The History of Sega: Part 1

From slot machines and photo booths, to arcades, to America’s leading video game company, this documentary-style episode explores Sega’s history with the help of Ken Horowitz.

Journey back with us to discover how an early 1930’s father-son shop became a 1990’s video game juggernaut that seemed too big to fail.

Transcript

SEGA. Even if you know very little about video games, there is a very good chance you know the brand. Going hand in hand with Sonic The Hedgehog,  it’s one of the most recognizable names in all of video games. But how much do you know about the company and its origins?  

Ken Horowitz: A lot of people when they think Sega, they think of Sega as a Japanese company, which it is today, but it didn’t start out that way, right?

That’s Ken Horowitz, a man who has dedicated a lot of time to… you know what? I’m just going to let him introduce himself.

Ken Horowitz: My name’s Ken Horowitz, I teach college research and English in Puerto Rico and I run the website Sega-16.com, which has been documenting Sega’s hardware history for 17 years. I also write and research about video game history. I’ve written three books so far. Over the last 17 years I’ve done over 500 articles for the website, including 120 interviews. 

Ken Horowitz is not only a mega fan of all things Sega, but someone who has dedicated nearly two decades to researching Sega’s history, with a specific interest in game development. Writing, interviewing, and preserving the stories behind the company and the games.  

Ken Horowitz: I Interviewed Joe Miller, who was Sega of America’s Vice President of Research and Development. He succeeded Ken Balthazar. I interviewed [Joe Miller] and as far as I know, that’s the only interview he did specifically about his time at Sega and a year later he died of stomach cancer.
I interviewed Michael Knox, who’s the head of Park Place Productions who did the Genesis version of Joe Montana Football and he died of cancer shortly after that. 

These people are gone, you won’t be able to speak to them again, and to have their own words, their own voice telling these stories is something that I think needs to be preserved. That’s why i want to eventually take all my interview raw recordings and donate them to the Strong Museum in New York. 

Ken’s research has been huge for the world of video game history and video game research. And I think it’s fair to call an expert on all things Sega history. So with his help, let’s dive in!

Early History

**a lot of people, when they think of Sega, they think of it as a Japanese company, but it didn’t start out that way. It was founded by American former serviceman who operated in Japan. 

Sega’s origins can be traced all the way back to the 1930’s. 

Yes the Great Depression. Long before arcades and video games. 

Irving Bromberg, an American immigrant, had a business where he would buy and sell Bally pinball machines and other coin-op machines across the United States. While he was still in high school, his son Martin would help sell machines as well. Once he graduated high school, Martin jumped feet first into the business with his father.

In 1940, Martin would expand the business by forming a partnership called Standard Games, which would operate out of Honolulu, Hawaii and sell and operate slot machines and other coin-op machines to American military bases, mainly the nearby Pearl Harbor. 

Then in 1941…the war came. Martin was laser focused on becoming a successful businessman like his father and he managed to get himself placed on the “inactive duty list” through shipyard assignments in Pearl Harbor. This allowed Martin to continue working on his Standard Games business.

Martin would eventually change his last name from Bromberg to Bromley.

After the  war, they sold off Standard Games and started a new company called Service Games. And THAT is a name to remember. Service Games. Still buying and selling coin-op machines, mainly slot machines, from now closing military bases. 

Eventually Martin Bromley and Irving Bromberg would expand internationally and sell their coin-op machines to the American military instillation around the world. In 1951, they sent company salesman, Richard Stewart, along with coin-op mechanic, Rayman Lamaire, to Japan to set up shop for the international business. With the US occupation of Japan after WWII, Bromley and Bromberg saw opportunity for expansion, bringing coin-op machines into the country and selling them to the US military bases on the island.

Eventually, they would expand outside of military bases, and slowly the coin-op market began expanding into Japan itself. And Service Games was not the only game in town. 

Another American veteran, David Rosen, who served in the Air Force during the Korean War, would also start up a coin operated business in Japan. During his time in the Air Force, Rosen found both an admiration for the country of Japan, along with a business opportunity. Since the war, Japan’s economy was struggling, but David Rosen saw a way to help. Every citizen in Japan at the time required a photo ID. So David Rosen came up with the idea of importing coin operated photo booths from the US, which allowed Japanese citizens to get a photo of themselves much faster and much cheaper than before. And eventually, competition for photo booths would set in, so Rosen began buying other coin-operated amusement machines from the US and selling them in Japan, to huge success.  And just like that, his company, Rosen Enterprises, became one of the largest coin-operated companies in Japan. 

