Original subtitles

- So my partner Bill and I

are going to play ping-pong for you.

Here we go.

The demo represents some of the recent developments

in the new business of audience participation in TV.

Watch me take him out in a minute.

Ah, didn't do it.

Ah, I did it this time.

We would like to convince you

that there is indeed a market

in which money can be made in the near future.

- It was like magic.

You could make something happen on the screen.

You know, having grown up with all

of this preprogrammed stuff on the television screen,

you'd never been able to change that.

- America's most incredible video game.

- Suddenly, with this little controller,

you could actually control something on the screen.

- You control the players

as if you were coaching your own team.

- It was just unbelievable, magical.

- There is a new addiction in America:

Nintendo video games.

- How many of you own a Nintendo?

- Joining us from the company's inner sanctum,

Nintendo game master Howard Phillips.

- This one's got about 12 times the memory.

The graphics are-- graphics are much better.

Oh.

Got it.

- People, animals, wizards, spells,

you see this spread out over different worlds.

- Nintendo Gameplay, David speaking.

How may I help you?

- It's not just stick figures anymore.

There's much more involved in playing the game,

a better use of colors, better use of music.

- He is a computerized Italian swashbuckling adventurer,

as Mario is clearly number one.

- Not only for this coming Christmas

but for an entire new generation.

- The "Mario Bros." game cartridge is so hot,

it is impossible to find in stores.

- I've done seven stores a day for three weeks now.

I cannot find it.

- Can you do something? My kid wants it.

His friend has it, and they're not friends anymore

'cause he doesn't have it.

- Nintendo's only been around for three years

but will ring up mind-boggling sales of $1.7 billion

by Christmas.

- We were the video game industry.

- We can't underestimate the value

of 60 million players.

- Tetris!

- Nobody could conceive of how Nintendo,

with so many great games,

with 95% or more of the marketplace,

could ever get toppled.

- The last "Super Mario Bros. 2"

was just sold.

- My eight-year-old would kill for one.

- Nintendo!

- Yeah!

- Nintendo! Nintendo!

- Nintendo!

- Today Nintendo controls the home video game market.

- Let's play Nintendo!

- Anybody would have found that to be a Herculean task,

to try and unseat Nintendo.

All the other companies were always trying,

but, you know, they had maybe one game

or one thing going on,

whereas Nintendo just had everything.

We're gonna be here forever.

But then it changed.

- ♪ We're not scared to lose it all ♪

♪ Security thrown through the wall ♪

♪ Future dreams

- When I first came to America

was with the Mitsubishi Corporation.

What I really felt here in the States

was people really have the opportunity

of making American dream happen.

That spirit of sort of entrepreneurship,

I really fell in love with that.

After working for Mitsubishi for three years,

Japan headquarters said, "You must come back,"

but I wanted to stay in America.

So secretly, I sent my résumé to an American sort of

recruiting firm,

and I had a call at the company called Sega.

I had no idea what it was,

but they are looking for someone

to launch their new video game business in the States.

- And so it was, late in the 20th century,

terminal boredom swept the countryside.

The maker looked down and was not pleased by what he saw.

And so it was he brought forth...

Genesis.

- The moment I started to work for Sega of America,

I started to commute to Sega San Francisco headquarter

because my family actually lived in Texas,

and I stayed always in Comfort Suites.

This small hotel room became my home away from home.

I checked in there in, I think, October of '89,

and by the way, I haven't checked out ever since.

- 800-521-2--

- I don't think many people knew.

I mean, I'm still shocked that he still stays there,

personally, but I lived there for about a year and a half

when I first started at Sega.

- Hi, welcome to Sega.

- It was hard to build an organization from scratch

and launch a major video game system in the United States.

There's so many hurdles to get into the business

with all the retailers.

You know, they just won't buy from anybody.

You have to prove yourself.

- The challenges we had in those days

were the very strong presence of Nintendo.

- Let's play Nintendo!

-"Nintendo Power" magazine goes out

bimonthly to players all around the country.

Right now, it's about 1.7 million.

On a weekly average,

we get about 140,000 phone calls in here.

- The key is in the hidden town.

You have to cast a spell at the dead end.

- Ah.

- "Nintendo Power."

- Another Nintendo game!

- And parents are now faced with portable Nintendo.

all: We are Nintendo.

- Say what you want about Nintendo,

but they were pretty cocky about their position

and felt assured that we wouldn't have much success.

