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SEGA's 3 Biggest Mistakes | Gaming Historian

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SEGA's 3 Biggest Mistakes | Gaming Historian
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  • SEGA had a meteoric rise in the early '90s, going from 10% market share to over 50%.
  • But by the early 2000s, they had abandoned the hardware business and became strictly a software company.
  • So what happened? There are a lot of reasons SEGA fell so fast; it grew too big too quickly.
  • There were constant disagreements between SEGA of Japan and SEGA of America, which led to a lot of missteps and missed opportunities.
  • But let's take a look at three specific instances where SEGA went wrong.
  • These are SEGA's three biggest mistakes, and we begin with an awkward add-on for the SEGA Genesis.
  • SEGA and Nintendo both saw tremendous financial and critical success with their 16-bit consoles, but with success came pressure.
  • That pressure heated up in 1993 when Atari released the Jaguar, a 64-bit console.
  • Atari's powerful new console sent a strong message, one that SEGA took seriously.
  • SEGA of Japan was ready for the next big thing. SEGA of America, by contrast, wasn't exactly rushing to put out a new console.
  • The Genesis was still doing well in North America, but SEGA of Japan was in charge.
  • So, in January of 1994, they pitched SEGA of America an idea for a 32-bit Genesis, which would double the colors of a traditional Genesis, at a lower price point.
  • SEGA of America's Head of Research and Development, Joe Miller, pushed hard against the idea.
  • According to former SEGA of America Executive Producer Michael Latham, Miller said, "Oh, that's just a horrible idea.
  • If all you're going to is enhance the system, you should make it an add-on.
  • If it's a new system with legitimate new software, great. But if the only thing it does is double the colors..."
  • For what it's worth, Miller doesn't recall being quite that blunt.
  • He also credits the idea for an add-on to SEGA CEO Hayao Nakayama.
  • Regardless, the group agreed to move forward with an add-on for the 1994 holiday season.
  • Under tight time constraints, a SEGA of America group, led by Joe Miller and overseen by SEGA of Japan, rushed to create the new add-on.
  • Meanwhile, SEGA of Japan was quietly developing their own 32-bit system, which would eventually become the SEGA Saturn.
  • The end result of months of hard work was a mushroom-shaped add-on that inserts into the Genesis cartridge slot,
  • transforming the 16-bit Genesis into a 32-bit system.
  • It allowed the Genesis to work much faster, and even display texture mapped 3D polygons.
  • They designed the system to be a permanent addition to the Genesis, so players could plug the 32X in and play either a 32X game or a Genesis game.
  • SEGA launched a multimillion dollar ad campaign to promote the 32X.
  • For a little while, the 32X looked like it might be a success.
  • The ads generated a lot of buzz amongst consumers, but industry insiders were skeptical.
  • By that point, it was widely understood that the SEGA Saturn would hit the market soon.
  • Which begged the question: if SEGA had a 32-bit console in the works, what was the point of this 32-bit add-on?
  • Despite that nagging question, when the 32X launched on November 21, 1994, demand was fairly high.
  • According to some reports, demand outran the supply of 600,000 units that were available at launch.
  • It debuted for around $160, but the momentum died quickly, mainly because of the games.
  • Only three titles were available when the 32X launched. Many of them were rushed through production, and it showed.
  • For example, the port of Doom was poor quality, and it was missing levels.
  • Cosmic Carnage was so bad, that SEGA didn't even want to ship it out.
  • Sales of the 32X dropped off sharply after the 1994 holiday season.
  • By 1995, the price dropped from around $160 to $99 and, finally, to the clearance price of $19.95.
  • The 32X library eventually grew to include 40 titles - a handful of which you have to have the 32X and the SEGA CD to play.
  • Not long after the 32X debuted it was forgotten, and SEGA began pushing the Saturn.
  • Scott Bayless, a senior producer at SEGA of America, said, "Frankly, it made us look greedy and dumb to consumers,
  • something that a year earlier I couldn't have imagined people thinking about us. We were the cool kids."
  • The 32X was expensive, had a poor library of games, and was a terrible stop gap between the Genesis and the Saturn.
  • Consumers began losing confidence in SEGA, which didn't bode well for the company's future.
  • In my video on Nintendo's three biggest mistakes, I ranked Nintendo's failed partnership with Sony at number one.
  • But SEGA made a very similar mistake.
  • To recap Nintendo's misstep, Sony and Nintendo made plans to develop a CD add-on for the Super Nintendo.
  • But at the last minute, Nintendo changed their mind and decided to work with rival company Philips instead.
  • It completely humiliated Sony. It also led to an embarrassing use of Nintendo characters on the Philips CD-i console.
  • So Sony pitched their console idea to Nintendo's rival, SEGA.
  • Sony Electronic Publishing President Olaf Olafsson and Sony America President Mickey Schulhoff met with SEGA of America President Tom Kalinske.
  • According to Kalinske, they said, "Tom, we really don't like Nintendo. You don't like Nintendo.
  • We have this little studio down in Santa Monica working on video games, we don't know what to do with it, we'd like SEGA's help in training our guys.
  • And we think the optical disc will be the best format."
  • Kalinske agreed, and the two companies began working closely.
  • They invested in two developers working on CD games - Imagesoft and Digital Pictures.
  • Digital Pictures would later release the infamous Night Trap.