So you had Martin Bromely, and Service Games and then you had David Rosen and Rosen Enterprises all operating in Japan selling coin-operated machines.

And these coin-operated machines varied from slot machines, to photobooths, to jukeboxes. Anything that you could put a coin in and it would do something, there’s a good chance that David Rosen and Martin Bromley were selling these with their businesses.

Despite a fair amount of success, David Rosen soon saw his position in the coin-op market slipping. So he sought a merger with Martin Bromley’s business to ensure the business’ future. Which finally brings us to Sega!

In 1965, Martin Bromely’s businesses, which formally was known as Service games and went through a couple of name changes, acquired Rosen Enterprises and they formed Sega Enterprises, Ltd. Sega, from the name “Service Games” taking the first two letters of “Service” and the first two letters of “Games,” and “Enterprises” from Rosen Enterprises. And David Rosen was named CEO of this new company, while Richard Stewart would lead as President, with Bromely would sit on the board. 

And David Rosen was a very savvy businessman. He was never satisfied with more of the same, so he pushed innovation. And this would become the theme of Sega for many years to come, still to this day. They wouldn’t just import the same old machines from America and sell them in Japan. Instead Rosen wanted to put out machines that the public had never seen before. They created and licenced aptly named electromechanical games like “Basketball” and “Punching Bag “ in 1966 and ‘67, and a groundbreaking machine called Periscope. A massive cabinet featuring moving plastic ships on a fake ocean, with bright blinking lights and loud sound effects. Players would look through an actual periscope and fire torpedoes in an attempt to hit the ships. It was one of the very first coin-op machines to ever cost $0.25 and despite the very high cost and the fact that there were only moving blinking lights representing the shooting torpedoes, Periscope was a massive hit. Causing long lines and often bringing in upwards of $100 a day even when there wasn’t any kind of big event going on.

It was so successful that David Rosen decided to flip Sega’s business model on its head. They would create a smaller version of Periscope in Japan and ship it internationally. 

Ken Horowitz: They had been working with other people’s machines and Rosen wanted Sega to make its own machines. But the thing was, like how do you do that without pissing off US distributers, because you don’t want to become competition for the very people whose machines you’re importing. 

Soon Sega was churning out several brand new games per year in Japan and shipping them to the US.  By the late 60’s and early 70’s, business was good for Sega, but it wouldn’t stagnante for long. You see, the 70’s would bring about a technological shift that would change Sega’s Business forever. Video games!

Arcade History

The change came in 1972, when a brand new company called Atari developed a video electronic game called Pong. 

Ken Horowitz: By 1973 Pong changes everything. Now its video. You know, they have to get in on that and also Pong was an insanely popular game at the time. 

It’s simplistic design and widely appealing gameplay loop led to be a breakout hit in the coin-op space. And Sega was quick to notice.They wanted to make a very similar type of machine. They wanted to try video games. So, how did they get started?

Ken Horowitz: They started with Pong Tron, which was basically a Pong clone. The same way a a lot of companies copied Pong. Nintendo copied pong, Sega copied pong, Taito copied pong. Back then, this is a new industry so the Copyright law is very fuzzy, if it’s there at all. 

Sega was so quick to react to the games popularity, that it was actually able to create and release Pong Tron in Japan before Atari was able to formally release Pong in that country. And, although it was a clone of Pong, this would mark the first time that SEGA ever used a CRT TV in one of its coin-op machines. Making it stand out from the rest of SEGA’s products.

As with most Pong and Pong related clones, Pong Tron did incredibly well for Sega. So much so, that they explored this new video game trend more. 

The next year, Sega would put out Pong Tron II and another follow up called Hockey TV.

Ken Horowitz: That only lasts for so long. Once people get tired of Pong, you gotta come up with something else. But that was enough for Sega to say, “this is big, this something that’s here to stay, so now we have to come up with more.

And that’s exactly what Sega did. They continued to explore this emerging market and would licence and distribute other companies games, as well as innovate with their own  games 

Sega continued developing and licensing arcade video games in Japan and distributing them overseas. But, just like with the electromechanical coin-op machines, all the international shipping proved to be a challenge. So it was time for Sega to develop and manufacture games in the US for the American market. 

