A Brief History of Sega: Part 1

This month marks the 15th anniversary of Sega’s swansong as a hardware developer. On that fateful date of 9/9/99, the Sega Dreamcast finally launched in Western countries to great fanfare. Its arrival heralded the sixth generation of video gaming with its in-built modem, strong software library and record breaking sales figures at launch. However, despite this promising initial showing, the Dreamcast was fated to be Sega’s final console. To commemorate the one and half decades that have passed since the Dreamcast was released, Power Up Gaming proudly presents a brief history of Sega.

Company Origins

While many would point to the release of the Master System as Sega’s initial foray into the games industry, the company’s origins can be traced all the way back to 1940. Sega began life as a coin-operated machine developer named Service Games, responsible for creating slot machines and jukeboxes. Their primary business involved selling these machines to American military bases in Japan, thus creating the technological ties between both nations that would stand Sega in good stead over the coming decades.

The SG-1000 was criticised for its poor joystick controller.

While business flourished, it wasn’t until Sega began focusing on arcade cabinets throughout the late 70’s that revenue drastically increased. By the early 80’s, the sharp decline in the video games industry meant that the outlook for the arcade cabinet business didn’t appear too rosy. By this point, Sega had enough financial reserves to attempt to expand their business into other areas. Sega of Japan’s then-president, Hayao Nakayama, took the decision to expand into the living room with a console that could bring arcade-quality gaming into people’s homes. As part of this move, Sega released an early console, named the SG-1000, on July 15, 1983.

Having launched on the same day as Nintendo’s Famicom system (soon to be re-released as the NES in North America), the console never managed to get a foothold on the industry due to its inability to compete in terms of its software library. Nintendo’s strict licensing practices meant that developers couldn’t release games cross-platform, so most games migrated to the NES. As such, the SG-1000 floundered and failed to build a legacy, especially since it didn’t receive a general release outside of Japan. Few have heard of the SG-1000 and even fewer have played it, meaning that the console was widely considered a failure. However, despite the monetary hit that Sega took with the console, the seeds were already sown for the company’s next big move.

The Master System

With an in-built copy of Alex Kidd, the Master System II
started to build momentum.

After seeing what Nintendo were doing with their Famicom home console, Sega swiftly followed suit and launched the Master System (then known as the Sega Mark III) to the Japanese market in October 1985. While North America wouldn’t see it until 1986, and Europe a year after that, the Master System initially struggled out of the gate. Nintendo’s pesky licensing was still hurting Sega as the company struggled to attract developers and talent to their console.

Without significant third party support, Sega took the decision to develop and release its own in-house games for the system. This move saw the release of many titles that came to define Sega consoles over the coming generations, such as Phantasy Star, which is considered as one of the pioneers of the RPG genre. Such was the demand for the game that it sold in the US for as much as $80, making it only slightly cheaper than the upcoming, redesigned Master System II.

This redesign of the console reduced production costs, and therefore the cost to the consumer, which helped sales tremendously. Another boost to the sales figures came in the bold move to preload a game onto the system. Every Master System II console came with an integrated copy of Alex Kidd in Miracle World, which is a platformer that remains highly regarded to this day. Alex Kidd became Sega’s unofficial mascot for the time being. In an era when video games consoles needed a mascot to sell them, this was a big deal.

Mega Drive/Genesis

While sales of the Master System were good, the system was always eclipsed by burgeoning sales of the NES. Sega is believed to have sold 13 million units, but Nintendo had shifted around 62 million consoles in a similar time frame. By 1988, Nintendo boasted 83% of the North American video game market share. Not only that, but further competition was being introduced to the market with NEC’s TurboGrafX-16. If Sega wanted to increase their market share, they would need to distinguish themselves from Nintendo and create a system that offered something truly unique.

The company hoped to have come up with such a solution when they entered the 16-bit era with their new console, the Sega Mega Drive. Based on the then advanced Sega System 16 arcade board, the Mega Drive delivered a significant upgrade over the Master System, with its 16-bit Motorola processor, 64kb of video RAM, and dual stereo sound chips.

With two controllers and a great game bundled in, this
deal was irresistible.

Launched in Japan on October 29, 1988 (then the US in 1989 as the Genesis, and Europe in 1990), the console made a slow start in the Japanese market, selling only 400,000 in the first year, putting it third behind the Famicom and NEC’s PC Engine. However, the company was more focused on wrestling control from its arch rival in the intrinsically Nintendo territories of North America and Europe. Thus, an aggressive marketing campaign began which attempted to differentiate the console and make the Mega Drive appear edgier than its competition.

Sega of America’s then-CEO Michael Katz promoted the console’s faithful ports of popular arcade titles in the hopes that this would resonate with the public. When Tom Kalinske replaced Katz as CEO in 1990, Kalinske decided to tackle Nintendo with a price war, dropping the price of the console. The combination of both approaches made the console much more of a success in America and Europe.

Sega began to turn things around on the software front, with the console’s library burgeoning to over 900 titles by the end of the console’s life cycle. While many popular titles were being released for the Mega Drive, such as Altered Beast and Golden Axe, and the system enjoyed wide support from big name publishers such as Electronic Arts, it could be argued that Sega’s new console never fully achieved its ambitions until a certain game franchise helped to change its fortunes around.

