2. Videogames on demand: Once upon a time, Nintendo had tried and failed to turn the NES into an Internet service provider. Dial-up connections were too slow, and the idea of working with the Minnesota Lottery to bring digital gambling into living rooms hit too close to home. Sega, however, believed that there was something to this idea. Instead of using phone lines, however, they wanted to use cable lines and create something called the Sega Channel, where Genesis owners could play dozens of videogames on demand. Although the concept felt slightly ahead of its time, Doug Glen believed that it could be done, and he proved it by leading Sega into serious discussions with Time Warner and TCI, who thought this could launch by late 1993.
3. Production: With the increasing convergence of movies and videogames, Kalinske pushed for Sega to build a multimedia studio in Redwood City. This state-of-the-art production facility, fully operational by late 1992, provided a one-stop shop to film movie-quality video, record studio-quality audio, and render jaw-dropping special effects, all in order to produce original content for the Sega CD’s lifelike videogames. Ultimately, the goal would be to slowly grow this division to the point of one day producing theatrical films and releasing complete music albums, ideally to coincide with related game releases.
4. Virtual reality: Since 1991, Sega had been quietly developing a sci-fi-like set of virtual-reality goggles in order to provide the most immersive gaming experience imaginable. Nicknamed the Sega VR, this futuristic visor consisted of dual LCD screens, which merged together three separate 3-D technologies, and a series of tiny inertial sensors that tracked movements of the user’s head. Completion of this project and proper safety testing were still more than a year away.
5. Edutainment: When it came to fun and entertaining videogames, Kalinske was willing to concede the youngest demographic to Nintendo. But he believed Nintendo had made a major blunder, both financially and sociologically, by not finding a better crossover into the realm of education. To fill this gap, Sega was developing a portable computer for kids that would combine the best elements of toys, videogames, and books. Of all the company’s plans for expansion, this was the one that excited Kalinske the most, and the one he thought could make the biggest difference around the world.
These plans provide an incomplete snapshot of Sega’s vision for the Next Level, but regardless of how neon the future dared to be, Kalinske knew that none of it would ever happen without videogames. That was Sega’s heart and soul, the undeniable essence of the company, and they couldn’t lose sight of that. It was true that Sega wanted to be more than just a videogame company, but to accomplish that, it was vitally important that they remain a premier videogame company. If ever Sega stopped providing the best hardware and software, then it could all end in the blink of an eye. Nope, not going to happen. Kalinske refused to ever let it come to that, which was the other reason he was in New York and why he needed to speak with Olaf Olafsson.
“Well,” Kalinske said, scanning the busy room, “I think it’s time that I find the man from Iceland.”
“Good thinking,” Nilsen said, still staring at the Jumbotron. “And I suppose it’s time I provide a game demo or two. I think it’s fair to say that New York’s finest journalists may win Emmys and Pulitzers, but they sure can’t play videogames.”
With that, they went they separate ways, Nilsen to tutor the mainstream press on how to reach the next level of a videogame, and Kalinske through the crowd to find the president of Sony Electronic Publishing. On his way through the circuitry of smiling faces, Kalinske was targeted by Brenda Lynch and Ellen Beth Van Buskirk.
“There you are,” Lynch said.
“There’s someone from the Times we want you to meet,” Van Buskirk said.
“Great,” Kalinske said. “Can it wait a few minutes?”
“Of course,” Van Buskirk said. “Go do your thing.”
“All the better,” Lynch confirmed. “More time for us to pump him full of propaganda before he meets the Great Oz.”
“Thanks, ladies,” Kalinske said. He was about to walk away when Van Buskirk darted a finger toward the window, leading his eyes to the Jumbotron.
