The Decline of Sega...What Happened?

[Music] sega used to be one of the biggest makers of video game consoles back in the early 90s the genesis was like one of the coolest things you can own millions of households were spending their evenings running around collecting rings as sonic that's what i always think of when i hear the name sega well that and sega was so impactful they really disturbed the industry yet today they don't even make consoles anymore there haven't been any for over 20 years now they've spent that time mainly as a third party video game developer so in this video i want to talk about the incredible rise and fall of sega the roots of it go all the way back to 1940 in hawaii they were originally known as standard games a business primarily established to make coin operated games like slot machines to be sold on military bases in the early 1950s a new gambling law was passed in the us that made things impractical so they moved the business to japan renamed it service games of japan and began selling their coin operated games to us military bases across japan and the rest of asia over the next decade or so they expanded to become major providers of pinball machines and jukeboxes then in 1965 service games of japan merged with a company called rosen enterprises now that one was started by a man named david rosen about a decade earlier it was originally an art exporting business but he had found success with coin operated instant photo boots and eventually with arcade games to name this combined company they took the first two letters of the word service games attached the word enterprises from the other end and called it sega enterprises their first big hit was this electro-mechanical submarine type shooting game called periscope four years later sega enterprises was bought by gulf and western a separate company with an extensive history but i'll just mention that they had bought the film studio paramount pictures for over a hundred million dollars just three years earlier throughout the 1970s utilizing that strong financial backing sega became one of the biggest makers of arcade games in the united states operating a chain of arcades and shopping malls called sega centers and buying another popular maker of arcade games called gremlin even adopting the name sega gremlin before changing it to the much catchier sega electronics in the early 1980s in 1983 there was an infamous video game crash i've talked about it on this channel before but basically the quality of games had become questionable people didn't want to play them as much and the whole industry took a major downturn which of course was bad news for sega the poor performance motivated golf in western to sell sega's north american operations to bailly midway another complex company i'm sure many of the viewers are familiar with but at this point they were already big in the arcade industry known for their pinball machines and holding the licenses to some of the most popular games of the time like pac-man and space invaders so that was the american side of things but not long after the japanese operations were bought by a group of investors led by david rosen himself and heavily financed by isa okawa and his computer services company csk who would later become the president and chairman of sega with everything going so bad at their core arcade operations the people at sega figured that it would be a good time to make a home video game console and that change in direction is ultimately what transformed them into the company that we all came to know their first ever attempt at a home video game console was the sg-1000 with the sg standing for sega game it was released in japan on july 15 1983 which unfortunately it was the exact same day as nintendo's famicom so clearly there was some tough competition and the sg-1000 didn't see nearly the same level of success but it did sell considerably more units than sega was expecting and that was enough motivation for them to continue on developing new consoles their second attempt was the redesigned sg-1002 released in japan about a year later followed by the sega mark iii more than a year after that that one is significant because it was rebranded as the master system that i imagine most of my audience may be more familiar with because in 1986 it became the first console sega ever sold in the u.s market overall not a complete failure but i think most would consider this to be a weak first attempt considering that nintendo's competing 8-bit system the nes sold about 10 times as many that year part of the reason for the low numbers would be the fact that sega was mostly forced to develop their own games for the master system because nintendo had a rule where games made for their system couldn't be made for other systems and since nintendo was so much more popular not many developers were choosing sega instead also their marketing and distribution were kind of a mess the rights to do it were sold to tonka which proved to be a poor decision they were a toy company without experience in this sort of thing plus they were distracted by their acquisition of ken or toys that was happening simultaneously overall just not the best times for sega they were making some valid attempts in the home console market but they weren't doing anything spectacular enough to even come close to nintendo i mean consider that nintendo controlled an estimated 80 to 90 percent of the home video game markets numbers that made it seem impossible for anyone else to even be considered a major threat let alone surpass them but amazingly that is what sega was able to do with their next console the genesis in the early 1990s their sales were climbing at a tremendous rate to a point where there were many reports estimating sega share of the u.s market to be above 60 percent so given that this was one of the most remarkable underdog performances and i would say all of business history i want to highlight some of the biggest ways they did it first off the genesis was a 16-bit system not to get technical here by any means but it refers to a more advanced computer chip that generally allowed the games to look and sound better when compared to nintendo's existing 8-bit nes console in fact nintendo didn't release their 16-bit console the super nintendo until 1991 they could have potentially done it much earlier but the nes was still selling so well that they likely didn't want to release anything to replace it just yet so because nintendo was so slow about it sega spent more than two years as the more technologically advanced console and that was enough time to gain the public's attention and get their foot in the door another reason the genesis was so successful was through aggressive marketing which by the way it was not handled by tonka this time they wisely chose to do it themselves sega did have the more advanced technology and you better believe that they let the public know about it at every chance they got often times calling out nintendo by name they commonly used the phrase blast processing but probably the most famous campaign was the one where they said genesis does what ninten don't clever enough play on words that directly insults nintendo and makes them look inferior and once the super nintendo did finally come out sega chose to lower the price of the genesis to a point that made it significantly cheaper the genesis was also attractive because of the