To get a jump on the American arcade market, Sega purchased the up and coming company, Gremlin. And this collaboration is what led Sega to become a leader in the arcade industry. 

In 1979, The Gremlin/Sega American team developed a game called Head On. A two player game where players would drive through a maze collecting dots and avoiding collisions. 

Ken Horowitz: The thing about Head On, which was developed in 1979, it’s influential because it was the first of what Sega called a multi-phased games. These were basically the type of games that adapted and becomes more difficult as players get better.

Head On was a major influence in the arcade world, which influenced games like Pac-Man. 

Ken Horowitz: It was the first “eat the dots” type game. Pac-man was the most famous and I’d say the most influential because of the fame that Pac-man had and the phenomenon that it was. 

More hit games would come from Sega’s American team. In 1981 Sega and Gremlin licensed and manufactured an arcade game from Konami called Frogger. 

Sega’s arcade business was booming, but Sega saw another business opportunity. You see, in the late 70’s, Sega saw an opportunity to buy out one of its competitors, Atari. Allegedly, Sega was in close talks with Atari’s founder, Nolan Bushnel, to purchase the company. The deal was close to being finalized, but at the last minute, Bushnel received a phone call that explained that company engineers at Atari had come up with a single device that could play multiple arcade games. With this invention on hand, Bushnell decided to cancel the deal with Sega. And that device would later go on to become the Atari 2600.  And just like that the video game console market was born.

In the late 70’s and early 80’s, video games started moving from the arcade and started moving to the living room TV. Atari found massive success through the 70’s, and soon, many other companies jumped in on the new hot trend. Soon the market was flooded with consoles from different companies. From the Atari Video Computer System, to the Intellivision, to the Magnavox Odyssey, to the Colecovision. The home video game market gave consumers a wealth of options. Options were great, but he one downside though, a varying degree of quality in both games and consoles. And it was that disparity in quality, along with the over saturated marketplace that led to the video game crash of 1983. 

The industry suddenly went from this 3 billion dollar industry in 1983 and dropped almost 97% to much lower 100 million by 1985. The American market is where things were hit the hardest. The whole crash is best depicted by Atari’s ET games, that was so bad, Atari took the entire inventory of the game and dumped it in a landfill. 

A little late to the party, two successful arcade companies tested the consumer video game market, despite the recession. On the same day in July of 1983, Sega released the SG 1000 and Nintendo released the FamiCom. Both of these companies released these consoles and they were positioned well to bring their popular arcade games to the family room TV. But Nintendo had a leg up.

Ken Horowitz: Well Nintendo had already been releasing home game machines with its “Color TV-Game” which would play Pong clones and things like that. So it had already had a presence in the home video game market that there was at that time. And by 1983 they had already released the Game and Watch in ‘79 or ‘78. So the FamiCom was the latest in a series of consumer products that Nintendo was pushing. Nintendo was moving into that market before the FamiCom even came out.

Armed with the experience to effectively sell consumer electronics, Nintendo’s FamiCom was a huge success in Japan. Later coming to the rest of the world in 1985 as the Nintendo Entertainment System. And Nintnedo’s success could not have been better timed. The video game crash had wiped out the competition, leaving the goal wide open for Nintendo.

Sega on the other hand, failed to find success with the SG 1000 in Japan. And it wasn’t due to the quality of games. Sega was able to port many of its popular arcade titles to the system, as well as develop new, exciting titles. Sega simply just didn’t know how to market in the  consumer electronic space and didn’t invest to money to push it further. 

Ken Horowitz: They didn’t have the focus on becoming a consumer electronic company the way Nintendo did. You know Sega, Nakayama and others, these were hardware guys, these were coin-op guys, and Sega was primarily a coin-op company.

The SG1000 failed to make a splash, but Sega’s research team continued to explore this technology. After a few iterations, Sega released the 8-bit Master System in 1985 in Japan, and a year later internationally. 

The Master System was a major improvement over its previous consoles, with better technology than the Famicom or NES. The problem was, they were a few years late in the market. Even more problematic, Sega had no branch in America at all, after previously pulling out of the country due to the crash. Sega faced numerous challenges, but if they were to find success with the home console market, it was imperative they have a presence in the US. 

