Nilsen nodded. “That sounds about right. In the famous words of our esteemed cliché makers, seeing is believing.”
“Yes, it is,” Kalinske said. “And you, sir, have seen.”
“I have. And I’m one hundred percent confident that we have a winner.”
Kalinske thought for a minute, letting the golden words echo in his head. Sega had the better product. It was no longer speculation or fantasy but a matter of fact. This was everything Kalinske had hoped for, and now Sega had no excuse not to beat Nintendo. “Okay, we have a winner,” he said, but that wasn’t enough. There needed to be something more, some way to make this distinction obvious and enticing just like in that Reebok bungee commercial. “I want you to prove it. To me, and to the world.”
“How, exactly?”
“I don’t know yet. And neither do you,” Kalinske said. “But I’m confident that at some point you will and, when that happens, heads will roll.”
“All right,” Nilsen said, turning to leave. “I’ll start strategizing.”
“Wait,” Kalinske said. “Did you bring it back? The Super Famicom?”
“Yup. It’s in my car. You need it?”
“I think so,” Kalinske said. “It’s time I pay a visit to an old friend.”
Now armed with complete confidence in his product and a mandate from Japan to make changes as he saw fit, Kalinske arranged for another meeting with Wal-Mart. This time he traveled down to Arkansas with Toyoda, hoping that a tag team effort would change the electronic merchant’s mind once and for all.
“Wipe that smirk off your face, Mr. Kalinske. It’s very unbecoming,” the man from Wal-Mart said, shaking his head and rolling his eyes as the two men from Sega entered. “I assume this is the esteemed Shinobu Toyoda?”
Toyoda nodded and quietly introduced himself as he and Kalinske took a seat.
“You ought to be taking notes and learning from your colleague,” the merchant said to Kalinske. “Guy walks in, doesn’t say much, and, most important, no smirk.”
“It’s not a smirk,” Kalinske said. “It’s a smile. That’s all.”
The merchant emitted a guttural sound of skepticism. “I’m dubious. But I invited you back, so I’m willing to play along. What’s this about?”
“I came to say that I’ve seen the future.”
“Oh, yeah? Is that right, Nostradamus?” the merchant asked, and then turned to Toyoda, who nodded vigorously in support of Kalinske. “And what exactly did you see?”
“I saw the American release of Nintendo’s new system. Sometime just before the Christmas season,” Kalinske said, and then donned a look of mock horror. “And people are furious. This new Nintendo costs an arm and a leg and doesn’t play any of the old games. That would all be well and good, except that the new system isn’t even that much better than the old one. It’s all a sham.” Kalinske swapped out the look of horror on his face with one of dread. “And Wal-Mart’s watching all of this happen. Wishing that there was something that could save their Christmas season. Lo and behold, there is: the Sega Genesis, the world’s most advanced videogame system.”
The man from Wal-Mart chuckled. “Nice prophecy, Mr. Kalinske. But there’s a slight hitch: Nintendo’s new system isn’t a sham. From what I hear, it’s pandemonium in Japan. They sold out in less than twenty-four hours. More than a quarter million units.”
“This is true,” Toyoda confirmed, leaning forward. “But it is all hype.”
“My nonsmirking friend here is correct,” Kalinske said. “A big opening weekend for a movie isn’t proof that it’s any good. It just means they had nice a poster.”
“Fair enough. But couldn’t we have had this tête-à-tête over the telephone?”
“But then I couldn’t have shown you this,” Kalinske said, reaching into his travel bag and pulling out the Super Famicom. “You can see for yourself. Is there a television somewhere where we can set this up?”
“Yes, but that’s not going to happen.”
“What do you mean?” Kalinske said, trying not to sound as surprised as he felt.
“There’s nothing you can possibly show me on there that will change the fact that Nintendo has made us a lot of money and will continue to do so. Maybe this 16-bit thing won’t be as good as it’s cracked up to be. And maybe parents will make a stink. But in the end, they’re going to buy it, so it doesn’t really matter.”
