Sega Corporation[a] is a Japanese multinational video game and entertainment company headquartered in Shinagawa, Tokyo. Its international branches, Sega of America and Sega Europe, are headquartered in Irvine, California and London, respectively. Its division for the development of both arcade games and home video games, Sega Games, has existed in its current state since 2020; from 2015 to that point, the two had made up separate entities known as Sega Games and Sega Interactive Co., Ltd. Sega is a subsidiary of Sega Sammy Holdings. From 1983 until 2001, Sega also developed video game consoles.
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Sega was founded by American businessmen Martin Bromley and Richard Stewart as Nihon Goraku Bussan[b] on June 3, 1960; shortly after, the company acquired the assets of its predecessor, Service Games of Japan. Five years later, the company became known as Sega Enterprises, Ltd., after acquiring Rosen Enterprises, an importer of coin-operated games. Sega developed its first coin-operated game, Periscope, in 1966. Sega was sold to Gulf and Western Industries in 1969. Following a downturn in the arcade business in the early 1980s, Sega began to develop video game consoles, starting with the SG-1000 and Master System, but struggled against competitors such as the Nintendo Entertainment System. In 1984, Sega executives David Rosen and Hayao Nakayama led a management buyout, with backing from CSK Corporation.
Sega has produced several multi-million-selling game franchises, including Sonic the Hedgehog, Total War and Yakuza. Sonic, Sega's mascot, is internationally recognized. Sega is one of the world's most prolific arcade game producers, with long-running series such as Virtua Fighter and Initial D Arcade Stage. Its name and branding are used for affiliated companies that operate amusement arcades and produce other entertainment products, including Sega Toys; however, these are largely separate ventures. Sega is recognized for its video game consoles, creativity and innovations. In more recent years, it has been criticized for its business decisions and the quality of its creative output.
During the same time frame, David Rosen, an American officer in the United States Air Force stationed in Japan, launched a photo booth business in Tokyo in 1954.[6] This company became Rosen Enterprises, and in 1957 began importing coin-operated games into Japan. In 1965, Nihon Goraku Bussan acquired Rosen Enterprises to form Sega Enterprises, Ltd.[d] Rosen was installed as the CEO and managing director, while Stewart was named president and LeMaire was the director of planning. Shortly afterward, Sega stopped leasing to military bases and moved its focus from slot machines to coin-operated amusement machines.[14] Its imports included Rock-Ola jukeboxes, pinball games by Williams, and gun games by Midway Manufacturing.[15]
Because Sega imported second-hand machines, which required frequent maintenance, it began constructing replacement guns and flippers for its imported games. According to former Sega director Akira Nagai, this led to the company developing its own games.[15] The first arcade electro-mechanical game (EM game) Sega manufactured was the submarine simulator Periscope, released worldwide in the late 1960s. It featured light and sound effects considered innovative and was successful in Japan. It was then exported to malls and department stores in Europe and the United States and helped standardize the 25-cent-per-play cost for arcade games in the U.S. Sega was surprised by the success, and for the next two years, the company produced and exported between eight and ten games per year.[16] The worldwide success of Periscope led to a "technological renaissance" in the arcade industry, which was reinvigorated by a wave of "audio-visual" EM novelty games that followed in the wake of Periscope during the late 1960s to early 1970s.[17] However, rampant piracy led Sega to cease exporting its games around 1970.[18]
In 1969, Sega was sold to the American conglomerate Gulf and Western Industries, although Rosen remained CEO. In 1974, Gulf and Western made Sega Enterprises, Ltd., a subsidiary of an American company renamed Sega Enterprises, Inc. Sega released Pong-Tron, its first video-based game, in 1973.[18] Despite late competition from Taito's hit arcade game Space Invaders in 1978,[15] Sega prospered from the arcade video game boom of the late 1970s, with revenues climbing to over US$100 million by 1979. During this period, Sega acquired Gremlin Industries, which manufactured microprocessor-based arcade games,[19] and Esco Boueki, a coin-op distributor founded and owned by Hayao Nakayama. Nakayama was placed in a management role of Sega's Japanese operations.[20] In the early 1980s, Sega was one of the top five arcade game manufacturers active in the United States, as company revenues rose to $214 million.[21] 1979 saw the release of Head On, which introduced the "eat-the-dots" gameplay Namco later used in Pac-Man.[22] In 1981, Sega licensed Frogger, its most successful game until then.[23] In 1982, Sega introduced the first game with isometric graphics, Zaxxon.[24]