Starting from scratch in America wasn’t going to be easy. Fortunately, Sega’s president and CEO Hayao Nakayama, was a bulldog and one that was willing to do whatever it took to succeed. Although he was born and raised in Japan, Nakayama was not only fluent in English, but very comfortable speaking the language. He had done a good amount of business with American companies and, in a lot of ways, he strove to run Sega with a lot of the same practices as American companies.

Nakayama knew that the only way to get Sega’s console business going, was a strategic hire. He would target, not just a person familiar with the video game industry, he would hire straight from the competition. Nakayma went straight after Nintendo of America’s Vice President of Sales, Bruce Lowry. 

Ken Horowitz: Bruce Lowry was kind of a risk taker. I think that’s the reason why the Master System ended up being what it was. 

Before joining Sega of America, Lowry helped to launch the NES in America. He was there at the huge launch event in New York City, and he was one of the key people that help to organize that launch and ensured it was a success. 

And when Nakayama came knocking on Lowry’s door with the offer to run Sega’s American business arm and launch their new product, he was conflicted. Bruce Lowry was happy at Nintendo of America. Still, Lowry enjoyed the challenge of launching a new console in America. He knew what it took and he was tempted to make that whole thing happen again. 

So he did! Lowry took the job in 1986 and began building the business in America. First thing he did was come up with a name. Nintnedo of America worked really well, so he went with Sega of America. Once he had a name he had to get some employees, because there weren’t any at all. It was literally only Bruce Lowry. So Lowry built it from the ground up. 

Ken Horowtiz: Lowry got the Master System into stores, just about all the major retailers. Had it launched with a good software library. Came with two controllers, came with a gun. The packaging and everything, that was all under Lowry’s watch. 

As if that wasn’t hard enough, Sega of Japan had a lofty goal of selling one million units of the Master System in the US. To make it happen, Sega of Japan decided to partner with the toy company Tonka. Tonka had the resources to market and distribute the Master System. Problem was, Tonka had virtually no experience atll all with consumer electronics and didn’t know how market video games. 

Bruce Lowry was frustrated with this decision, too. He had just hired over a dozen employees strategically and he was geared up to do all of this himself. Now Tonka would make all the marketing and distribution decisions, while he was reduced to managing incoming products from Japan. 

Despite everyone’s best efforts, Sega only managed to sell half a million Master Systems across three years and could only grab 5% of the market share away from Nintendo. It wasn’t all Sega’s fault though, becasue Nintendo’s success was unprecedented. Not only was Nintnedo selling more than 5 million units every year, they managed to get an NES in 30% of every home in America by 1990. Was your home one of them? Convincing the public to buy a similar, less popular system, that could not play Mario or Zelda, wasn’t exactly an easy thing to do.

But Sega continued to do what they did best and that was innovate! The engineering team at Sega was ahead of the competition. By 1988, Sega was ready to debut their brand new 16 bit console. 

In October of 1988, Sega released the Mega Drive in Japan. Unfortunately for Sega, when it came to the American market the name “Mega Drive” was already taken by a computer chip manufacturer. So they had to come up with a new name. 

Ken Horowitz: There was like this competition to pick the name and there were different names, like Cyclone. But the name that won was Genesis. Some people say it was because of Star Trek 2, which had come out a few years earlier.
The name makes sense, because it’s supposed to be a new start, a rebirth. 

So whether it was named after a new beginning, or from that thing from Star Trek 2: Wrath of Khan, but at any rate, In 1989, Sega released the Genesis in America. But unfortunately, ahead of the Genesis’ launch, Bruce Lowry decided to part ways with Sega. This was most likely due to Sega of Japan electing Tonka over Bruce Lowry’s decision to do it himself. And Sega elected a new leader of Sega of America, one that was really qualified, Michael Katz. 

Ken Horowitz: Well Michael Katz is kind of a maverick. He had been in the computer and game industry for years and he had a really, really good understanding of the market. 

With both experience at Atari, as well as a high level experience with toy company, Mattel, Katz was well suited for the job. He was tasked with ensuring the Genesis was a success in America. Fortunately for Katz, the Genesis was a much more powerful machine than the NES. Capable of 16-bit graphics. Sega could bring over many more of their popular arcade titles to the new console, including Golden Axe, Revenge of Shinobi, and it was bundled with the title Altered Beasts. 