library of games that were available for it overall a wide variety but a big part of their strategy was to market games using celebrities you know all the sports games like jill montana football or even some unlikely creations like michael jackson's moonwalker if you like those celebrities and wanted to play their game in many cases you would be forced to buy a sega genesis the console also attracted many customers simply because they thought it was cool i know it's subjective but sega put a lot of effort into attracting an edgier older audience when compared to nintendo here just look at the consoles instead of a boxy white or gray look they went with a sleek looking black if you watch almost any commercial for the genesis it is in your face high energy with attitude kind of stuff maybe the ultimate way that i can convey their coolness and focus on an older audience is by looking at mortal combat for nintendo's version they took out the blood and reduced the violence while sega chose to keep all of it in there and as you may have guessed the sega version sold much better my fifth and final reason behind the success of the genesis does have some overlap with my previous reason but we have to talk about sonic can we all agree that sonic is essentially sega's version of mario he's like the character that most represents the brand but when compared to mario he has so much more attitude i mean he gets really impatient when you don't touch the controller for a few seconds in 1991 sega released their first ever sonic game a bestseller and soon started bundling it together with the genesis clearly helping increase sales by making the console look more attractive so that is how sega propelled the genesis forward and became a major threat to nintendo but that is about where it ended if we look at their earnings we can see that they peaked in 1993 and really took a negative turn in 1998 so if you're a fan of sega this video is about to take quite a negative turn as i talk about the decline of their business for my first reason i'm just gonna say that nintendo woke up most would probably say that nintendo made a mistake by sitting back and letting sega catch up to them as much as they did but to their credit nintendo was playing the long game when they did finally release the super nintendo in 1991 it was a huge success bundled with super mario world and followed up with so many revolutionary games like zelda linked to the past super mario kart and of course donkey kong country all of them selling millions of copies making the super nintendo look more attractive than the genesis and helping them take back a good share of the market in the end the super nintendo did sell significantly more units than the genesis it was a fight where sega got way further than anyone could have ever predicted there were even points where it was looking like they had a real chance of winning but the fact is that even in their best fight ever sega lost significantly something else worth mentioning would be the genesis accessories and none of them were all that popular specifically the sega cd at this point infamous in the gaming world it was like this advanced add-on that allowed you to play cd-rom games on your genesis that were specifically made for it a big issue is that it actually cost more than the genesis itself there weren't all that many games for it and one of the few games night trap was singled out at a congressional hearing about video game violence giving it all a negative reputation plus there was a lack of support for the sega cd after the company started focusing their main efforts on their next console which happens to be my next reason for their decline the sega saturn so much went wrong with the saturn never releasing a sonic game for it for example but most of the issues stem from the fact that it was expected to compete against the sony playstation it was 1995 and there was a lot of hype surrounding sony entering the market with their own console and sega felt it was important to get ahead of the game and release their console first so in may of that year at e3 sega may have jumped the gun when they made an announcement saying that the saturn would be available immediately it caught many of the retailers off guard they weren't really prepared with enough units so it was hard for customers to find it plus there were only six games available at that time making it hard to justify paying the 400 price tag and to make matters even worse at the same e3 sony announced that the playstation would be priced at 300 100 savings along with some other factors it was enough to convince people to wait a few extra months until the playstation was available and obviously i don't even think i have to say that the playstation was way more successful than the saturn my final reason for the decline of sega would be their next console the dreamcast which was probably the biggest disaster of them all it was released in 1998 clearly when things were already looking bad for sega the main feature was that it could connect to the internet but in the days before xbox live that really wasn't the most attractive feature given the broadband connections just weren't where they needed to be yet there were also arguments within the company delaying decisions and leading to higher costs there were issues obtaining enough graphics chips causing fewer systems to be available at launch and they had predicted meanwhile the launch of the ps2 was right around the corner further hurting sales the whole thing was a disaster in total the dreamcast sold only about 3 million units before sega announced that they would stop making consoles all together and put their entire efforts toward making games for other consoles and that was the end of it it's now over two decades later and sega has yet to make another console the head of sega at the time isa okawa who had taken over in the 1980s donated almost 700 million dollars of his own money to help the company make it through that transition and he actually died only a couple weeks after that announcement so that's what sega has been up to ever since successfully reversing the trend and becoming profitable again by 2003 shortly before merging with sami corporation and a 1.5 billion dollar deal who happens to be japan's largest maker of pachinko machines from there they've continued their mission to be a third-party developer building up their operation by acquiring other developers and they even made a deal with marvel to make video games to coincide with some of their movie releases there have been more structural changes since then that are a lot to follow but as i promised that is the overall story of the incredible rise and fall of sega let me know in the comments have you ever owned a sega gaming console and what did you think of it compared to nintendo were the other ones available at the time this video obviously took a much more business approach to the topic rather than creative so i'm curious what you think of all of it maybe the most applicable question would be will sega ever return to making consoles and any other thoughts you have about sega leave them in the comments i'd like to hear what you have to say thank you for watching [Music] you

Channel: Company Man

Views: 817,857

Keywords: Sega, Nintendo, Video Games, Console Wars, Business, Underdog, Company

Id: TMKG3wHdm0c

Length: 13min 24sec (804 seconds)

Published: Wed Sep 21 2022