by Steven Kent
Adding temperature controls would have been too expensive, so Rosen came up with a more practical solution. He left the automated camera device in the booths and placed workers behind the booths to develop the pictures by hand while monitoring the temperature. With the economy as weak as it was, Rosen had no problem hiring workers.
I took some older machines that were in the United States, redesigned them, and brought them into Japan. This was the beginning of 1954. We put out the first couple of booths, and it turned out to be wildly successful. We charged … I believe it was 150 to 200 yen, which was less than the 250 yen [charged by photographers], and obviously we were able to develop it in about two or three minutes. The Japanese for this business was Nifun Shashin, which means “two-minute photo,” and Photorama was the name of the brand.
This became so successful that it enabled me, over a short period of time, to open up well over a hundred such locations throughout Japan. There were different times when people would go through school applications and whatnot, and it was not unusual at those times of the year for the lines to get into the booth to be an hour, hour and a half.
—David Rosen
If anything, Rosen’s Photoramas proved too successful. Although his prices were only slightly cheaper than those offered by photographers, the convenience of picking up pictures within a few minutes attracted customers in droves. As his business grew, photographers started to complain and eventually protested to the U.S. consulate. When the consulate asked Rosen for help, he offered to license Photorama franchises. According to Rosen, this may have been the first franchising business in Japan.
Franchising led to some immediate profits but ultimately killed the business. Although Rosen was able to double his locations by licensing nearly one hundred operations, franchising invited competition. There was no patent on Photorama technology, so other companies were able to move in and imitate the booths. In the early 1960s, Rosen finally closed his Photorama business. By this time, however, he had managed to open several new ventures and move in a different direction.
To import any product into Japan in the early 1950s and mid-1950s, and even pretty much going into the late 1950s, you had to apply for a license through the Ministry of International Trade and Industry (MITI). It didn’t matter if you were a Japanese company or any other nationality, you could not import anything without a license.
The licenses generally went into three categories. Category one was absolute necessities. Category two items were non-necessities but something desirable. And category three was luxury. Well, luxury was nearly impossible; I mean, there were no dollars there. And absolute necessities were such things as oil, certain foodstuffs, etc. So those problems existed, as I say, simply because of a lack of dollars, not because they were trying to block imports coming into Japan.
—David Rosen
Japan received a tremendous financial boost from the presence of the American military during the Korean War. The United States used Tokyo as a base throughout the war, and American procurement of goods and workers brought a rich infusion of dollars into the Japanese economy. As a result of that new prosperity, Rosen decided to import a limited number of “luxury” items in 1956. After considering his options, he decided to bring in some coin-operated electro-mechanical games.
It took me over one year with a lot of effort and certainly a lot of introductions to convince the MITI that these games were something that would be good for leisure. They finally granted a license to me for $100,000, which meant that I could purchase $100,000 worth of merchandise [in the United States].
—David Rosen
According to Rosen, the U.S. amusements market was fairly stagnant when he arrived. The arcades that carried the games attracted a fairly rough clientele, and all of the games came from a few Chicago-based companies. With the exception of pinball, the amusement industry had gone flat, creating a buyers’ market in which many distributors were glad to sell used machines to Rosen at bargain rates. He paid approximately $200 per game, then had to pay nearly twice that price to the Japanese authorities in order to import them.
Most of the games Rosen imported, such as Bear Gun from Seeburg, involved shooting. These were big, heavy machines that required a lot of space. With Bear Gun, for example, the player stood nearly fifteen feet from the target. These games were also very solidly constructed and seldom broke down.
Due to the success of his Photorama operation, Rosen had more than one hundred locations in which he could place his machines. He charged 20 yen per game. At the time, the trade rate was 360 yen to the dollar, so Rosen was letting people play for less than the ten cents per game that was standard in the United States. Like his photomats, Rosen’s coin-operated games were a huge success. With shipping and duties, Rosen paid less than $1,000 to import each game. Even at 20 yen per game, it took less than two months for the games to earn back that investment. Within a year, the Ministry of International Trade and Industry approved Rosen’s request to return to the United States and purchase $200,000 worth of games.
At this point in time I became known as a very live customer because most distributors in the United States had warehouses filled with used equipment that they really had no marketplace for.
In those years, trade-ins were a very big part of any distributor’s business. Operators buy games and two years later they trade them in. At that time, the distributor’s price to the operator for new games was maybe $695, $795, and he would take a trade-in and give $50 or $100 for an older game. The trade-ins just piled up in warehouses.
—David Rosen
Through the Photorama business, Rosen had developed strong relationships with the owners of the Toho and Shochiku movie theater chains and was able to place arcades in their lobbies or in adjoining spaces. While Namco founder Masaya Nakamura was still operating horse rides on the rooftops of Tokyo department stores, Rosen had at least one arcade in every city in Japan. His closest rivals were Service Games, which by this time had cornered the jukebox market with “Sega” jukeboxes, and Taito, the amusement company founded by Michael Kogan. Though they were all fiercely competitive, Rosen, Kogan, and the principles of Sega formed strong personal ties.