Sonic The Hedgehog

Looking at the sullen shell that is Sonic today, it can be difficult to remember the splash that the original game made. Sonic The Hedgehog was a big deal. He was a cool character with bags of personality, but he could also run like the wind, adding a layer of speed and dexterity that hadn’t been seen in games before.

Sonic was fast enough to run up walls and around loops.

Sonic The Hedgehog didn’t happen by accident. Sega’s in-house team had been toying around with character designs and concepts for a while, not only trying to manufacture a likeable mascot to rival Mario, but to create a game that would show off the power of the system. They originally came up with a rabbit that had stretchy ears to assault enemies (a concept that eventually led to the creation of Ristar several years later), but eventually went with designer Naoto Ōshima’s vision of a streamlined creature that could roll into a ball to attack. Needless to say, Sonic became a massive system seller.

In North America and Europe, Sega took the risky decision to bundle Sonic with the Mega Drive console. While bundle deals are commonplace nowadays, back then the Japanese arm of Sega didn’t like the proposal since it meant they would make less money from separate sales of the game. However, the bundle was released to a warm reception by customers, eventually going on to sell through more than 39 million consoles, beating Nintendo’s SNES in Europe and rivaling it in the US.

With Sonic’s sequels building on the successful formula of the first game – adding new features, more imaginative levels and a brilliant supporting cast of characters with each subsequent release – Sega was in an incredibly strong position.

Game Gear

While home console sales were strong, Sega didn’t have a competitor to Nintendo’s wildly successful handheld console, the Game Boy. The Game Boy wasn’t a sophisticated piece of technology, with its brick-like design and limited, monochromatic colour palette, but it did offer the best portable gaming experience on the market and was buoyed by a library of Nintendo games.

While technologically advanced, this power came at the
expense of battery life.

Taking the battle to the big N once more, Sega developed its own handheld device based off of the old Master System technology. The idea was to create a product that would blow the Game Boy out of the water in terms of raw power, with a colour screen and 8-bit processing. The device was so similar to the Master System that you could actually play Master System games on it with a special converter.

While initial sales were strong, the Game Gear was far too power hungry to be a serious competitor, munching its way through six AA batteries in around four hours. People who bought the console didn’t tend to buy much software for it (mainly because of the constricted battery life), thus developers stopped supporting the system.

Mega CD

Meanwhile, Sega was looking to the future. The video games industry is a technological arms race, and by the early 90’s, the Mega Drive was already struggling to keep up. CD technology was starting to take hold, offering larger storage capacities than cartridges with obvious benefits for games developers. Sega was still a few years away from developing a new system to take full advantage of CDs, but sought to extend the life of the Mega Drive by creating a CD drive add-on.

Sega began adopting a modular approach to extend the
life of the Mega Drive console.

The Mega CD was essentially a docking station for the Mega Drive that also included a CD drive. Released in 1991 in Japan, it wouldn’t hit stores in America until October 1992 at the hefty price of US$299, and European consumers had to wait an extra year. The add-on was then eventually discontinued in 1996 in favour of a new console after selling just 2.7 million units worldwide. This short lifespan unsurprisingly didn’t produce many games. The system’s flagship title Sonic CD wasn’t released until 1993, and was already overshadowed by the Mega Drive’s Sonic 2 and upcoming release of Sonic 3. Also, problems with supplying development kits to games studios meant that the support required was never there for the console.

Mega 32X

Despite the ill-fated nature of the Mega CD, Sega remained persistent in their attempts to prolong the life of the Mega Drive, especially as sales were heavily faltering in Japan. By 1994, Sega’s top executives were also reportedly concerned by the recent releases of the 32-bit 3DO and Atari Jaguar systems, and the fact that it was unlikely they’d be able to enter their own powerhouse, the Sega Saturn, into the market until 1995.

As a result of these factors, the idea to create a transitional console to bridge the gap between the Mega Drive and the release of the Saturn was green-lit by Sega CEO Hayao Nakayama and widely approved by Sega of America executives. Although a brand-new system was initially proposed, it was ultimately decided that an add-on console that expanded the power and graphical capabilities of the Mega Drive would be the best option going forward.

A Mega Drive, Mega CD and 32X together in harmony.

With Sega of America leading the development of the system, the Mega 32X boasted an affordable $159.95 price tag, and was released in time for Christmas of 1994. Despite an initially successful launch, with 665,000 consoles being sold by the end of the year, positive reviews and sales of the 32X soon waned.

Setting such a narrow developmental window and fracturing Sega’s audience by pushing forward the release date of the Saturn ensured that the system was never able to realise its potential, with its mostly rushed and rehashed games forming a weak library of only forty titles. By autumn 1995, the 32X had been officially discontinued.

Next Time

Please join us next time for part 2 of A Brief History of Sega, when we’ll be documenting the rise and fall of the Saturn and Dreamcast, and how Sega’s foray into hardware manufacturing came to an end. In the meantime, if you’re craving for more nostalgia, our friends over at SEGAbits are continuing the Dreamcast’s birthday celebrations all month long.

Update: Part two of our retrospective is now online.

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