Using what Bruce Lowry built as a baseline, Katz was able to lead the team at Sega of America to establish a relationships with retailers, and more importantly, ensuring the Genesis had great games that would appeal to the American market. Getting third party developers to make games for the Genesis was key, especially in the American market, but it had been a major struggle up to that point due to Nintendo’s iron-clad grip on the industry. 

You see back in the 80’s, after the crash, Nintendo had to make sure that there was a viable industry and the only way to do that was to control the entire video game market. Which meant ensuring quality in their own products, but also controlling third party developers and controlling retailers. if you were a company making video games and you wanted to make a game for Nintendo, Nintendo had a few rules for you. 

Ken Horowitz: Your company makes game for the NES, it can only release a certain amount of games per year. If you want to release for competing consoles, you can, but there has to be a two year gap between when it was released for the NES and when it comes out for the other console. So technically you can do it, but the attitude was, “well you can go and release that game for the Sega Master System, but it would be a shame if the allotment of chips you had for the game you were going to be releasing for the holiday season went to this other company instead.” There was no way in ‘89, ‘90, and even ‘91 that a publisher could say “no” to Nintendo. Cause it was just too big and there was too much money on the table. 

With Nintendo holding up the majority of third party developers, Michael Katz had to establish close partnerships with the few remaining developers.  Michael Katz was able to create a solid partnership with EA to develop leading sports games for the Sega Genesis, as well as a few other smaller development teams.


Ken Horowitz: If Michael Katz hadn’t done that, you probably wouldn’t have seen Sega build its Sega Sports brand the way it did. At its height, it accounted for about 43% of Sega’s revenue. So in the United States, sports were incredibly important and he saw that. He was the first one to recognize that 

So Sega had the more powerful console, with the Genesis compared to the NES, and had a stream of great exclusive games that was really the only place for sports video games. Now the trick was convincing the public. 

To fix this, the first thing Michael Katz was go and licenced some of the biggest celebrities at the time. He somehow managed to have Michael Jackson’s likeness in a game called Michael Jackson’s Moonwalker with the excited support of the pop star, and also grabbed Joe Montanna for Joe Montanna football. 

The next step was telling the public with TV ads and for this, Katz decided to go directly after the competition. This sort of practice was generally against Japanese culture, but Sega was left with little choice. And what they came up was an aggressive ad campaign that not only mentioned the competition, but touted their superiority. 

Though a little “on the nose,” Sega was getting their point across in a way that could stick in your head. The Genesis was starting to garner attention and little by little, they were chipping away at Nintendo’s market share. But there was a major problem looming on the horizon. Nintendo’s 16-bit console, the Super Famicom, or Super Nintendo, was slated to release very soon. And with the ability to lean on popular IP’s like Mario and Zelda, Sega could soon be crushed despite their recent successes. 

Anxious about the looming threat, Hayao Nakayama pushed to ensure Sega of America’s success. To do this, Nakayama called on the best in the business, Tom Kalinski. The man responsible for not only making Mattel the leading toy company, but creating and reinventing the most popular toy brands at the time.

In fact, you might not know the name, but Tom Kalinski had a major influence in 80’s pop culture at large and he probably influenced your life in some way. Among other things, he was responsible for creating a popular action figure for boys and he promoted it with a hit TV show. 

That’s right, He-man was Tom Kalinski’s idea. He did a lot more too. He reinvented the Barbie line, making that super popular, he made Hot Wheels the big car toy brand, he revitalized Matchbox cars, and oddly enough, before getting into the toy industry, he came up with the idea for putting Flintstones characters on children’s vitamins.  

Everything Kalinski touched seemed to turn to gold. Despite the current President of Sega of America, Michael Katz, doing a great job, Nakayama wanted more! He wanted gold. He wanted Tom Kalinski to run Sega of America. 

So Nakayama tracked down Tom Kalinski and brought him on board. No really. He tracked him down. Kalinski was in retirement at the time and he was not returning his phone calls. So when Nakayama found out he was going on vacation with his family to Hawaii, he found out where Kalinski was staying, jumped on a plane, and approached him down on the beach. 


With a short trip to Japan, and promises of running things how he wanted, Kalinski was very interested. He had never ever dealt with video games or consumer electronics in general. He was quick to admit his shortcomings, but also a bit excited about the challenge. At first Kalinski didn’t realize he would be running the show at Sega of America. He thought he was brought on as an advisor.