After the success of his arcades, Rosen searched for new ways to expand his business. He bought the rights to an indoor golf game, in which a computer read the speed and direction of a ball that players hit into a net, and set up a golf course franchise. The Japanese, however, considered golf an outdoor activity, and Rosen’s business did not flourish. Next, he tried building a business around slot cars. This idea touched off a brief fad. Then he was approached by AMF to help establish a bowling alley.
At that time there were bowling installations in military bases and there was one bowling installation in Tokyo, but it was sort of quasi-American military. It really wasn’t in the civilian marketplace. I decided that I would open up the first bowling center.
It had to be put into a very high traffic, high entertainment area. I picked an area of Tokyo that was full of restaurants and theaters called Shinjuku. Well, getting space in Shinjuku was very, very difficult; next to impossible. I decided to open up fourteen lanes, but the only way I could find that much space was to build on top of one of the existing [movie] theaters.
This was a real challenge because the president of that particular theater chain was a friend of mine. We had to do this without affecting the theater…. no vibrations, no noise in the theater. It was really an engineering feat. Until we rolled the first ball down, we really couldn’t be sure it would work.
—David Rosen
Rosen’s bowling alley was an unqualified success.
This particular bowling center went on to establish records in the bowling industry. The way they measure the success of an alley is by lines bowled in a day. At that point in time, a typical bowling center in the United States would do 40 to 45 lines per day. The centers that held records were situated in Hawaii. They were doing about 60 per day. We did 110 per day.
We only closed four hours a day, between 2:00 and 6:00 in the morning. We were originally opened 24 hours, but the police said, “Please close for a few hours.”
—David Rosen
Ironically, it was the only bowling alley Rosen ever opened. Once again, his success paved the way for competitors. Before long, Brunswick opened several bowling alleys around Japan, with Sega or Taito arcades in their lobbies. Thanks to its theater arcades, Rosen Enterprises, Ltd., remained the biggest amusement game company in the business, but its closest rivals gained ground.
A New Arrangement
Smaller competitors started popping up around Tokyo toward the end of 1964, and Rosen began discussing a three-way merger with Michael Kogan of Taito and the three men who controlled Service Games—Marty Bromley, Dick Stewart, and Ray LaMaire. Kogan eventually decided against joining with the other companies; but Sega and Rosen Enterprises did join forces to form Sega Enterprises, Ltd.
Though Rosen Enterprises had a stronger hold on the amusement games market at the time of the merger, Service Games was a much larger company. Its assets included a thriving jukebox trade that at one point reached approximately 6,000 locations, a considerable manufacturing facility, several bowling alley arcades, and more than thirty branch offices. Under the new agreement, Rosen became president and CEO of Sega. Within a year of his becoming president of the company, Rosen used Sega’s manufacturing plant to build its own games.
Nearly ten years had passed since Rosen imported his first Bear Gun and Coon Hunt games, and he felt that game quality had not changed much over that time. Due to increased competition, he switched from purchasing used games to buying new ones, driving the money he spent per game from $200 to as much as $695. The switch yielded little value to the consumer. The coin-operated amusement industry was so stagnant that the new games were almost identical to the used ones Rosen had imported earlier.
In 1966, Sega began manufacturing its first game, Periscope, which put a new spin on the shooting games Rosen had imported since 1956. The game was an attack submarine simulation. Players scanned a stretch of ocean through a periscope, then fired torpedoes at ships as they crossed the horizon. The ocean was a wide bed of plastic that looked like a windy, wave-tossed sea, and the torpedoes were really only strings of lights, but Periscope had great sound effects and the overall effect was very impressive for its time. The game was expensive to make and cost 30 yen to play—twice the price of earlier games.
Periscope was so successful in Japan that distributors from the United States and Europe flew in to see it. The game had been designed for use in Sega arcades and was not built well for export; but when international orders came in, Sega engineers redesigned it so that it could be shipped elsewhere. Rosen gave the game a $1,295 price tag, making it far more expensive than games manufactured in the United States. When U.S. operators complained that Sega wanted too much money and that a $1,200 game would never pay for itself, Rosen responded that they should set Periscope at 25 cents per play instead of the usual 10 cents. Periscope became the first game to be set at that price.
Sega made its mark in this country when it brought over a gigantic target rifle called Periscope. What was interesting about Periscope was not only that it was the biggest machine ever built—I think the thing ran 10 feet deep by 6 feet wide by 6 feet high—it introduced quarter-play. It was so successful in the arcades that it brought people off the street. People came into these arcades just to play that game. I would say that in my time, Periscope is one of the great successful novelty machines.
—Eddie Adlum
With the success of Periscope, Sega suddenly became an exporter rather than an importer of games. Sega engineers began designing as many as ten new games each year—all of which were available for export. Within three years of the merger, Sega had become so successful that Rosen, Bromley, and the other principals began discussing a public offering on the Japanese market. That idea turned out to be too ambitious. Had they succeeded, Sega would have been the first foreign-owned company to enter the exchange since the end of World War II.
