“Can you, though?” Race asked. “And even if so, for how long? Do you really think that success is going to keep that at bay?”
“I do, I really do,” Kalinske said. “But I realize that I’m not in a position to offer you a lifelong guarantee. What I can offer you, though, is the opportunity to lead a marketing assault unlike anything the world has ever seen before.”
“Go on,” Race said, raising an eyebrow.
“A little over a year ago, when I went to Japan, Nakayama gave me the green light to hire a new ad agency and go to town. I’ve been waiting for the right moment, and I’m thinking this would be a great way to ring in the New Year. I want to get going on this right away, but before getting started I want to make sure that you’ll be here through the whole agency review process. We need a leader here. Can I count on you?”
Race was flattered but didn’t answer right away. “I don’t know,” Race said, playing out various scenarios in his mind. “But I think we’ve both been around the block enough times to realize that anything short of ‘yes, sir, absolutely’ is probably going to come back and haunt one of us down the road.”
“You’re right,” Kalinske said with a sigh. “Thank you for being the one to say it. Would you like to continue on in some sort of part-time consulting role?”
“I think a clean break would be best,” Race said. “Though, if possible, I’d like to hang around for another few weeks. Train the new guy, show him around CES, and just generally plant seeds of dissension where I see fit.”
“Of course,” Kalinske said. “And I want you to know that even though this didn’t quite work out as I had hoped, you were worth the wait.”
“Thanks, Tom,” Race said. “I know you have a very high opinion of me, probably inaccurately so, but I want you to know that I think the same of you.”
Kalinske nodded, touched.
With the sappy stuff out of the way, Race leaned back in his chair, making himself at home. “Now on to more important matters. You excited for CES?”
21.
THE HEART AND THE BRAIN
Big Bang Beat flooded the Alexis Park Hotel’s echo-friendly Parthenon Ballroom with an energetic smorgasbord of rock, soul, disco, and swing. The twelve-piece party band played hits from the sixties, seventies, and eighties with such shimmering gusto that it felt like a bar mitzvah, graduation party, and wedding all rolled into one. This was Sega’s opening-night party at the 1992 winter Consumer Electronics Show, and in many ways it was all of those things. It represented an unofficial coming-of-age ceremony, a graduation to the major leagues, and an irreversible marriage into the videogame industry’s royal family. This was everything Kalinske had been waiting for.
In an elegant sport coat and playful Sonic The Hedgehog tie, Kalinske danced under the high ceilings of the gold-paneled ballroom. He normally didn’t like to get up and dance, but tonight the auditory ecstasy was contagious. It was as if the music exploded out of the band’s oversized instruments, zigzagged around the crowded room, and latched on to the wrists, hips, and ankles of the guests, pulling them to the dance floor. The music captured Kalinske, his employees, and even the jet-lagged representatives of SOJ. It infected members of the press, third-party developers, and Sega’s corporate partners. The music even managed to seduce the retailers, an old-school breed of businessmen who rarely unleashed their embarrassing array of dance moves.
Van Buskirk was dancing beside Kalinske and Adair. “I take it you’re enjoying your first CES?” Kalinske asked her.
“Sorry,” Van Buskirk said, looking around the room to see which of the dancers looked most ridiculous. “Mental photography session in progress. I wish I had a real camera with me—I can’t believe how uncoordinated some of these guys are!”
“And you?” Kalinske asked Adair.
“Considering that a couple of hours ago I thought I was fired,” Adair said, “I would say that I’m having a grand old time.”
“Fired? What? Why?”
To the sounds of a high-energy rendition of “I Will Survive,” Adair relayed the details of her afternoon. She had been in the middle of taking buyers through the upcoming titles for Game Gear at Sega’s booth when someone came by with an ominous-sounding message slip for her: Nakayama was in town for the occasion and wanted her to come up to his suite immediately. After instantly going pale, she excused herself and went to Nakayama’s room as instructed, believing that she was about to be canned six weeks into her stint at Sega.
