast’s launch in Japan was a failure; launching with a small library of software and in the shadow of the upcoming PlayStation 2, the system would gain little ground, despite several successful games in the region.
After closures of all their former American developers in 1995, and the closure of the PC SegaSoft division, Sega invested in the American Visual Concepts and the French No Cliché, although the latter was closed in 2001. The Dreamcast’s western launch in 1999 was accompanied by a large amount of both first-party and third-party software and an aggressive marketing campaign. In contrast to the Japanese launch, the Western launch earned the distinction of the “most successful hardware launch in history,” selling a then-unprecedented 500,000 consoles in its first week in North America. Sega was able to hold onto this momentum in the US almost until the launch of Sony’s PlayStation 2. The Dreamcast is home to several innovative and critically acclaimed games, including one of the first cel-shaded titles, Jet Set Radio (Jet Grind Radio in North America); Seaman, a game involving communication with a fish-type creature via microphone; Samba de Amigo, a rhythm game involving the use of maracas, and Shenmue, a large-scope adventure game with freeform gameplay and a detailed in-game city. Sega also produced the NAOMI series, which were the last arcade boards built uniquely rather than being based on existing consoles and PC architecture.
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