“In theory, yes. But under the circumstances that bring me here today, I have to ask if that’s really the case. I’ve read through the licensing agreement, reviewed our contracts, and spoken to my guys about some of their adventures with Nintendo. This business, shall we say, is unlike any other that I am familiar with.”
Lincoln nodded, unsurprised and not at all flustered by these concerns. “I’ll grant you that. It’s a new industry.”
“One with a promising road ahead.”
“Absolutely,” Lincoln replied. “But ten years ago they were saying the very same thing: ‘Videogames are a can’t-miss!’ That, however, didn’t turn out to be quite right. A lack of quality control led to chaos and the whole thing fell apart. Look, I know what people say about Nintendo, and what publishers, retailers, and everyone else thinks about our ‘strict’ agreements.” Lincoln paused to look Olafsson in the eye, trying to show him that this wasn’t just lip service but sincere understanding from a rational individual. “But there really is a method to the madness. From idea to purchase, it’s our job to make sure that a product lives up to Nintendo’s standards in order to create a premium entertainment experience. And if we can do that, then consumers, retailers, and everyone else along the food chain gets fed.”
Olafsson nodded sympathetically. “You’re obviously an intelligent man. That being the case, I think you can imagine where I might attempt to point out a few imbalances in that logic. Nevertheless, I acknowledge that we’re on different sides of the table here and, naturally, ought to possess divergent perspectives on issues like these. “But,” Olafsson continued, sharpening his tone. “If Nintendo gets to make the rules, then, given the company’s long-standing relationship with Sony, I would think that some leeway should be in order.”
“In what sense, exactly?”
Olafsson squinted, choosing his words. “In a very general sense, Mr. Lincoln. But I would venture to say that a good start might be for Nintendo to stop treating us like we’re nothing but slaves on the plantation.”
Lincoln recoiled at the comparison. “That’s a bit drastic, wouldn’t you say?”
“My metaphor? In tone, perhaps. But in sentiment, it feels spot-on.”
Lincoln shook his head. “I think we’re getting off course. And in the spirit of avoiding any further derailment, I’ll just say the following: Nintendo values its relationship with Sony. But our licensing agreement for making games is the same with every company and there are no exceptions.”
“I see,” Olafsson said, realizing there was no use to any of this. If this was how Nintendo wanted to play the game, then this was how it would have to be. As he sat there, he had many thoughts about this peculiar new industry, many thoughts indeed. But regardless of the shape, size, and color of these thoughts, he was very much displeased. At this juncture, however, there was no value in showing off his displeasure. Instead, Olafsson asked his host to tell him about some of the great promotions that Nintendo had planned for the coming year.
“Excellent question,” Lincoln replied, and then launched into an upbeat monologue that he must have already given many times. As Lincoln talked about Mario’s new pet, some kind of green dinosaur with an off-putting name, Olafsson began to zone out and look for new ways to play the hand that he’d been dealt. In the middle of his private brainstorm, his eyes grazed one of the paintings on the wall. It was an image of Donkey Kong readying to throw a barrel that he held over his head. Olafsson returned his eyes to Lincoln, but his mind was stuck on Donkey Kong.
When they had first entered the room, the image had brought back to Olafsson the visceral memory of playing Donkey Kong, but now he was beginning to remember the details of the game. If memory served correctly, Donkey Kong was the story of an arrogant gorilla who enjoyed beating his chest and throwing dangerous obstacles in the way of a courageous little red plumber. Because it was unlike any other game at the time, Donkey Kong was exceptionally difficult to beat. But if a player inserted enough quarters, put in the necessary time, and studied the patterns of the game, it eventually became beatable. And as Lincoln continued to speak about Nintendo’s future, Olafsson couldn’t help but think about what lay ahead for the eight-hundred-pound gorilla in the room.
16.
ROPE-A-DOPE
“Whenever you’re at war, you must hit the other guy in the mouth as hard as you can with the first punch,” Rioux explained to Kalinske and Toyoda as they plotted Sega’s strategy for the upcoming Consumer Electronics Show. “And if you can’t hit ’em hard, you might as well not even fight. That’s the attitude in real war, and that ought to be our attitude here as well.”