Rather than selling shares of their company, Rosen, Bromley, Stewart, and LaMaire ended up selling their company altogether. Approached by Kidder Peabody with the suggestion that several large American conglomerates would be interested in purchasing the company, they spoke with a few companies and finally sold to Gulf & Western in 1967.
All four of those boys (Bromley, Stewart, LaMaire, and Rosen) were involved with Sega until they sold it in 1968. From what I gather, Ray, Dick, and Dave had more money than they had ever seen, and they were going to retire. My father would have been in his fifties at that point. They got an offer from Gulf & Western and decided to retire, and that lasted all of six months; then three of the boys (Bromley, Stewart, and LaMaire) started Segasa of Spain.
—Lauran Bromley
Though the sale of Sega included a stipulation that required Rosen to remain as CEO and chairman through 1972, it allowed him to move his headquarters to the city of his choosing. After trying Hawaii for a few months, he established headquarters in Hong Kong and stayed there until 1976. It was during this time that he established a strong relationship with Charlie Bluhdorn and Jim Judelson, the chairman and president, respectively, of Gulf and Western. Bluhdorn offered Rosen the opportunity to go into partnership with G & W in establishing a Far East conglomerate similar to G & W. The company was formed with Sega as a subsidiary. However at that time the market conditions in the Far East did not allow for an acquisition program of the type required to emulate G & W’s success in the United States. In 1974 Bluhdorn, recognizing Rosen’s restlessness and entrepreneurial spirit, offered to spin out Sega into a U.S. listed company, which Rosen as chairman, CEO, and second largest shareholder could use as a vehicle to grow Sega.
During this time, Sega acquired an established American arcade company called Gremlin as its manufacturing arm. Teamed up with Gremlin, Sega ended the 1970s as a major supplier of video games in the United States and Europe.
While profits kept rising in the 1980–1982 periods, I became very concerned regarding the economics of the industry. I felt that sound fiscal principles were being ignored and that the wild expansion would lead to a very serious bust. In a major industry distributor meeting hosted by Sega, I gave a speech in which I forecasted that the industry was just around the corner from a major disaster, if there was not a change in the way business was being conducted.
—David Rosen
Rosen advocated that manufacturers and distributors start manufacturing and selling kits to the operator, allowing them to convert older games without having to purchase completed cabinets. According to Rosen, the idea stunned the audience and some people booed him. “My speech was considered blasphemy,” he later wrote of the event.
In the late 1970s Bluhdorn asked Rosen to join the Paramount Group, and his headquarters were moved to the Paramount studio lot. Barry Diller, the chairman of Paramount, and Michael Eisner, the president of Paramount, joined the Sega board, and Rosen joined the Paramount board.
In late 1981 Rosen proposed that Gulf & Western buy out the minority shareholders, including himself. The decision was to buy out the minority shareholders. Rosen agreed to stay on as corporate advisor, and was there to see the collapse of the coin-op and consumer markets a few months after the buy-out in 1982. In 1983, however, about one year after the crash of the arcade industry, the oil giant started looking for ways to get out of the video game industry. Gulf & Western sold Sega’s U.S. assets to Bally/Midway, then con tacted Rosen and offered him the opportunity to buy back the Japanese operation for $38 million. Rosen put together a team of backers and assumed control of the company in March 1984. After the buy-back, Hayao Nakayama, one of Rosen’s backers, became CEO.
Having witnessed the crash of the arcade industry, Nakayama decided to diversify Sega’s activities to include home products. Nintendo had already launched the Famicom, so Nakayama turned his attention toward America.
The N
ew Empire
I just love playing Mario on my Atari.
—Yasmine Bleethe, actress on Baywatch
Every dog has its day, and this one is having a big day.1
—Trip Hawkins, founder, Electronic Arts
It can carry a glass of water to you, or a glass of milk, or whatever, so it’s really hot.
—Ernie Anastos, former anchorman, WABC-TV Eyewitness News
The Last Vestiges of Anonymity
Nintendo began marketing the Nintendo Entertainment System (NES) in 1985 with a single sales territory—New York City—and 100,000 game consoles. By the following Christmas, the NES could be found in stores coast to coast and in 1.9 million homes. With a new sense of confidence, Nintendo president Minoru Arakawa sponsored a survey called the North Pole Poll as he prepared for the 1986 holiday season. In the survey, children were shown the toys that retailers considered to be their top prospects and asked to choose a favorite. Some of the candidates included Rambo action figures, Teddy Ruxpin, Barbie, and baseball gear. The number one pick was the NES.
To publicize the results, Nintendo’s PR firm produced a video news release about the survey and sent it to television stations across the country. Scores of news shows ran the story, including WABC TV in New York City. The problem was that while an ever-growing body of children knew about Nintendo, the message had not yet reached most adults. When WABC Eyewitness News anchors Ernie Anastos and Roz Abrams discussed the story on the air, they clearly had no idea what the NES was or even how to pronounce the name Nintendo.