It turns out though, Michael Katz thrown out and Tom Kalinski was in. Kalinski had a lot to learn about the industry, in a very short period of time. But Kalinski was no dummy. He was a quick study, but he was even better when it came to people.

Ken Horowitz: Honestly, he’s the kinda guy you wanna have a beer with. He didn’t come across as arrogant. His answers, the way he talks, he’s just very, very humble and very down to earth. Very approachable.”

After a few short months, Kaliski was able to get to know the Sega of America team and get a solid understanding of the video game industry and Sega’s current place in it. With the benefit of an outsiders perspective, and a knack for creating well known brands, Kalinski knew what Sega was missing. A mascot! He didn’t need to understand video games to take one look at the competition and understand the value of Mario. Sega needed a Mario and they needed it desperately!

And Sega was aware of this too, so in the late 80’s, Sega held an internal competition to see who could come up with a mascot character for Sega. One that could particularly be focused on the American market. The runner up was….an egg and the winner of the competition was a Hedgehog called … Mr. Needlemouse. Recent rumors suggest that this “well known” piece of Sega’s history is a translation error and its original name was simply, “Mr. Hedgehog,” but regardless, he would later be known as Sonic the Hedgehog. 

No one knew the importance of Sonic the Hedgehog more than Kalinski. But as soon as he heard about the soon to be mascot, he had a question. “What’s…uhh…what’s a hedgehog?” It wasn’t exactly a well known species in America. 

According to the book Console Wars, Sega of Japan faxed over an early sketch of Sonic the Hedgehog and Kalinski and the Sega of America team weren’t exactly thrilled. Sonic had pointy fangs, a spiked collar, an electric guitar, and a human girlfriend. “Who’s the girl?” Kalinski was finally able to ask when he was prompted by Nakayama on what he thought of the sketch” 

Nakayama simply said, “Oh thats Madana” 

“Of course it is”

Needless to say, some things needed to change. The change would come later, first Kalinski had to fly to Japan and tell the board of directors his plan for Sega of America.

 So Tom Kalinski jumped on an airplane, flew to Sega’s headquarters in Japan armed with a plan and a presentation.

[As Tom Kalinski]

Konnichiwa. I want to thank you all for your time. It is very nice to meet you all. 

When Nakayama-san brought me on to the Sega of America team, he asked me to give a my full assessment of Sega of America and how it is doing in the video game market. He also asked that once I get a lay of the land, to give my best recommendation on how to make the Genesis a success in America.

Well after three months of observation, careful studying of the market, getting to know this great company, and learning the video game industry and Sega’s important place in it, I am happy to provide my best recommendations for success. No, not just success, domination! We can topple the big N and this is how to do it.

I know, I know I’m new to the industry, but I can assure you, after nearly two decades in the toy industry, I know exactly what it takes to make a premium product fly off of store shelves!

um, ok! Uh let’s get started. I’ll make this short and sweet. 

Ok! Here’s what I propose we do in America. If we follow these steps, there will be no stopping Sega!

Step 1. We reduce the cost of the Genesis from $189 down to $150. We need to price it lower than the completion and, to me, $150 feels like a nice, round, affordable number. 

Sure this cuts into the profit, but we have to get the console into the hands of the consumer so that they will buy games. Lots of games!

Step 2. Refocus the marketing. The current ads. “Sega does what Nintendon’t” are fine. Haha I thought it was very clever, but it needs it be sharper. 

It’s simple. We want the Genesis to be the coolest thing to have. 

It’s not  just your run-of-the-mill, bland, gray video game console. It’s sleek, it’s cutting edge, it’s new, it’s the best of the best. 

We have to make that clear in our marketing.

Step 3. We  change the pack-in game from the hit arcade game, Altered Beasts, to a different game. Altered Beasts is a great game, no doubt, but that name. Altered Beasts. That name will never sell in a place like Kansas. It’s somewhat demonic tone is sure to be a turn off to nice Midwestern folks. 

I say we put our best foot forward and bundle in the hottest new game with the console. Not just any game, but a game with an iconic character. A character you associate with the Sega brand and you can see on the box.’

I am suggesting that we make the pack-in game Sonic the Hedgehog. Let’s make the console as appealing as possible and get the gamer invested. This way, after the purchase, they will buy many more games! 