Every year there were two Consumer Electronics Shows (CES): the winter show in Vegas and the summer show in Chicago. In the fragmented, ever-evolving videogame industry, which had more in common with the Wild West than, say, with Silicon Valley or Wall Street, the CES provided one of the few opportunities for all the players to come together. The events tended to be little more than each company pounding its own chest, but they were still a big deal. It was where hype began, reputations were made, and scuffles occasionally took place.
This would be Kalinske’s first CES, and he wanted to come out with guns blazing, especially in light of Sega’s progress (or lack thereof) with Wal-Mart. It had been nearly a month since Sega rented the retail space in Arkansas, and Wal-Mart hadn’t even flinched. Instead of relenting, however, Kalinske doubled down. As per the fantasy he had envisioned with Toyoda, they sent his executive assistant, Deb Hart, down to Bentonville with the mission of bringing Segaville to life. She bought up every available billboard in town, handed out flyers on the streets, and arranged for every seat cushion at the University of Arkansas football team’s final home game of the season to bear Sega’s logo. Hart had done an incredible job, but all of this was becoming a costly gamble. With no results to show thus far, Kalinske was tempted to compensate by making a splash at CES, but he was compelled by the point that Rioux had made. “If we’re being honest with ourselves,” Kalinske said, “we just don’t have the firepower yet to start going at Nintendo. So perhaps a little rope-a-dope is in order?”
Rioux nodded, but Toyoda didn’t understand the reference. So Kalinske explained how in 1974 Muhammad Ali squared off against George Foreman for a title fight in Zaire that had been dubbed “The Rumble in the Jungle.” At the time, Foreman was bigger and stronger and packed a more powerful punch than Ali, who realized his only hope was to find a clever solution. Ali’s plan was to spend the early rounds getting physically abused until finally Foreman tired himself out. For most of the fight, Ali verbally taunted Foreman and then stood in a protective stance, absorbing punch after punch. For four rounds Foreman dominated, but eventually he started to grow tired. When the fifth round began, Ali took advantage of his weakened opponent and demolished him with a series of jabs. Three rounds later, Ali knocked out Foreman, regained the title belt, and went down in history as a tactical genius.
“Ah,” Toyoda said. “Like playing the possum?”
“Exactly,” Kalinske confirmed. “I’m not saying we take a dive, but we want to go at Nintendo right before they launch in America. There’s no point in building momentum now only to lose it. We should tease with Sonic, but show no gameplay, go heavy on Game Gear, and hold back on the rest until this summer.”
Kalinske looked to Toyoda, who nodded, and then to Rioux, whose face always seemed to be made of stone. “Paul?”
“What can I say?” Rioux asked rhetorically, as a grin chiseled across his face. “Float like a butterfly and sting like a bee.”
A few weeks later, Kalinske checked into his room at the Alexis Park Hotel in Las Vegas, where he and about twenty Sega employees were staying for CES. Following the decision to play things close to the vest, he had arrived in Vegas with low expectations. Even so, it didn’t take long for things to spin out of control.
Sega began the week by hosting a preshow sales meeting for retailers where nothing at all seemed to work.
Demos didn’t play, art designs got mixed up, and the AV system kept breaking down (not even Nilsen could fix it). Kalinske had known that their strategy for CES would make things challenging, but this felt like amateur hour. He had never experienced anything like this at Mattel, and worst of all, this failure was on his shoulders. If Sega’s people weren’t properly prepared, then it was because he had failed to prepare them. As president and CEO, he would always get more credit than he deserved, and even more so always get more of the blame. That’s just how it worked.
In the face of calamity, he tried to rescue Sega’s reputation at the podium. He didn’t get the overwhelming reaction he was used to, and on one occasion he was even tempted to whip out the demo of Sonic and talk about how things would be changing, as outlined in his “Four-Point Plan.” But as temping as it was to push the big red panic button, he knew that was not really an option.