“Come on,” Van Buskirk said. “Are you seriously going to tell me that that isn’t going to become an issue?” By now, Nilsen had taken over the Sega CD and was skillfully moving through Night Trap, one of the system’s launch titles. Like most titles for the Sega CD, this wasn’t a pixelated sprite-based videogame with standard levels, bosses, and power-ups, but rather something more akin to a choose-your-own-adventure movie. And in the case of Night Trap, that movie was a horror thriller. It told the story of five beautiful but naive college girls at a slumber party whose night of fun is ruined when vampiric Augers invade their secluded lake house. With outrageously absurd monsters and damsels in distress, Night Trap featured all the tropes of a cheesy horror movie. But now, for the very first time, when moviegoers would say things like, “No! Don’t open the door!” the Sega CD provided the power to actually make that happen. It really was like being granted omnipotence while watching a horror film, but like most horror films, it included violence, sexual innuendo, and several gratuitous deaths, although the gore was never shown. These were the aspects that Van Buskirk meant would become an issue. This was the slaughtered elephant in the room. “There’s going to be a backlash,” Van Buskirk said. “I just can’t see a world where that’s not the case.”
“I don’t know,” Lynch said. “It’s not that bad. It’s so goofy.”
“Besides, we’re shooting for an older demographic,” Kalinske added. “This is no worse than any PG-13 movie in theaters these days. It’s what the kids like.”
“Who are you trying to convince?” Van Buskirk asked. “Me or you?”
“Look,” Kalinske said, “I used to feel the same way. But I think your antennae might be up a little too high on this one. It’s just one game. And it’s not even a game we made; it’s something we picked up to help out Sony. This won’t be anything like the caliber of product that we’ll get from our studio.”
“Slippery slippery goes that slope,” Van Buskirk said, before shrugging and adding a smile. “But like you said, I’m not the one you need to convince. I just wanted to put it out there again.”
“And please continue to do so,” Kalinske urged. “I appreciate the foresight.”
“Aye aye,” Van Buskirk said.
“We’ll keep our noses extra close to the ground,” Lynch assured him.
“All right, then,” Van Buskirk said, before glancing at her wrist. “It’s been a few minutes. Are you ready for the reporter from the Times?”
“Come on, that’s not fair,” Kalinske said. “I’ve been with you this whole time. But don’t worry, I’ll be back soon. I just need to find our friend Mr. Olafsson.”
“He should be over that way,” Lynch said, nodding to her left. “He was looking for you a little bit ago.”
“Excellent,” Kalinske said. “Any last words?”
“Nope,” Van Buskirk replied. “Just remember to stay on message.”
Kalinske laughed and walked away. Moments later he couldn’t help but laugh again, this time to himself, when he passed Doug Glen, who was staying precisely on message. “Sega’s programmers coined the term ‘Tru Video’ to mean CD software that looks and sounds like a movie but plays like a great videogame,” Kalinske overhead Glen explaining in his professorial voice. “Tru Video makes it easy to suspend disbelief and get drawn into the game fantasy. These new Sega games will have a powerful impact on the way we think about home entertainment.”
Glen’s comments were spot-on. Everything was, actually—the messaging, the marketing, even the little shrimp cocktails that were being brought around. Sega was firing on all cylinders and operating with a professionalism and playfulness that really did feel befitting of the Next Level. It was all going according to plan, except for a larger Sony issue that had to be figured out. As he took a second lap around the room, Kalinske continued to smile, nod, and act
like he had all the answers. But there was one question that wouldn’t stop nagging at him: where the hell was Olaf?
37.
THE SEGA-SONY-NINTENDO
LOVE TRIANGLE
There he was, Tom Kalinske. Such a difficult man to pin down. Social butterfly, man of the people, and king of the chameleons. It seemed that he was always vanishing in plain sight, but there he was now, alive and in the flesh. “Tom,” Olaf Olafsson said, tapping his target on the shoulder, “I’ve been looking for you.”
“Funny,” Kalinske said, “because I’ve been looking for you.”
“Sure, sure,” Olafsson said.
“Don’t sure-sure me,” Kalinske said. “I mean it! I’ve been around this room twice and am starting to suspect that the only way I could have missed you both times would be if you had been following right behind me.”