- Nintendo's a very, very strong company,

and so far, its competition hasn't been more

than a blip on the screen.

- This is the Sega Genesis.

This is their next-generation video game machine.

- The first year, the expectation was to sell

1 million units of Sega Genesis,

but sales was not that great.

- We were struggling at the time, no doubt about it.

- The president at that time held a weekly lineup meeting,

and he always somehow seemed to forget

about what we discussed previous week.

So it repeated and repeated and repeated and so forth.

- So we were stuck between a rock and a hard place.

- We needed someone to turn the tide around.

So Sega brought in Tom Kalinske,

the prince of toy business.

- When I was about to graduate, I got a job

with J. Walter Thompson in New York City.

We were given the assignment

to develop a new children's vitamin,

and we developed Flintstones Vitamins.

- Yabba-dabba-doo! Yabba-dabba-doo!

- Oh, great idea, Fred.

- Within six months, it was the number one vitamin

in the United States.

- Yabba-dabba-doo!

- But shortly thereafter,

the Senate had a subcommittee on children's advertising.

- Super Sugar Crisp is coated with super sugar

to make it taste so sweet.

- The feeling at the time was that

children's sugared cereal advertising

and somehow children's vitamins advertising was bad.

- They're great!

- And the next thing I know,

Senator Margaret Chase Smith looks at me and says,

"So, Mr. Kalinske,

you think selling drugs to children is a good idea?"

And so I read a letter that a mom had actually

written to me that talked about how grateful she was

because we're selling a vitamin that the children

actually want to take, and I said,

"By the way, I have 5,000 more letters like that.

Would you like me to read some more of them to you?"

And she said, "No, Mr. Kalinske, that's enough."

Well, the Mattel guys were there,

and the next thing I know, they flew me out,

and I was offered a job.

- You can tell it's Mattel. It's swell.

- Ruth Handler founded Mattel.

She came into my office, and she said,

"Tom, the retailers say it's over for Barbie.

"Forget about Barbie.

"Let's get on to something else.

What do you think about that?"

And I said, "Ruth, that's the dumbest thing

"I have ever heard.

Barbie will be around long after you and I are gone."

And she said, "That's what I wanted to hear!

You're now in charge of the Barbie business."

Barbie could be anything

that a little girl wanted her to be.

- Barbie's taking her driver's test.

- I love her long hair.

- Is there room in Barbie's dream pool for me?

- Oh, Daddy.

- And the business just took off.

It grew like crazy.

And then we created a series of different product lines

that would appeal to young boys.

And out of this research came this very muscular character.

- I have the power!

- And it became a pretty good hit.

So I got promoted to CEO.

In 1990, I took a vacation with Karen and the kids...

And literally kind of lying on the beach...

And all of a sudden, this guy appears.

It was Hayao Nakayama, CEO of Sega Japan.

And I said, "What are you doing here?"

He said, "I'm looking for you."

He said, "Well, I want you to come to Japan with me

because we've got this great 16-bit technology."

- Sega. - "We want you to run Sega

and take on Nintendo."

And I argued with him.

I didn't really want to go,

but my daughter Ashley said,

"This man came all the way from Japan to find you.

"You have to go back with him

to see what he's talking about."

- It's your destiny.

- After a long discussion with family,

I did go to Japan.

And I must say,

I was very, very impressed by what 16-bit technology was

compared to what I had known as 8-bit Nintendo.

And I thought, "This really is revolutionary,"

but at the same time, I was somewhat fearful of Nintendo.

- The men sitting in this room

control the American video game industry.

- The NES continues to havea unit sales projection

through Decemberof 2 million units.

- Nintendo was extremely arrogant as a company.

- To marketing vice president Peter Main,

selling Nintendo is easy.

- They come, they try, they like, and they buy,

and it's a fun business.

- Especially fun if there's no competition.

- Nintendo threatened the leading software companies

that if they developed for any other system,

they would not give them approval of games on the NES.

- They were able to, one by one,

contact all major retailers and intimidate them

or induce them not to handle Tengen product.

- It was like blackmail.

- No, I don't think so.

No. Sorry.

We were adamant that this was a legal tactic.

- Retailers were the same way.

Retailers were afraid to carry any other system.

- The retailers didn't like us, okay?

We were not liked.

I don't think we were ever liked,

but we were respected.

