62.
FORK IN THE ROAD
All we are is a collection of moments, Kalinske thought as he walked onto the stage at the Los Angeles Convention Center. It was May 11, 1995, the world’s very first Electronic Entertainment Expo, and given how far he and those around him had come, it was hard not to feel nostalgic. Some of those moments are big, others small, and a few curiously change size over time. For this one, however, this milestone, brimming with 41,000 fans and 420 exhibitors, it wasn’t its size that really mattered, but merely the fact that it would be shared by all the right people: the forefathers of the videogame industry. Their careers now spanned various points along the industry’s spectrum, but they were all there, and that’s what made this moment eternally special. People like Nolan Bushnell, the founder of Atari, who was now senior consultant for a small game developer called PlayNet; Howard Phillips, Nintendo’s former Game Master, who was currently in between jobs; and Michael Katz, who could have probably helped Phillips, as he had become one of the videogame industry’s first headhunters (with a particular penchant for moving employees from Sega to Sony).
“I’d like to take a moment,” Kalinske began vibrantly, officially kicking off this groundbreaking event, “right at the beginning of my remarks, to convey one of the more important pieces of news you’re likely to hear while at E3. Tomorrow, May 12, 1995, will be Yogi Berra’s birthday. His seventieth. So we all need to prepare ourselves for a heavier-than-usual onslaught of Yogiisms from radio and TV commentators. If I may, I’d like to kick off the birthday observance by repeating my own personal favorite of his: ‘When I come to a fork in the road, I take it.’
“Now that’s not only vintage Berra,” Kalinske continued, “but it’s also good for kicking off speeches. It can even be construed without an awful lot of effort to be representative of what I’m about to say today. I am going to discuss choices. I am going to discuss change.”
There were about thirty thousand people on hand for the inaugural show. Some were the forefathers, some were members of the industry’s new generation, but most were just people from around the country who loved videogames. The revolution had indeed been pixelated; videogames were not just a fad, not just for kids, but a source of art, story, and entertainment for anyone of any age at any time.
“E3 works as a pretty good symbol of some of the changes our industry is experiencing,” Kalinske continued. “Here is this great big show designed solely for interactive entertainment. CES, great success that it’s been, was never really designed for us. It related better to an older culture. It forced some of the most creative companies on earth to at least figuratively put on gray suits and, well, fit into a sort of TV-buying, furniture-selling mode.”
Twenty years ago this industry had not existed; ten years ago Kalinske had never thought he’d be a part of it; five years ago Sega was a punch line. That’s just how it goes when the track’s being built while the train is already in motion. “But even that worked okay until recently,” Kalinske explained. “Now, interactive entertainment has become far more than just an annex to a bigger, broader electronics business. And frankly, I don’t miss the endless rows of car stereos, speakers, and cellular phones. We’ve broken out to become a whole new category, a whole new culture for that matter. This business resists hard-and-fast rules. It defies conventional wisdom.”
Kalinske then described what made the videogame industry unique, what made it superbly unpredictable, and what tomorrow might or might not bring. But along this wild roller-coaster ride, there was one thing that would not change. “Suspension of disbelief. It’s always been the fundamental component of diversion, whether that diversion is books, movies, or the theater. Advances in gaming mean we will come to supply that component more effectively than any other medium. The interactive entertainment business is going to allow the Walter Mitty in all of us to finally realize our dreams. We are going to become great football players, race car drivers, or aviators. We are going to move into and occupy new worlds that were formerly only available to us in dreams.”
There was an elusive poetry to everything Kalinske said that made those in the audience momentarily see things just like he did, but as much as they enjoyed the lyricism of life, what they enjoyed even more were videogames. And Kalinske did not fail to deliver, providing new details about the Sega Channel, upcoming Genesis games, and of course the Sega Saturn.