When she got to his suite, Nakayama quizzed her on a multitude of topics. Why had Nintendo been successful? Why did she want to join Sega? What were her parents like? After the lightning round ended, Nakayama nodded and congratulated her on a job well done. Before he could dismiss her, though, faint tremors from a small earthquake shook the room. Adair brushed off the jolt, but Nakayama immediately dove headfirst underneath a nearby conference table. Adair bundled together all the strength she’d gathered from her adult life, thanked Nakayama for his time, and ran back to Sega’s booth, cackling all the way. Even now, two hours later, she couldn’t help giggling at the memory.
“No way,” Kalinske said. “Just no way.”
“Yes way!” Adair said. “And if you’re imaging what it looked like, the answer is yes, his combover did get all ruffled in the process.”
“Now it’s really too bad you didn’t have a camera with you.”
“I know!”
“Where is our mutual friend?” Kalinske said, scanning the ballroom. “I haven’t seen him this evening.”
“Oh, God,” Adair said. “You can’t tell him that I told you. Please. I know I should have prefaced the story with that, but please don’t tell him.”
“Of course not. We’re a team,” Kalinske said. She smiled with relief, and they went back to dancing alongside Rioux, Toyoda, Schroeder, and Nilsen, whose giant public smile kept being interrupted by a sly private one whenever he thought about an incident that had occurred earlier in the day. He had been walking through Caesars Palace with Ken Balthaser and Clyde Grossman, normal as a day at a Vegas casino can be, until someone noticed the three of them were wearing Sega jackets. After it was discovered that they worked at Sega, they were instantly treated liked celebrities; someone even offered to comp their gambling if they were willing to reveal Sonic game tips while playing cards.
It really was a night to remember, with nobody able to resist the silky allure of the music.
Except for Nakayama. It appeared that no amount of corporate success could coerce his feet into dance steps. Yet it was clear from his shining eyes, judicious nods, and executioner’s grin that he was pleased by the world around him. He celebrated the occasion at a table in the corner of the ballroom, speaking passionately with a thick-jawed man in a sharp suit from a decade long gone. This was Nakayama’s friend and business partner, and Sega’s original founder, David Rosen.
Out of the corner of his eye, Kalinske saw Nakayama and Rosen seated together. He waved in their direction, but they did not wave back; they probably didn’t notice, he told himself, but a small part of him suspected that they had snubbed him as some kind of maneuver in their series of bizarre head games. Of all the business relationships that Kalinske had seen in his time, the one between Nakayama and Rosen easily qualified as one of the strangest. There was clearly a good deal of respect between the two men, but their opposite personalities, the geographic distance between them, and decades of drama made for an unusual dynamic between the two most important figures in Sega’s history: the man who had created the company and the man who had shaped it in his image.
Like most tangled relationships, the one between Nakayama and Rosen began years before the two ever even met. In 1949, David Rosen, then an eighteen-year-old ambitious pragmatist, enlisted in the United States Air Force. His unit was sent to Asia and stationed at various bases throughout the continent before, during, and after the Korean War. When his service ended in 1954, the Brooklyn-born entrepreneur remained in Japan and formed Rosen Enterprises, whose
greatest success came in the photography business. At the time, the Japanese had a strong need for ID photos (to be used for anything from school applications to rice ration cards), but photographs were expensive and required a substantial amount of time, with the typical photo studio charging 250 yen and taking about three days. Rosen’s solution was to import coin-operated photo booths from America and set these up throughout Japan. By charging less and delivering photos instantly, the fully automated booths became an instant success. From there, Rosen Enterprises began importing all kinds of coin-operated products like jukeboxes and pinball machines.