Kalinske and Toyoda didn’t believe that, but they realized there was nothing they could do or say to change this man’s mind. Seeing was believing, but Wal-Mart wasn’t even willing to see what was right in front of their face, let alone what was coming down the line. So they finished the meeting on cordial terms and got a cab for the airport.
Moments after getting in the cab, however, Toyoda saw something that caused a jolt from head to toe. “Stop here,” he told the driver, only a few blocks from Wal-Mart headquarters. Kalinske was confused, but Toyoda smirked and held up a finger, as if to say, I did not smirk before, but trust me, this will be worth the facial muscles. They paid the driver and got out of the cab.
With a travel bag over his shoulder, Toyoda led Kalinske toward a For Rent sign hanging from the awning of an unoccupied space in a busy strip mall. When they finally reached the storefront, Toyoda didn’t need to say a word. Kalinske immediately knew what he was supposed to be looking at, and the possibilities sent his mind into overdrive. The location was perfect: centrally located, close to Wal-Mart headquarters, and right next to a major highway. He stared at the empty store and imagined a barrage of various displays popping up: Sega hardware and software as far as the eye could see. But they wouldn’t even be selling these things. No, this would purely be to drum up interest and drive Wal-Mart crazy when potential buyers were unable to get Sega products from their stores. Kalinske and Toyoda stared at the empty store, their smiles widening as their mutual vision expanded in scope and size.
“They will come and play for free,” Toyoda said without turning his head.
“Every day of the week,” Kalinske added. “For as long as they would like.” As if making room for an imagined swarm of visitors, Kalinske backed up a few steps and glanced up. “Look,” he said, pointing to a restaurant billboard. Toyoda saw it right away, as Kalinske had before. Sega would cover every inch of the town in ads telling people where they could go to play videogames for free. Billboards, bus stops, park benches.
Kalinske and Toyoda were going to turn Bentonville, Arkansas, into Segaville. They had no idea if the plan would work, but it would certainly force Wal-Mart to take off their blinders and at least look at what Sega wanted them to see.
15.
THE PHYSICIST IS
DISPLEASED
“Name?” Nintendo’s receptionist asked, looking up at a tall, finely dressed gentleman with short dark blond hair.
“Olaf Olafsson,” the man replied. As his copper-colored eyes fixed on the receptionist, a smile slid across one side of his face, while a slight scowl draped across the other. “And I am here to see Mr. Lincoln,” Olafsson said in his singsongy style of speech, which bordered on iambic pentameter. “He should, of course, be expecting my visit. Though perhaps I have arrived a tad early.” The receptionist confirmed his appointment with Howard Lincoln and asked him to wait in the brightly lit brown and white lobby.
Olafsson walked passed a glass case containing an ornate crystal horse’s head and sat down on a brown couch. It had been a long day thus far, and it was nice to get off his feet. He had grown accustomed to spending much of his days in transit, but traveling to Nintendo of America’s headquarters in Redmond, Washington, didn’t make for the easiest trip. Nevertheless, there was something very endearing about Redmond. Normally, he divided his time between Manhattan, Los Angeles, and the postcard cities of Europe, so it was nice to be somewhere quaint and quiet. Taking a moment to appreciate his surroundings, he leaned back on the couch and reflected on the unusual life trajectory that had led him here.