Following a downturn in the arcade business starting in 1982, Gulf and Western sold its North American arcade game manufacturing organization and the licensing rights for its arcade games to Bally Manufacturing in September 1983.[25][26][27] Gulf and Western retained Sega's North American R&D operation and its Japanese subsidiary, Sega Enterprises, Ltd. With its arcade business in decline, Sega Enterprises, Ltd. president Nakayama advocated for the company to use its hardware expertise to move into the home consumer market in Japan.[28] This led to Sega's development of a computer, the SC-3000. Learning that Nintendo was developing a games-only console, the Famicom, Sega developed its first home video game system, the SG-1000, alongside the SC-3000.[29] Rebranded versions of the SG-1000 were released in several other markets worldwide.[29][30][31][32] The SG-1000 sold 160,000 units in 1983, which far exceeded Sega's projection of 50,000 in the first year but was outpaced by the Famicom.[29] This was in part because Nintendo expanded its game library by courting third-party developers, whereas Sega was hesitant to collaborate with companies with which it was competing in the arcades.[29]
In 1985, Sega began working on the Mark III,[37] a redesigned SG-1000.[38] For North America, Sega rebranded the Mark III as the Master System,[39] with a futuristic design intended to appeal to Western tastes.[40] The Mark III was released in Japan in October 1985.[41] Despite featuring more powerful hardware than the Famicom in some ways, it was unsuccessful at launch. As Nintendo required third-party developers not to publish their Famicom games on other consoles, Sega developed its own games and obtained the rights to port games from other developers.[37] To help market the console in North America, Sega planned to sell the Master System as a toy, similar to how Nintendo had done with the Nintendo Entertainment System. Sega partnered with Tonka, an American toy company, to make use of Tonka's expertise in the toy industry.[42] Ineffective marketing by Tonka handicapped sales of the Master System.[43] By early 1992, production had ceased in North America. The Master System sold between 1.5 million and 2 million units in the region.[44] This was less market share in North America than both Nintendo and Atari, which controlled 80 percent and 12 percent of the market respectively.[45] The Master System was eventually a success in Europe, where its sales were comparable to the NES.[46] As late as 1993, the Master System's active installed user base in Europe was 6.25 million units.[46] The Master System has had continued success in Brazil. New versions continue to be released by Sega's partner in the region, Tectoy.[47] By 2016, the Master System had sold 8 million units in Brazil.[48]
During 1984, Sega opened its European division of arcade distribution, Sega Europe.[49] It re-entered the North American arcade market in 1985 with the establishment of Sega Enterprises USA at the end of a deal with Bally. The release of Hang-On in 1985 would prove successful in the region, becoming so popular that Sega struggled to keep up with demand for the game.[50] UFO Catcher was introduced in 1985 and as of 2005 was Japan's most commonly installed claw crane game.[51] In 1986, Sega of America was established to manage the company's consumer products in North America, beginning with marketing the Master System.[52] During Sega's partnership with Tonka, Sega of America relinquished marketing and distribution of the console and focused on customer support and some localization of games.[42] Out Run, released in 1986, became Sega's best selling arcade cabinet of the 1980s.[53] Former Sega director Akira Nagai said Hang-On and Out Run helped to pull the arcade game market out of the 1982 downturn and created new genres of video games.[15]
With the arcade game market once again growing, Sega was one of the most recognized game brands at the end of the 1980s. In the arcades, the company focused on releasing games to appeal to diverse tastes, including racing games and side-scrollers.[54] Sega released the Master System's successor, the Mega Drive, in Japan on October 29, 1988. The launch was overshadowed by Nintendo's release of Super Mario Bros. 3 a week earlier. Positive coverage from magazines Famitsu and Beep! helped establish a following, with the latter launching a new publication dedicated to the console, but Sega shipped only 400,000 units in the first year.[55]
Former Atari executive and new Sega of America president Michael Katz developed a two-part strategy to build sales in North America. The first part involved a marketing campaign to challenge Nintendo and emphasize the more arcade-like experience available on the Genesis,[58][60] with slogans including "Genesis does what Nintendon't".[55] Since Nintendo owned the console rights to most arcade games of the time, the second part involved creating a library of games which used the names and likenesses of celebrities, such as Michael Jackson's Moonwalker and Joe Montana Football.[6][61] Nonetheless, Sega had difficulty overcoming Nintendo's ubiquity in homes.[62] Despite being tasked by Nakayama to sell a million units in the first year, Katz and Sega of America sold only 500,000.[55] 2ff7e9595c
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