In 1965, Rosen Enterprises merged with Nihon Goraku Bussan, a prominent Japanese jukebox company, which, most important, had a large manufacturing facility in Tokyo that was idle. Rosen was made chairman of the new venture, which was named after the English translation of Nihon Goraku Bussan, “Service Games”—hence SEGA Enterprises. A year later, Sega created its first original product, an electromechanical submarine game. Without the luxury of digital code, computer chips, and colorful screens, electromechanical games ran on a tightly rigged system of switches, relays, motors, and lights. In the evolutionary track of interactive entertainment, they were nothing but monkey business compared to the arcade videogames that would soon follow. But in 1966 Sega’s electromechanical contraption was leaps and bounds ahead of the pinball machines and skee-ball games of its era. Their original creation was a bulky red and gray machine that stretched to ten feet long and six feet wide, highlighted by an actual periscope in front. The game consisted of players peering into the viewfinder and swiveling a torpedo-shaped light to aim at enemy ships. Successful assaults were rewarded with flashing red lights and a gurgled explosion, while failures received nothing more than a dismal whoosh. Though it cost twice as much as any other game, Sega’s aptly titled Periscope was a major hit in Japan. In addition to providing cash flow, it turned out to be an undefined variable that allowed Rosen to flip the international business equation. Instead of importing games from America and selling them in Japan, Sega would now make their own games in Japan and export them to America.
Periscope quickly became a major hit in the United States as well, generating so much demand that it became the first electronic game to dare to charge 25 cents per play. Sega followed up Periscope with a slew of similarly sophisticated games with equally uninspired titles, such as Basketball, Drivemobile, and Helicopter. With a reputation for quality, innovative technology, and a cross-continental distribution network, Sega became attractive to multinational corporations with an appetite for potential. In 1969, Rosen agreed to sell Sega to Gulf and Western on the condition that they kept him on as the company’s CEO. Under his command, Sega continued to find steady revenues with a succession of electromechanical games like Soccer, Sea Devil, and Lunar Rescue, but jumped to new heights of influence with the creation, popularization, and global sensation of arcade videogames. Following the success of Atari’s Pong in 1973, Sega manufactured their own unabashedly similar arcade game, Pong Tron. The game was a smash hit, prompting Sega to shift its focus to videogames and, very nearly, do more than just copy Atari. In 1976 Rosen negotiated with Nolan Bushnell for Sega to acquire Atari, but on the day that they were to draft the contract, Bushnell backed out because he learned that his company had successfully developed a new console that could play more than one game (through the innovation of cartridges). That became the Atari 2600 and led to untold riches, but Sega continued thrive in its own right as well. Rosen’s Sega spent the decade mastering the art of videogames, progressing from a me-too mentality (with games like Pong Tron 2 and Fonz) to an artistic devotion to the craft (with games like Blockade and Monaco GP). As Sega’s success grew, so did the constant problem of bootlegging, which led Rosen to cross paths with Nakayama.
In Japan’s highly stratified society, Hayao Nakayama aspired to rise to the top. But for someone with humble origins, an unremarkable family name, and a memorable rough-and-tumble personality, social elevation posed a major challenge. No matter where he went or what he did, it seemed that he’d always be walking around with the concrete blocks of his past tied around his ankles. But that didn’t stop him from trying. If the past would not afford him access to certain banks, restaurants, or other places of status, then Nakayama’s passport to the world would have to be his cunning resilience.
He attended college to become a doctor, but wound up dropping out midway through the process. To find the next rung in his ladder to the extraordinary, Nakayama skimmed the newspaper’s classified ads and pounced on the opportunity to become a salesman for a jukebox leasing company. As opposed to the fat cats upstairs who did little more than plan cushy vacations for themselves, Nakayama learned the amusement industry from inside the belly of the beast. With a preternatural talent for detecting failures, inefficiencies, and misgivings in others, he quickly discovered many ways that his company should change, and he particularly touted the need to get into the arcade business. His insights fell upon deaf ears, so he left to start his own arcade distribution company, called Esco Trading.
Nakayama lived vicariously through Esco Trading, which serviced and repaired arcade cabinets for companies like Sega. And with arcade fever sweeping the globe, life was good. But Nakayama wanted more than just good. He expanded Esco’s operations, first to buying and selling used equipment and eventually to bootlegging American arcade games. Consequently, Esco became a threat to Sega, which prompted Rosen to ask for a meeting with the bandit who was cutting into his business. Rosen was not predisposed to like what he found: a street-smart, business-savvy guy with a gluttonous appetite for risk. But Rosen also believed that Nakayama had a marvelous sense of what machines the market would accept, which convinced him to make Nakayama an offer instead of threatening him. In 1979, Sega Enterprises purchased Esco Trading and made Nakayama the head of its Japanese operations.