  • Eventually, engineers from SEGA and Sony began working together on specifications for a CD-based video game console.
  • The idea was then pitched to Ken Kutaragi of Sony of Japan, the man behind Sony's PlayStation project.
  • According to Tom Kalinske, he said, that "it was great, and as we all lose money on hardware, let's jointly market a single system - the SEGA/Sony hardware system.
  • And whatever loss that we make we split that loss."
  • It was an exciting opportunity for both parties, but Tom Kalinske still had one final roadblock: SEGA of Japan.
  • When it was pitched to SEGA of Japan, they turned it down.
  • They said, "that's a stupid idea. Sony doesn't know how to make hardware. They don't know how to make software either. Why would we want to do this?"
  • Since Nintendo and SEGA rejected them, Sony decided to go solo.
  • They released the Sony PlayStation in 1994, went on to sell more than 100 million units. Ouch.
  • Tom Kalinske called it the stupidest decision ever made in the history of business, but, in my opinion, it isn't their biggest mistake.
  • My number one choice sent shockwaves through the industry, and caused one of the most unforgettable moments in video game history.
  • On November 22, 1994, SEGA launched their brand-new 32-bit console: the SEGA Saturn in Japan.
  • Initial sales were good. SEGA sold 500,000 systems in the first month,
  • thanks in large part to the popularity of the launch title Virtua Fighter.
  • The North American launch was set for the following year, in September of 1995.
  • A massive $50 million advertising campaign was prepared to show off the Saturn.
  • SEGA of America wanted to appeal to an older crowd and show off the raw power of the system, but SEGA of Japan President Hayao Nakayama grew nervous.
  • The Sony Playstation was slowly beginning to outsell the SEGA Saturn in Japan, despite the Saturn launching two weeks earlier.
  • Nakayama ordered SEGA of America President Tom Kalinske to launch the system in May - four months ahead of schedule.
  • Kalinske warned Nakayama that having a surprise launch could jeopardize the system's success in North America, but Nakayama refused to budge.
  • On May 11, 1995, at the inaugural E3 Expo in Los Angeles, Tom Kalinske previewed the SEGA Saturn in several software titles.
  • At the end of his presentation, he announced the SEGA Saturn was available immediately at several large retailers, including Toys R Us and Software Etc.
  • The cost: $399.
  • The announcement surprised everyone, but at the next presentation, Sony delivered one of the most iconic and savage moments in video game history.
  • After discussing their new PlayStation console and the technical details, Sony Electronic Publishing President Olaf Olafsson called up
  • Sony Computer Entertainment of America President Steve Race to give a brief presentation.
  • Race had a lengthy speech prepared, but at the last minute, he ditched it. Race went up to the podium and uttered one word...
  • "$299"
  • [APPLAUSE]
  • It was the price heard 'round the world.
  • SEGA's launch of the Saturn may have surprised everyone, but that surprise eventually led to anger.
  • Many consumers who were saving money for the SEGA Saturn weren't ready to make the purchase. The promise of 20 launch titles shrunk down to 6.
  • Only big retailers receive shipments of the SEGA Saturn, which angered the smaller retailers.
  • KB Toys refused to carry the SEGA Saturn as a result.
  • Even developers were annoyed; the surprise launch threw development schedules completely out of whack.
  • The SEGA Saturn didn't launch with a single third party game. It was also notoriously difficult to program games for the system.
  • Even SEGA's own Yu Suzuki stated, "I think that only one out of a hundred programmers are good enough to properly program the Saturn."
  • With limited supply and a hefty price tag, SEGA's four-month head start resulted in about 80,000 units sold.
  • When the Sony Playstation finally launched in September of 1995, it sold a hundred thousand units in two days.
  • It was $100 cheaper than the Saturn and had a great variety of launch titles.
  • Said Tom Kalinske, "Had we waited until we had more and better games, launching with all retailers instead of with a few,
  • with marketing that could reach every player, we would have been much more successful."
  • SEGA never recovered from the disastrous launch. The SEGA Saturn faded into obscurity.
  • Tom Kalinske resigned from SEGA of America less than a year later.
  • In 1997, new SEGA of America President Bernie Stolar said, "The Saturn is not our future."
  • By 1998, the Saturn was discontinued, and SEGA of Japan President Hayao Nakayama left the company.
  • SEGA followed up the Saturn with their final console - the SEGA Dreamcast.
  • Although it was a huge improvement, it, too, had its shortcomings.
  • Games were easily pirated, and the lack of a DVD player made the PlayStation 2 a much more appealing system.
  • By 2001, SEGA discontinued the Dreamcast, and announced they were no longer making hardware.
  • The surprise launch of the SEGA Saturn doomed the company from ever competing again in the console wars.
  • So there you have it - SEGA's three biggest mistakes.
  • Obviously, these aren't the only issue SEGA had, so I'd love to hear what you think are SEGA's biggest mistakes in the comments below.
  • That's all for this episode of The Gaming Historian. Thanks for watching.
  • Funding for Gaming Historian is provided in part by supporters on Patreon. Thank you.

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Sega saw a meteoric rise in the video game market share during the early 90's. By 2001, they were no longer making hardware. How can you fall so hard, so fast? Let's take a look at Sega's 3 Biggest Mistakes!

Check out Nintendo's 3 Biggest Mistakes ► /watch?v=iW_MEKWTguA

E3 1995 by Anthony Parisi ► /watch?v=Op5EkC7GbxQ

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