“The kind of technology under the hood of every Sega Saturn will deliver the leap forward our new consumers demand. Sega Saturn employs an orchestra of engines. No less than three Hitachi 32-bit RISC processors are used for main power, two video display processors generate character and gameplay images, and a digital signal processor yields up to thirty-two voices at CD-quality audio.”
Five years later and Kalinske still had no idea what any of that meant, but apparently the thousands before him did, and loved what he had to say. Maybe the Saturn would be a hit after all. Maybe he hadn’t just talked himself into the possibility, but rather convinced himself of what others would see. “You will be hearing a lot from us, and a lot from everybody else, as our business approaches this new level. In advertising, for example, as our industry gears up for its 32-bit launches, we’re going to be spending over $100 million on marketing, and believe me, we don’t spend that kind of money unless we’re confident of success.”
A hundred million dollars! When Kalinske first took over, the marketing budget had been under $5 million. That number, and how it evolved to this point (1991: $20 million; 1993: $76 million; 1994: $100 million), was enough to make both Sega and Nintendo think that their philosophy had been proven right. Kalinske would say that it took money to make money, that the budget had risen in proportion with success, and what a small price it was to pay for global name recognition. And Peter Main would counter that style couldn’t compensate for lack of substance, that the budget had risen as product quality had diminished, and that while Sega might now have a global name, it should think long and hard about what its reputation was.
“Lastly, I wanted to come back to Yogi Berra,” Kalinske said, relishing his last moments onstage. Would he be back next year? Five years from now? Ten? So much of that would depend on what he had to say next. “I think when Yogi said ‘fork in the road,’ he was talking about opportunity. When he sees opportunity, he takes it. And so we do. We’re taking all the opportunities we can to make this business soar. And since I began my remarks with an announcement, I may as well finish with another. Yesterday we started our rollout of Sega Saturn. We’re at retail today in eighteen hundred Toys ‘R’ Us, Babbage’s, Software Etc., and Electronics Boutique stores around the U.S. and Canada.”
Upon hearing this, the crowd went wild. The next generation was already here? What a wonderful surprise! Kalinske knew this crowd was biased, but he hoped their sentiments would be shared by most, because they certainly weren’t shared by the retailers.
Following his last meeting with Nakayama, the one where the temperamental tyrant had walked out in the middle of dinner, Kalinske had the unenviable task of informing his team about the new launch plan. And, as always, he delivered the news with a buoyant smile and an excess of can-do spirit. After the fury that followed, when it became clear that this was a command and not a conversation, the only thing left to really decide was the matter of distribution. Because the release had now been moved up by four months, there would not be nearly enough product to satisfy retailer demand. Only about half a million units would be ready in time, less than a quarter of what had been planned for the launch. This left two options: give each retailer only a quarter of their order, or give some retailers the full order at the expense of others who would get nothing.
Most of the employees were too upset by what had just happened to make rational points, but Bill White stepped up to the plate and made a case for choosing the latter option. The smaller retailers would be furious and make all kinds of threats, but as long as the product was a success, then they would reluctantly fo
rgive. That was just the way they were; he’d seen it a million times at Nintendo. And so, between two terrible choices, this was the route Sega went. This was the strategy deemed best for building momentum, but it would also likely reverse the delicately crafted retailer relationships that Kalinske had worked so hard to build over the past five years. Once upon a time, Wal-Mart had refused to carry Sega; now Sega would be refusing to stock Wal-Mart. Would this be the ironic ending to all Sega had accomplished, or something that would be soon be forgotten on the long road ahead?
“Saturn will be the steal of the summer at $399,” Kalinske said as he neared the end of his speech. “We’ll have ten software titles at retail in the next few days, twenty by August. Our total rollout will take the summer to complete, but we’re starting today in-store and on prime-time television nationwide. Sega is not only here now, it’s out there.”
One last look at the crowd, an image to remember the moment with forever, and that was it. “Thank you,” Kalinske finished. “It’s been an honor to speak with you today.”