By joining forces, they could focus on keeping Sega ahead of the curve while also thwarting an array of copycats who had recently cropped up, looking to make a quick buck in the arcade business with a horde of derivative games, companies like Irem, Nichibutsu, and Nintendo. By the early 1980s, Sega was generating revenue of over $200 million per year with hit games like Astro Blaster, Head-On, and Zaxxon. To outsiders impressed with Sega’s success, it was easy to compartmentalize the credit and declare Nakayama the heart and Rosen the brains—the doer and the thinker, the yin and the yang. But the truth was that despite their very different personalities, they were kindred spirits, each with an unflinching hand on the Ouija board of success. Which made it all the more startling when Rosen retired in 1982, voicing concerns that the arcade business was headed for trouble. He turned over all control to Nakayama, then moved to California with his wife for their happily-ever-after.
Nakayama continued to expertly steer the ship in Japan, but the videogame crash of 1983 devastated the American business. With Sega reeling, Gulf and Western looked to unload the company. There were few suitors looking to get into the videogame business while everyone else was getting out, but Rosen still believed in what he had started, and so he formed a buyers group with Nakayama and Isao Okawa, whose company, CSK, put up most of the $38 million they paid to buy back Sega. Under the new arrangement, Nakayama would run the majority of Sega’s operations from Tokyo, Rosen would run the company’s small American subsidiary from Beverly Hills.
While Nakayama and Rosen were busy putting the pieces back together at Sega, their progress was dwarfed by Nintendo’s success, which forever reconfigured the videogame landscape. In a few short years, Nintendo found viability in the once-barren handheld game market with its Game & Watch, conquered the arcade industry with Donkey Kong, and resurrected the home console business with the NES. What Nintendo managed to do in only a few short years made Sega’s decades of success look like a child’s artwork on the refrigerator of life: kind of pretty, but also kind of pitiful. Not only had Nintendo single-handedly revived videogames in the United States, but their utter domination tra
nsformed it from a niche industry into big business.
There was a janitor’s ring’s worth of keys to Nintendo’s success, but beyond the lucky alignment of people, places, and things, their invasion of America appeared to be the critical element. Success abroad changed the perception of Nintendo from a trendy gizmo company into a cross-cultural powerhouse. In addition to worldwide clout, Nintendo’s American pipeline tripled revenues, quadrupled the customer base, and immeasurably multiplied the reach of their soon-to-be iconic intellectual properties. Nakayama and Rosen couldn’t turn a blind eye to such scorching success, forcing them to play a game of follow-the-new-leader.
In 1985, two years after Nintendo’s Famicom launched in Japan, Sega released an 8-bit console of their own. In 1986, one year after Nintendo’s U.S. invasion, Sega set their sights on also infiltrating the American market. In an attempt to replicate their competitor’s staggering success, Rosen poached Nintendo’s VP of sales, Bruce Lowry, to become Sega of America’s first president. Lowry was handed the keys to the car, with Rosen supervising from the passenger seat as Sega of America’s chairman and CEO. They zipped off to a fast start in June 1986, selling 125,000 units of Sega’s Master System in the first four months. Even so, Sega could hardly compete with Nintendo, which had sold two million NES systems over the same period. In the coming months, Sega fell even further behind, and by 1987 Nintendo commanded 85 percent of the market. Unable to continue pouring money into a losing proposition, Sega threw in the red-white-and-blue towel and chose to focus on coin-operated arcade games. They granted all of the marketing and distribution rights for their Master System to the toy manufacturer Tonka, who had no experience in the videogame industry and over the next two years did little to change that reputation. Part of this was due to the fool’s errand it had become to compete against Nintendo, and the other part was due to Nakayama’s aggressively marking up Sega’s products to the point at which Tonka was left with almost no profit margin.
Console Wars Page 23