Olafsson chuckled quietly. “Your sense of humor always kills me,” he said. “Every single time. But enough of that for now. Fate has brought us together, and we have important matters that must be discussed.”
The two of them casually gravitated toward an empty corner of the room. They’d spoken a bit earlier, while doing that whole smile-for-the-cameras thing, but this would be their first chance to actually speak with candor.
“What’s on your mind?” Olafsson asked.
“Probably the same thing that’s on yours,” Kalinske said with a hint of frustration. “Newspaper articles hailing the wonderful relationship between Sony and Nintendo.”
“It’s complicated,” Olafsson said, with the same level of annoyance.
After Nintendo had snubbed Sony for Philips back in 1991, it was generally assumed that this signified the end of any relationship between the two Japanese powerhouses. And for a time that was true, but four months later, at the Tokyo International Electronics Show in October 1991, Sony unveiled its PlayStation. Unlike the consoles that Sega and Nintendo were selling, the PlayStation aimed to deliver something more than just games: sophisticated educational products, like Compton’s Encyclopedia, Microsoft Bookshelf, and National Geographic’s Mammals of the World. To those previewing the console, these impressive interactive titles proved that the PlayStation was indeed capable of “more than just games.” But because Sony didn’t have a single game on display, this raised a question: where were all the games? Or, even if the games weren’t ready to show off, where were they going to come from? The educational titles were impressive, but they had all clearly been licensed from other companies (Compton’s, Microsoft, National Geographic, etc.), and without great original games, the PlayStation was just a computer in disguise.
This was Sony’s fundamental problem. In the land of the console, content is king, and this realization led Sony back into Nintendo’s arms. With fences somewhat mended, Sony returned to the negotiating table, but quickly found Nintendo to be as stubborn as ever. The only deal that Nintendo was willing to accept would allow them to control the CD system’s software production with the same unforgiving authority they exerted over the cartridge business (limited quantities, strict licensing, lockout chips). Nintendo could afford to make enemies with such policies, but Sony was just getting its feet wet and didn’t want to alienate the industry. Additionally, Sony would essentially be beholden to their supposed partner in every possible way, from the creative (Nintendo could control which games were made and when) to the financial (Nintendo would collect a majority of the licensing fees). If agreed upon, this relationship wouldn’t be all that different from the master/slave dynamic that Olafsson had recounted earlier. Yet knowing all this, Sony’s directors were still interested enough to consider moving forward, and the reason they felt this way had less to do with videogames and more to do with videotapes.
In October 1969, Sony had unveiled a prototype for the world’s first videocassette recorder (VCR), which they dubbed the U-matic. Previously, video had been captured on film reels, which presented a number of challenges (like loading, playback, and duration), but the U-matic offered an all-in-one solution to make recording easy. And most important to a company like Sony, it presented a new consumer electronics category that would empower the masses with the power of recording video. Believing that this notion of videotapes would soon take the world by storm (and, in turn, spawn imitators), Sony approached JVC, Matsushita, and a handful of other top-tier electronic companies to sign a cross-licensing agreement and help establish unified technological standards. Although this agreement basically gave Sony’s enemies a blueprint for how to build their own weapons, it ensured that Sony would at least receive a small royalty for every shot fired (and also temporarily deprived competitors of any incentive to create more powerful ammunition, as peace would be more profitable than war). Not long after that, Sony finished development of the device and launched the U-matic in September 1971. The new device was critically praised as being the unquestioned future of recording, but that future was currently too expensive for the present. With a price tag of $1,300, the U-matic failed to interest the consumer market, but it did quickly become the standard for television production and business communication. Although this was not the demographic that Sony initially planned to target, the business was highly lucrative, and they were more than willing to service a professional clientele until the time came when the technology became more affordable.