Following the preshow miscues, the first day of CES didn’t provide much of an improvement. While televisions, stereos, and VCRs were magnificently displayed in the dazzling Las Vegas Convention Center, the videogame companies were treated like second-class citizens and relegated to a tent outside. Inside of it, there were about a hundred different videogame companies who had booths to show off their products. They ranged in size from tiny to Nintendo, who clearly dominated the festivities with an upscale display of games and peripherals that was so large there was enough room to comfortably fit a stage in the middle. By the end of the show, attendees had taken to calling the Nintendo display the “Death Star.”
Because of the decision to hold back on hyping some of their upcoming games until the summer, Sega’s modest booth focused primarily on the Game Gear, a slightly sleeker, Americanized version of the handheld device from Japan. Kalinske, Rioux, and Toyoda all liked putting the spotlight on Game Gear, though each for different reasons. Kalinske figured this would make for a good opportunity to temporarily deemphasize the Genesis but still manage to further define Sega as edgy, unconventional, and technologically advanced. Rioux thought very highly of portable game systems and believed deep down that this business would one day overtake home consoles. And Toyoda knew that the Japan executives loved showing off hardware more than software, so they would be happy to see so much attention paid to Game Gear.
At its core, Game Gear appeared to be an easy sell: it was the color version of Nintendo’s Game Boy. Color TV trounced black-and-white broadcasts, so Game Gear should quickly take its place atop the handheld food chain. While on paper that was true, there were a few hitches to this thinking: Atari’s recently released color handheld, Lynx, had gotten crushed; the battery life on Game Gear was lousy; and their best game for it was an obvious and inferior Tetris ripoff. Beyond Game Gear, Sega’s only other gaudy product was the Joe Montana football game that had been rescued by EA. Although they hadn’t been able to get it ready in time for the Christmas season, it had actually turned out to be a pretty great game and would at least give Sega some momentum heading into the new year (that is, as long as consumers didn’t realize it was basically just a repackaged version of EA’s John Madden Football).
While Sega’s employees put the final touches on their booth, Kalinske excused himself to catch an 8:00 a.m. press conference by Nintendo. Though CES wasn’t yet open to the public, the press conference was heavily attended, partly because the speech would serve as the unofficial kickoff to the show, but primarily because anything Nintendo said or did was a huge deal. As a result, Kalinske had to stand in the back of the room, behind journalists, financial analysts, and Nintendo’s many fans within the electronics industry.
He tried not to admit it to himself, but he missed the whirlwind atmosphere that was so evident in Nintendo’s press conference and which he remembered from his time at Mattel: the thrill of anticipation, the curiosity in the air, and of course the applause, which came quickly and reached thunderous levels when Peter Main, Nintendo of America’s VP of sales and marketing, stepped to the podium. Main, a balding man with bewitching brown eyes and round, Lennon-like spectacles, nonchalantly quieted the crowd and introduced himself. “There are many great things on the horizon that I’m excited to tell you about,” Main said, jumping right in. Like Kalinske, Main was an excellent speaker, but in a very different kind of way. When Kalinske spoke, it was as though he transported audiences into a locker room for a pep talk, and when Main spoke, it was as though he transported audiences into a pub for a quick swig. They were the coach and the bartender.
After touting the Super Famicom’s success in Japan, Main nonchalantly answered the question on everyone’s mind by announcing that Nintendo would release a 16-bit system in America toward the end of the year. He then said that Nintendo had posted another record year in 1990; with 7.2 million Nintendo Entertainment Systems sold and millions of software titles, sales in the United States topped $3.4 billion. Yet despite the staggering figures, Main acknowledged that Nintendo had fallen short of analysts’ expectations. “We weren’t far off the mark,” he explained. “What none of us could forecast back in June was the war in the Gulf, the economic volatility resulting from the current recession, and the combined impact of these two external forces.” Kalinske took a moment to savor the irony in Main’s blaming the conflict in the Middle East for disappointing sales figures, given that journalists had started referring to the Gulf War as the “first Nintendo war” for its videogame-like coverage.