And that’s it! We make the console more affordable, slap an iconic character on the box, pack-in the must have game Sonic the Hedgehog, and strategically market it! 

The Genesis will fly off of store shelves if we do this!

And thats it! Pretty simple. Any questions? 

[End Scene]

After a few minutes of awkward silence, the room exploded in conversation. Of course it was all in Japanese, so Kalinsi didn’t know what was going on. But finally after a long while, Nakayama quieted everyone down, turned to Kalnksi and simply said, “Everyone here hates your ideas.”

You see, they knew that lowering the consoles price would severely cut into their margins. They had already spent a lot of money on marketing and why in the world would they give away their baby, Sonic the Hedgehog, which was shaping up to be the best game on the system, why would they give it away for free?! 

Well Kalinski thought he was going to be fired there on the spot. So Kalinski tucked his tail between his legs, started walking out the door, but at the last minute, Nakayama gave him full permission to carry out his ideas the way he wanted to. He hired him to do a job, and you know what, he was going to let him do it. 

And just like that, Sega of America was off to the races. Kalinski began to get to know his team and soon found that there were some very talented and dedicated folks on board.

Al Nilsen, Sega of America’s head of marketing, as well as Vice President, Shinobu Toyoda worked closely with Kalinski and helped to steer the ship in the right direction. 

Ken Horowitz: He [Tom Kalinski] always emphasised that it was a team effort and it was a team of people. 

If you look at it today, it’s difficult to think of Sega without also picturing Sonic the Hedgehog and the big reason for that is Tom Kalinski. He worked with the team at Sega of America to turn Sonic’s image into something a little less ”punk rock,” and a little more appealing to American audiences.

It was a concerted effort and Sega of Japan fought back at most of the suggested changes, but Kalinski and the team were able to make make small tweaks and compromises until they could get Sonic’s character design to the point where everyone was happy. 

And when Sonic the Hedgehog released in June of 1991, it was an amazing sight to see, with incredibly fast movement, vibrant colors, and an attitude very different from any game before it. Sales for the Genesis skyrocketed. Folks that already bought a Genesis quickly bought the game and people unsure about the Genesis suddenly became interested with the price drop and inclusion of the game. Within a short period, Tom Kalinski’s plan was working. 

And Kaliski and the team had no plans to sit back and soak in the success. They springboarded off the popularity of Sonic the Hedgehog.

This was excellent timing for Sega, because Nintendo’s 16-bit console, the Super Nintendo,  was slated to release in September of that very year! It would be $199 and the pack in game would be Super Mario World. 

Of course with the vast majority control of market share, Nintendo was not exactly worried about their competition. The Super Nintendo would be the hot new item and fans were excited for it. 

And when Sega got its hands on the game, Sega happily pushed comparisons of Super Mario World to Sonic the Hedgehog, boasting the speed and innovation of Sonic. Running side by side comparisons at their E3 booth and even running direct TV ads comparing the two games. 

Although Super Mario World stands tall as a great Mario game, at the time, Super Mario World was very similar to Super Mario 3, whereas Sonic the Hedgehog was flashy, edgy, and brand new. In fact, Sega did several anonymous surveys, quizzing various consumers on which of the two games they preferred after a brief demo, and the majority preferred Sonic. 

The Super Nintendo released on September 9th of 1991 and, to noone’s surprise, it sold well. But the Sega of America team continued to hustle. The team pushed that the Sega Genesis was cheaper, had more innovative pack-in game, and it had also been out for almost 3 years, meaning that the available game library was much bigger on the Genesis. Not only that, but you could buy an adapter to allow people to play Master System games on the Genesis. Something you could not do in any way with the Super Nintendo. 

Tom Kalinski and the team did their best to make all of these points clear to the public through their advertising campaigns.  And they pushed and pushed to get brand new commercials. They even utilized the same advertising company that did the “Just Do It” commercials for Nike. 

What they finally came up with for advertising Sega was wild! 

Besides having a super chaotic, flashing, extremely fast commercial, it also had someone screaming, “SEGA,” at your face in a way that somehow was not annoying. 

And all of this was all working. For the first time, Nintendo did not have the best selling consumer electronics of the holiday season. In 1991, the Sega Genesis outsold the Super Nintendo. The mighty Nintendo was starting to topple. 