That moment arrived in September 1974, when Sony was preparing to manufacture a more consumer-friendly videotape format dubbed Betamax, which was basically a smaller, cheaper, and easier-to-use version of the U-matic system. Sony once again met with the top-tier electronics companies to negotiate another cross-licensing agreement, but this time their competitors were less receptive to working together. Although JVC, Matsushita, and RCA each cited a limited recording time (only one hour) as their reason for resistance, a more accurate explanation might be that they did not want to become further beholden to Sony. With the U-matic, Sony had approached its competitors with a humble let’s-work-together mentality, but with the Betamax, Sony had adopted more of a take-it-or-leave-it attitude, which was made clear by higher licensing fees and little interest in working together to establish unified technological standards. Sony was surprised by the industry’s reluctance to adopt the new format, but assumed it was only a matter of time before this became the worldwide standard, and the Betamax was introduced to market in April 1975. Initial sales were incredibly strong, as Sony enjoyed 100 percent of this market it had just created, but behind the scenes forces were at work to beat Sony at their own game.
Throughout 1975, JVC’s engineers worked to develop a different consumer-friendly video format, which they named the Video Home System (VHS). In September of that year, a VHS prototype was completed and JVC quickly and quietly began to meet with other electronics companies and pitch their alternative to Sony’s Betamax. The VHS resembled the Betamax in many ways, but there were two notable distinctions: the VHS recorded at a lower quality than the Betamax, which enabled longer recording times, and the VHS cost $100 less to license than the Betamax. By touting these differences and wisely reincarnating Sony’s lost let’s-work-together mentality, JVC persuaded Matsushita, Hitachi, and Mitsubishi to adopt their format, and the VHS was launched in October 1976. With strong allies, longer recording times, and a cheaper price point, the VHS quickly gave the Betamax a run for its money.
Although Sony was initially caught off guard by these developments, they responded in March 1977 with the release of a new and improved Betamax videotape. This new model could record for up to two hours, but in Sony’s effort to rush this product to market, they made the mistake of not allowing for backward compatibility. Sony’s original Betamax tapes didn’t work on their new VCR, which alienated most of their initial customer base. This fatal flaw, along with a series of impressive maneuvers from JVC (like well-timed price drops and savvy European expansion), set the course for a slow, painful, and very expensive death for Sony’s Betamax. By 1979, Betamax held only 40 percent of the market; by 1984 that number h
ad fallen to 20 percent; and by 1988 Sony had officially thrown in the towel and started to produce VHS VCRs.
Several years had passed since the so-called videotape format war had reached a cease-fire, but Sony’s scars could still be seen in every aspect of the company’s play-it-safe demeanor. With videogames, Sony could not afford to make the same mistake it had made with VCRs, and the best way to avoid that fate was to join forces with a powerful company whose support of a certain format could stave off extinction. And there was only one company that could provide that insurance: Nintendo. Or, more accurately, that was the case when Sony initially considered entering the videogame industry, but then Sega began its ascent, and with each passing month the Nintendo-centric worldview blurred further. Through Olafsson’s persistence, Sony now acknowledged Sega’s growing presence and was willing to work with them on software, but when it came to hardware Sony still did not view Sega as a worthy suitor. Not yet, at least.
Until that perception changed, Sony’s board of directors had adopted something of a Nintendo-or-bust attitude, and once again it was a Consumer Electronics Show that veered them toward bust. This time there was no public embarrassment, just a lot of private hand-wringing as negotiations reached a fever point. Both Sony and Nintendo had wanted to finalize a deal prior to the 1992 summer CES; not only was it the perfect venue for such an announcement, but there was a certain poetry to writing a happy ending at what had once been the scene of the crime. Days prior to the show it appeared the two companies were on the brink of an agreement (getting to the point where Nintendo’s PR firm, Hill & Knowlton, had even prepared a celebratory press release), but eleventh-hour disagreements between the parties killed the deal. So instead of marrying Sony, Nintendo renewed its vows with Philips, and the Sony-Nintendo negotiations were indefinitely put on hold. Perhaps this was due to irreconcilable differences, but more likely it was a case of cold or even frozen feet on Sony’s part. Despite all the back-and-forth, Sony still wasn’t sure if the videogame industry was worth the gamble.
Console Wars Page 41