Main nimbly navigated through the financial data and then spoke about Nintendo’s bold plans to increase their already large pop-culture footprint. The company’s after-school cartoon had been so gigantically successfully (with over forty million viewers per week) that Nintendo was already in development to make a big-budget Super Mario Bros. movie, slated for 1992. After Main finished speaking about Nintendo’s unyielding expansion, he segued into answering questions from the audience. One of the first asked if Nintendo was trying to become the next Disney, and if they would soon have their own line of theme parks. Peter Main, who believed that the sky was the limit, didn’t dismiss this possibility. “The value of characters like Mario is very strong,” he said. “And as we go down the road, you’re going to see many applications.”
Kalinske, who couldn’t help imagining his daughters begging him to take them to Nintendoland, had heard enough. He left the press conference and, after giving a pep talk to the Sega employees, spent the rest of the day wheeling and dealing at various booths across the show. When he had a free moment he’d watch visitors roam through Sega’s home base. Each time someone snickered at their underwhelming roster of games, shrugged, or referred to Columns as a “retarded version of Tetris,” Kalinske felt like he’d been punched in the gut. But by the end of the day he was still standing tall and ready to fight—just like Muhammad Ali.
That night, Nintendo relished the role of top gun and threw a glitzy party headlined by a performance from singer Kenny Loggins. After a lavish evening of dancing and drinking, Peter Main once again took the stage to address an eager audience. This time, though, in the comfort of being among colleagues, his words were as smooth, sleek, and casual as the black silk Nintendo jacket he donned for the occasion. Main was joined onstage by Howard Lincoln, who festively wore a spike collar and neon glow sticks around his neck. Celebratory glitter coated the heads of both men. They took turns speaking into the microphone to express gratitude, make jokes, and give away prizes (including a Chevrolet Geo to the winner of Nintendo’s Campus Challenge). Afterward they called up to the stage their boss, Minoru Arakawa, whose fashionably teased hair and oversized fluorescent glasses signified that his typically reserved demeanor was on hold for the evening. As the DJ played the Hollywood Argyles’ hit “Alley Oop,” Main, Lincoln, and Arakawa launched into a song and dance. The roaring applause for these three giddy, gleeful, and uncoordinated middle-aged men was proof of what everyone in the room already believed: Nintendo was invincible.
Meanwhile, down the road, Kalinske took his team out for dinner and drinks at an Ital
ian restaurant in a strip mall near their hotel. Sensing a bit of disappointment amongst the troops, he tried his best to play the role of Mr. Bright Side. He lifted a cheap glass of pinot noir and addressed the two dozen Sega employees squeezed around a pair of large, circular tables in the back of the restaurant. “Ladies and gentlemen of Sega,” Kalinske said, “I want to personally thank everyone for all your hard work. And I don’t just mean for this week, but for all the months of effort that have gone into molding Sega into what we are today.”
“And what are we?” an employee heckled. “Nintendo’s chew toy?”
The room filled with good-natured laughter, Kalinske’s included. “Nah, too ambitious,” he said. “Dogs actually acknowledge their chew toys.” More laughter ensued. “Hey, I will be the first to admit that this wasn’t Sega’s finest hour, but let me tell you, our time is coming. And it’s right around the corner. Six months from now, at summer CES, Nintendo won’t know what hit them.” A flood of applause swept the tables. “On that note, I wanted to inform you all that I managed to catch part of Peter Main’s speech today, and he said two things that got me really excited. The first was that Nintendo had another record year of sales in 1990 but had fallen just short of expectations. Can you believe that? They had a record year, doing over $3 billion in sales, and that wasn’t good enough!” Kalinske went on to explain that Nintendo was a victim of the worst enemy of all: high expectations. This was a burden Sega didn’t have to carry. They were underdogs through and through, and this was their greatest advantage. “We have nothing to lose,” he said. “And that’s how we’re going to win.”
After a chorus of cheers, Nilsen asked about the other thing Main had said.
“Oh, right. The other thing is that Nintendo is planning a big-budget feature-length movie around the Mario Brothers. And everyone knows that when Hollywood gets involved in anything, things get needlessly complicated,” Kalinske said with a smirk. “Anyway, my hand is getting tired of holding this wineglass, which means that I’ve been going on for way too long. So let me just say congratulations to all of us for surviving the Consumer Electronics Show. Cheers!”
Console Wars Page 15