Olaf Olafsson had been
born and raised in Reykjavik, Iceland, where he developed a keen passion for math, science, poetry, and athletics. When he was seventeen years old, he parlayed his exploits as an amateur Icelandic Renaissance man into a scholarship at an American college. Embracing this opportunity to expand his horizons, he left his homeland and emigrated to the United States, where he studied physics at Brandeis University. In 1985, as he neared the end of his undergraduate studies, Olafsson saw his future cleanly divide into two distinct paths: he could continue on this track by getting his master’s and PhD and then joust for position in the small but distinguished community of physicists, or he could live an unexpected life filled with many and diverse interests. Though the spirited competition involved in the former option intrigued him, he was leaning toward the latter. His mentor, a physics professor named Stephan Berko, wished to talk him out of abandoning the scientific path, and so set him up to meet a distinguished former student: Michael “Mickey” Schulhof, a high-level executive for Sony’s American division. In an unexpected twist, the meeting ended with Olafsson not only retiring from a career in physics but accepting a job at Sony. Schulhof hired the young man from Iceland to introduce a new technology called CD-ROM. Rising to the challenge, Olafsson traveled around the world to demonstrate the amazing audio and visual power of compact discs to tech companies like HP, Apple, and Microsoft.
In early 1991, Olafsson was promoted from introducing hardware to selling software. More specifically, he was named president of a new division called Sony Electronic Publishing, which would be responsible for the production of any digital content for computers, multimedia players, or videogame systems. This included anything from a CD containing the complete works of William Shakespeare to an interactive game based around an upcoming blockbuster film. The primary source of this content would come from a pair of multibillion-dollar entities that Sony had recently acquired: a prestigious film studio (Columbia TriStar Pictures) and a premier record label (CBS Records). As a result, Olafsson’s initial job was to familiarize himself with the various branches of Sony’s newest assets and figure out how, if at all, they might fit under the new umbrella of electronic publishing. Whether on the set of a new movie or in the recording studio with a popular artist, Olafsson thoroughly enjoyed learning all aspects of the entertainment industry . . . except when it came to videogames.
Personally, he knew very little about videogames. They had not been a part of the social scene back in Iceland, and by the time he got to America he was too old to get sucked into Nintendo-mania. So to understand the industry, he relied on information from Imagesoft, Sony’s game publishing imprint, based in Santa Monica. Imagesoft was a third-party licensee of Nintendo and had released two games for the NES: Solstice and Super Dodge Ball. Both had been well regarded by critics and well received by consumers, but neither was particularly profitable. This led Olafsson to believe that for all the talk of videogames becoming big business, there wasn’t really much money to be made. To test his hypothesis, he met with the Imagesoft team.
It turned out he was wrong. There was actually a lot of money to be made in videogames; it’s just that Nintendo was making most of it. And whatever money they weren’t making themselves was, essentially, being allocated to companies they deemed worthy of eating the remaining slices of the pie. Olafsson realized that the secret to Nintendo’s power lay in the cunning licensing process they had created, which required would-be business partners to jump through a complicated series of hoops.
Getting into business with Nintendo involved signing their take-it-or-leave-it licensing agreement, which would grant a publisher, like Sony’s Imagesoft, the right to produce up to five different games per year. In exchange for this privilege, the publisher would have to purchase the game chips directly from Nintendo, give them the exclusive rights to their titles, pay a substantial royalty on units sold, and agree to a variety of other strict conditions. Olafsson didn’t find this agreement to be particularly sporting. Nintendo wanted to exert their leverage? They wanted to gouge developers, producers, and publishers? They wanted to be paid everything in advance, before a single game was ever sold? Fine, Nintendo had earned the right to call the shots. But it was the next few steps in the process that Olafsson found to be particularly startling.
After signing the licensing agreement, a publisher would then invest a great deal of time, money, and energy in producing one of their five titles. When they were finished developing a game, they would submit a completed version to Nintendo’s headquarters in Redmond, Washington. At some point in the future (it could take days, weeks, or months) the publisher would find out if their game had been approved. But, as they eventually realized, games were never approved the first time. So Nintendo would fax over a list of changes, and the publisher would redevelop the game to make the necessary alterations. The publisher would once again send the game to Nintendo, who would either approve the revised submission or, more typically, send another fax requesting additional changes. This process was repeated until a game was deemed to be up to Nintendo’s standards.