- They were anxious to sue just about anybody

that got in their way of doing business.

- Please, just go away.

We established the rule

that Nintendo was not gonna get pushed around.

- We were extremely on top of execution,

willing to put resources

where they needed to be at the right time.

- What Nintendo was doing was monopolistic

and was wrong.

- Nintendo acts like a unchained

800-pound gorilla swinging its way

through America's toy stores.

- Save you! - Help me! Ah!

- Federal and state officials charge today

that Nintendo threatened to cut off

supplies of its video games

if retailers charged less than Nintendo wanted.

- As a law violator, a lawbreaker,

you did wrong to your loyal customers.

- Nintendo! Oh, man!

- Our relationship with our customers

is our number one priority, and that's the reason

that we reached this

comprehensive settlement today.

I think we had to pay $5 million.

All of the rest of the penalty was in the form of coupons

that we would give out,

allowing people to buy more Nintendo games,

which was pretty slick, if you think about it.

- Do you see that price coming down in the future?

- I was asked on the witness stand,

"Do you consider yourself

to be an aggressive person, Mr. Main?"

I said, "I'm in marketing.

"It's about growing market share.

"And whatever gets in your way,

"you try and work around it or over it or past it.

Is that what you mean?"

He said, "That's what I mean." I said, "That's what we do."

- I found something a lot more scary than cocaine.

It's called Nintendo.

- Nintendo was so powerful,

they had a 95% share of the market.

It was a dominant position

not like which I've ever seen in my business career,

so the idea of taking on this giant, Nintendo,

that everybody said is too powerful, too big,

it's an impossible task, that just appealed to me.

I knew that Japanese companies tended to tightly control

their operations outside of Japan,

so before I accepted, I told Nakayama I needed

to do things my way, the American way.

He told me he agreed with me and he understood that.

So I decided to take this role on.

Sega of America was a small building,

and there was no real lobby.

People could wander in and out very easily, not well lit.

It was so different

than what I was used to at Mattel.

It was initially a shock to the system.

- The day Tom, you know, came to Sega

was a very crucial time.

Tom was someone who can really grow the company big.

- Shinobu mentioned to me that Tom was coming,

and I said, "Great," you know.

"It's all uphill from here."

- There were executives at other companies

that were pretty dismissive

of my coming into the video game industry

and really having any impact.

They thought I was just another toy guy.

They thought all I knew how to do was market Barbie dolls

and Hot Wheels cars.

There were even analogies to, "Oh, here comes Ken

"to save the Sega-- the video game company,

and, boy, that's not gonna work."

So personally, that was at stake for me,

and none of us really knew if this thing with Sega

was gonna be a success or not.

I didn't even initially move my family up to San Francisco.

I stayed in a Comfort Inn

very close to the Sega offices.

It happened to be a place that Shinobu Toyoda

was also staying at. - Hi, Tom.

- Tom started staying at the Comfort Inn,

and then Tom and I decided

that we would, you know, get, like, a two-bedroom suite

someplace for about the same price.

- Paul was a great roommate. We were both baseball fans.

So we'd go back to the apartment.

We'd have pizza and drink beer

and got up early and went to Sega.

I knew Paul Rioux for a long, long time.

I knew him at Mattel.

So we did discuss his experience in Vietnam.

- I've had the mustache since I was,

like--I got out of Vietnam.

That's why I wanted to get out, so I could grow a mustache.

- I knew he had gone through battle.

He'd had explosions occur near his head,

where he lost part of the hearing in one ear.

To Paul, being in business was very similar to combat.

He wanted to crush the enemy.

- You gotta be ready to fight...

similar in business.

It's not as life-threatening

in the business world, but sometimes it may be.

- ♪ She-Ra, Princess of Power ♪

- I always felt that one of my strengths

is coming up with unique strategies

that either make companies successful

and either work or don't.

And it seemed to me that Nintendo

was selling games designed

for a very young audience.

So I saw an opportunity to go after

the teenage and college audience,

and let's leave Nintendo with the kids.

So I worked with Paul and Shinobu

on putting together a plan

on how we were gonna take on Nintendo.

- Tom and I went to Sega Japan headquarter,

where there is a big room called Decision Room,

full of executives and managers...

and Nakayama-san sitting in the center.

- I'm not one to just go into a business

where I think I'm gonna be second place.

I had studied the market and had a strategy

for what I thought we needed to do.