Thanks in large part to the work that Bruce Lowry and Michael Katz had done in securing American game developers, Sega of America was able to keep a steady flow of great exclusive games coming to the Genesis. Nintendo was starting to lose its iron grip and soon, third party game development opportunities started to come. Whereas before Nintendo would not allow developers to create games for Nintendo’s systems and other companies hardware, now they could. For example, Mortal Kombat came out for the Sega Genesis and the Super Nintendo on the same day and this had never been heard of before. 

Likely in fear of being sued for monopolistic practices, Nintendo allowed for this to happen. 

Ken Horowitz: They snap their fingers and say, “Hey you know what, if you want to make games for other consoles, go right ahead.” and Capcom and Konami and other companies flood the Genesis with titles and from them on is when you see that the Genesis becomes a contender and cracks that monopoly. 

Now when a hit third party game was made, it could be released on both a Nintendo system and on a Sega system.

After the huge success of Sonic the Hedgehog, it’s no surprise that a sequel was in high demand. This time around, Yuji Naka, the creator of the original would make the sequel in America under a special team called the Sega Technical Institute, led none other than Mark Cerny, who you may know as the creator of the PS4 and the PS5. The Sega technology institute was responsible for researching and pushing new innovations in games. 

Sonic 2 was set to release in 1992, which gave the development team barely over one year to make the sequel to the best selling game of the previous year. Could they pull off another hit in that short period of time? It was a bit of a risk, but the Sega of America team decided to put all of their eggs in the Sonic 2 basket. The team was eager to keep the momentum going and were willing to try anything new to compete with the giant that was Nintendo.

So the Sega of America team came up with a new idea. A global launch event for a game release! What if Sonic 2 released on the same day at every store around the world? 


While that sounds like a very normal thing by today’s standards, back in the early 90’s, video games didn’t have a release day. It’s more like they had a release “window.” The games, when they were finished, they would be packaged, then they went out for delivery on trucks, and whenever the retailers received them, that’s when the games went up onto store shelves. 

But for Sonic 2, it would be a day to remember. It would be called “Sonic 2sday”. The Sega teams coordinated with every sega retailer and distributor around the globe to make sure they received copies of games in advance and would not sell them until Sonic 2sday! 

Not only that, but they had a 10 million dollar marketing budget for Sonic 2 alone, which included not only commercials, but teen star celebrity endorsements from the likes of Jonathan Taylor Thomas of Home Improvement fame and Samuel Powers (Screech from Saved by the Bell). 

This all sure would have been embarrassing if the game had turned out bad. Fortunately for Sega, the development team was able to take what was great about the first Sonic game and expand on it to create what many consider one of the very best platformers ever made. Spin dashes, the inclusion of Tales, brand new worlds, a two player mode. Sonic 2 had it all. 

On “Sonic 2sday,” November 24th, 1992, Sonic the Hedgehog 2 released and broke every video game sales record there was! All 3.2 million copies of the game that were made for the initial releases were all sold-out in just 2 weeks and would go on to be second best selling genesis game, behind the first Sonic game.

Whether it was due to the huge marketing budget, the celebrity endorsements, or the unarguable quality of the game, the “video game release day” idea was proven on “Sonic 2sday”.

With the booming popularity of Sonic, along with a large library of diverse games, The Sega Genesis was in high demand. Within a few short years of Tom Kalinski joining Sega of America, the Mighty Nintendo lost its majority hold on the video game industry. Sega became the market leader, holding nearly 60% market share in the United States, alone. There were now two giants. It still lagged behind in other countries, but still, Sega allowed for real competition in the global gaming industry. 

From the humble beginnings of a small American father and son business in the 1930s and 40s, who would buy simple coin operated machines and sell them to entertain American servicemen during World War II, to a post war company who would find Opportunity selling and maintaining various coin operated machines in Japan, to a leading Japanese electro mechanical and arcade game development company,  to a struggling consumer electronic console business who was far, far behind the competition, to a scrappy underdog who did whatever it took to gain a foothold in the monopoly of a marketplace, to America’s leading video game company. Thanks to Tom Kalinski, the team at Sega of America, and Sonic the Hedgehog, by 1994 Sega was on top of the video game world!

Episode Notes and Links:

Featuring:

Ken Horowitz of Sega-16.com

Bob Buel of 99 Questions

https://podcasts.apple.com/us/podcast/99-questions/id1504738284


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