“Thoughts?” Kalinske asked about fifteen minutes later as he, Paul Rioux, and Shinobu Toyoda took seats in the front row of a large conference room moments before Sony’s presentation was set to begin.
“I feel better than before,” Toyoda said. “But it is still too early to feel certain.”
Kalinske nodded and then turned to Paul, who appeared to be unmoved by the crowd’s reaction to Saturn’s early release. “Yeah, they clapped a lot, but what else were they supposed to do?” Rioux said with a shrug.
Paul was always the pessimist, and Shinobu was a realist every step of the way. That made Kalinske the optimistic, and following his speech, he felt pretty good about that role. These last two years had been such a struggle, fighting wars on so many fronts (versus Nintendo, Sega of Japan, and Capitol Hill), but all of those stressful moments would be water under the bridge if Saturn could carry the torch that Genesis had been running with for years. Kalinske had been skeptical, and in many ways he still felt that way, but when he thought about the horses in this race, who was really going to beat the boys from Redwood Shores? Nintendo? Project Reality, which had been renamed Ultra 64, wouldn’t be out until next year. In the past year they’d reinvented themselves and had a nice run, but would that really excuse them for making the same mistake, coming to the party late once again? Or would it be Sony, then, who would beat Sega (with a console that they should have been launching together)? Supposedly Sony had the better hardware between the two, but nobody buys a console to display a copy of the technical specifications on the refrigerator. Olafsson had done an incredible job of building a strong game library, and Race had excelled at all the pyrotechnics that went into choreographing a launch (building a team, creating an image, getting into stores, and so on), but the truth was that in the videogame world Sony was an unknown entity. They just didn’t have the same reputation as Sega or Nintendo, and that would be a big hurdle to overcome. Could they do it? Absolutely, but Kalinske felt slightly better about his chances after delivering that speech. Until Nintendo was ready to enter the race, it would be Sega vs. Sony, and with both systems likely to be similarly priced (it was assumed that Sony’s PlayStation would cost $399, the same as the Saturn), then it would be up to the consumer to decide who lived and who died.
After a short video at the front of the room sought to explain how Sony was now “into the game,” Jim Whims, SCEA’s VP of sales, stood at the podium to introduce the day’s speaker. “In 1991, Sony established a new division to focus on the burgeoning multimedia marketplace,” Whims explained. “It was called Sony Electronic Publishing Company, and Michael Schulhof appointed Olaf Olafsson the head of this operation. He is in charge of Sony Computer Entertainment of America, as well as Europe, Sony Imagesoft, and Psygnosis. He also oversees CD operations for Sony’s manufacturing business. At the same time, Olaf finds time to write. He’s written three novels, a collection of short stories, and a play. His latest novel, Absolution, has been published by Random House. And the story doesn’t end there—Olaf is also a physicist from Brandeis University. Without any further delay, I’m pleased to introduce to you Olaf Olafsson.”
Smiling, smiling, but never too much, Olafsson addressed the room. “Thank you very much,” he humbly began. “You can tell from the video that we don’t represent a conventional videogame company. Today I want to tell you why that might be the best news our industry could possibly receive.”
Lots of applause, and then some more. Maybe Rioux was right after all. “First I want to welcome all of you to our first trade show,” Olafsson began. “Five billion in sales has moved us out of the CES parking lot. It’s no coincidence that the introduction of Sony’s PlayStation coincides with this development. Now, more than ever, is the time for a definitive technology.”
But before discussing the future, Olafsson wanted to discuss the 16-bit generation, those videogames of yesterday. He talked about what worked (sports and riddle-based puzzles), what did not (attempts at realism), and how this compared to what was available on the personal computer (more, but computer games were less accessible). All of this, combined with so many recent technological and cultural changes, had created a new kind of consumer. “The Digital Kid,” Olafsson explained. “And the Digital Kid expects technology to be different every single day. He can’t remember anything before MTV and the PC. He eats shock rays for breakfast, the Internet is his lunch, and if we continue to serve him two-dimensional games, he’ll leave the table. So the question is, how can we become dinner?”