Following the approval, it was finally time for the game to be produced. Naturally, having invested a lot of resources, the publisher would want to order a large quantity of games to increase their profit potential. But because the licensing agreement contractually ensured that Nintendo would be the manufacturer, they would get to determine how many copies would be made. A good rule of thumb was that a publisher would receive about 25 percent of their desired order, though that total fluctuated based entirely on Nintendo’s evaluation. Lastly, the publisher would then wait for the game cartridges to be manufactured and delivered. This would generally take a couple of months (a month for production, another for shipping overseas) but, like every other step of the process, there were no guarantees. If dastardly winds knocked a cargo ship off course, delivery could be delayed a week, but if a global chip shortage struck, as Nintendo insisted was the case in 1988, then everything could be delayed indefinitely.
Olafsson was appalled by the absurd dynamics of all this. His company was taking all of the risk, yet Nintendo possessed total control every step of the way and received a large share of the rewards. His dismay turned to disgust upon learning that one of Imagesoft’s games, Super Sushi Pinball, had been flat-out rejected and would never be released. He had no idea if this game was any good, nor did he care. His company had spent nearly a million dollars to create this game, and to develop a marketing campaign around the whimsical tagline: “Finally a game that tastes as good as it plays.” Given this hefty investment, its success or failure should be determined by consumers, not by Nintendo. That was not right, not by a long shot. So he had made the decision to visit Nintendo’s headquarters and try his best to balance the equation.
As Olafsson looked around the lobby, he made sure to extract any emotion from his demeanor. He had not come here to rant, rave, or rage. He was here, quite simply, as a businessman who believed it was in Sony and Nintendo’s best interest that a special arrangement be made. After all, the two companies had a rich history together. Sony was the manufacturer of the audio chip for the Super Famicom, and in the coming years that relationship would become even tighter as a result of their joint venture to launch a CD-based game system together. The two companies needed each other, and that should be evident in all facets of their relationships.
“Great to finally meet you,” said Howard Lincoln, a tall, serious-looking man with soothing eyes and a long, moon-shaped face. He was Nintendo’s senior vice president and had a manner of speaking that reflected the prestige of that title. Powerful, but never pretentious. “Very kind of you to make the trip up here to see us.”
Olafsson stood to shake hands. “Ah yes, but of course.”
“I know Redmond’s a bit out of the way, but it’s got a nice charm, no?”
“Absolutely. It’s quite a pleasant respite,” Olafsson began, deploying just the right amount of untraceable European accent so as to sound worldly but not pretentious, “from th
e scratching and clawing of busy cities.”
“Well put,” Lincoln replied. “Why don’t I give you a tour of the place and then we can get down to it. How does that sound?”
“Lovely,” Olafsson said, waving his hand forward. “You lead, I follow.”
Lincoln took Olafsson through the colorful offices, whimsically decorated with game characters. It felt almost like a tiny Nintendo theme park, except for the noise, or lack thereof. In contrast to the vibrant aesthetics of the place, the employees were relatively quiet. They were all certainly quite friendly and accommodating, but there was a silent seriousness to them, both individually and as a group.
After the tour, Lincoln brought Olafsson into a modern, white-walled conference room that was filled with images of Donkey Kong, Nintendo’s large, lovable, goofy gorilla. The two men sat down at a long, glossy table and briefly discussed this game, which was one of the few games that Olafsson had played himself.
“I was quite young back then, but I could tell right away that the game would become a hit,” Olafsson explained with a nostalgic smile sewn to his face. “I remember being enveloped with this addictive sense of wonder. Which, I must say, is high praise from someone who doesn’t much like videogames.”
Lincoln chuckled at the memory. “What’s this about not liking games?”
“Oh, I don’t know,” Olafsson said with a shrug. “They’re certainly fine. I just think they’re a bit of a silly thing. Not so much for me.”
“That’s understandable,” Lincoln said. “But then, I must ask, why be in this business at all?”
“That’s a very good and valid question,” Olafsson said, pointing playfully at Lincoln. “Though it becomes slightly rhetorical in this audience of two because we both know the answer.”
“Because business is business is business?”
Console Wars Page 14