“Maybe we ought to fry them?” Kalinske whispered to Rioux and Toyoda.
Olafsson described the many ways that Sony could reach this consumer and carve out a piece of the next frontier. There were a lot of reasons to believe it might all work out. Sony clearly understood the market, they had over four hundred developers set up with development kits and working on games, and with nearly two million systems sold, the PlayStation had surpassed Saturn in Japan. “All of this is great,” Olafsson affirmed, “but let me get you the best news of all: aggressive pricing. Now, some of you might actually want to know what that price is. And since it’s a beautiful day here in Los Angeles, I’m going to ask SCEA president Steve Race to join me for a brief presentation.”
Through the flood of applause (after all, the price was what everyone really cared about most), Race trotted up to the podium. In his hand was a stack of papers, which appeared to be his speech, and on his face was a devilish grin, which had absolutely nothing to do with this presentation. He was looking forward to his speech, and actually knew it well enough to recite it from memory, but whatever blow this might strike on Sega, it wouldn’t compare to what he’d just done to Nintendo.
In the days leading up to the big event, with anyone and everyone associated with the industry in Los Angeles, Sony, Sega, and Nintendo all hosted grand parties to show the world they had arrived. Race, playing the role of diplomatic class act, sent an invitation to Nintendo’s Howard Lincoln, graciously inviting him to attend Sony’s event, which would be held on the studio lot. Lincoln, surprised but impressed by Race’s attempt to bury the hatchet, responded by sending him an invitation to Nintendo’s event, which would be held the night before E3 was set to begin. Upon receiving Nintendo’s invitation, however, Race’s eyes gleamed with a naughty idea, which led to him and Stretch Anderson making five thousand copies of the invitation. And so at this very moment, as Race was set to begin his speech, members of the Sony team were in downtown LA, handing out the invitations to the weirdest and wackiest people they could find.
Race looked at the audience, nodded, and then delivered one of the best speeches of his long, storied, and unpredictable career. “Two hundred ninety-nine,” he said, and then nodded again and walked away from the podium.
That was it; that was all. Two hundred ninety-nine, he had said, and then he’d walked away. Why bother with all the other stuff? That’s all they wanted to know anyway. And whatever unsatisf
ied expectation for words they might be feeling would surely be replaced with shock at this low, low price.
As Steve Race sat back down, Tom Kalinske turned to Paul Rioux and delivered a speech of his own. And like Race’s, the words were few but just about summed up the situation completely. “Oh, shit,” he said.
63.
KILLER INSTINCT
In a sharp gray suit, boyishly combed graying hair, and an uncharacteristically cheeky smile, Howard Lincoln stepped in front of a blue podium. “Thank you, and good afternoon everyone,” he said, greeting an audience of industry players at the historic Los Angeles Theater.
The smile grew larger. “Welcome to Tinseltown. The city of hopes and dreams, the place where telling the difference between the real world and make-believe is always a challenge. And consequently there couldn’t be a better venue for an industry facing the same kind of challenge: separating dreams from reality, the contenders from the pretenders, not only for this coming Christmas but for an entire new generation of videogame play.”
As Lincoln switched gears, Tom Kalinske, still stinging from the shortest speech he’d ever heard, took a seat in one of the back rows. Kalinske knew that coming to see Nintendo’s presentation was unlikely to improve his mood, but for some reason it felt important for him to be there. For the next ninety minutes he would put down the sword, suppress any sarcastic thoughts, and just observe the men who had once resurrected the industry that everyone was celebrating today. A moment of admiration, a tip of the cap, and then back to wholeheartedly despising Nintendo before the end of the afternoon.
“Now, everyone knows that the videogame world is changing,” Lincoln said. “But it takes a little investigation to figure out exactly how. So here are the headlines . . .”
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