First, I wanted to do more American licenses from TV shows

and movies in the United States...

- Because Japan didn't understand those licenses.

- Montana, touchdown!

- And I didn't think the development

could occur in Japan.

Then I said, "We've gotta lower the price of Genesis."

- We wanted to make it very competitive against Nintendo.

- And I wanted us to take on Mario,

and so I wanted our best character

to be included with the hardware.

- Nakayama's face turned very white, and he said,

"What, crazy? That's our lifeblood.

Give it free?"

And Tom told Nakayama-san,

"By the way, in addition to this"...

- I wanted to take Nintendo on directly in advertising

and make fun of them.

- Of course, there was a fear that Nintendo may sue us

or somehow try to stop that.

- After my presentation, they all talked in Japanese.

Shinobu would try to translate in my ear,

but I could tell this was not going over well.

And I thought, "Well, that's the shortest career

anybody ever had with a company."

- Nakayama-san got so mad, his face turning very pale.

- Nakayama said,

"Well, nobody agrees with anything that you've said."

- He literally stood up from chair and almost,

like, kicking the chair.

I really don't remember physically did he

kick the chair or not,

but he quickly walked to the door.

- But he turned at the door, and he said,

"When I brought you on board, I said you could make

"the decisions for the company in the United States,

and therefore go ahead and do what you just proposed."

- For the third year in a row,

it's on the top of everyone's Christmas list.

- What do you wantfor Christmas?

- Nintendo.

- There were competitors,

home video game companies that were in the business,

and certainly one of the companies was Sega.

One of the things that we always did

was have our game people play their games.

The feedback was uniformly, "Great graphics,

but the games are lousy."

As long as we were hearing that...

we weren't too concerned.

- Welcome to the Fight Palace.

- The title that was packed

into the Genesis was "Altered Beast."

- Not a particularly good game in my opinion,

but it also sounded like devil worship

for half of the United States,

where that would be just unacceptable.

And we needed something to compete with Mario.

- So there was company-wide efforts to come up

with something new.

Yuji Naka, our genius programmer,

came up with algorithm to move object very fast,

and he needed a character to move fast.

- So he asked the art designer,

Naoto Ohshima, to come up

with some sort of characters.

- It was Al Nilsen,

our director of marketing,

who had to pick the characters.

- First game I have here

is "Michael Jackson's Moonwalker,"

which was actually designed by Michael himself.

- Al was one of the very first employees hired

to launch Sega Genesis.

He was the game guru, marketer, PR, everything.

- Al's the best gamer I've ever seen.

- He was like a big kid

who played video games all the time.

- Shinobu came into my office

and explained about this contest

that Sega Japan had had to develop our Mario.

He says, "Nakayama has chosen you.

"They're happy with two finalists,

and they want you to choose."

The first one was Eggs.

"Okay, let's see what the other one is."

"A hedgehog?

What in the world is a hedgehog?"

And there was this rock band.

- He also had a girlfriend named Madonna,

who was very voluptuous.

- So I've got Eggs and a hedgehog...

so I chose Sonic the Hedgehog.

I said, "You gotta get rid of the rock band,

and you gotta get rid of Madonna."

- We said, of course, "No, no, no.

we can't use the name Madonna for this."

- But there were some other tweaks

to the way he looked...

Just to go and round off his edges.

- The folks in Japan didn't like that

because it was their creation

and didn't want anyone to touch.

- It went all the way up

inside of the Japan culture to Nakayama,

and he eventually said, "No, do what the U.S. wants done."

- Six months later, I'm at Sega Japan.

We walk over to a screen, and here's this guy Sonic.

Never seen a video game move that fast...

and look at these vibrant colors.

After my visit, I went back, and I said,

"Sega Japan created something that we can go

"and put up against Mario.

This can be our number one game."

- "It's gonna be the best game Sega ever did."

Coming from Al, that was, like, you know,

"Hey, we got a runner."

- That changed the mood and tide,

so to speak, of the company immediately.

And the rest is history,

and, uh...yeah.

- Let's play Nintendo!

- It is the video game craze,

the Nintendo craze, but this year, Nintendo

may be up against some serious competition.

- You get better graphics, more levels of play,

better animation on the screen, longer games,

just more fun to play.

- Nintendo, however, does not plan

to relinquish any ground.

- Introducing the next generation from Nintendo.

- Almost as soon as the NES was launched in the United States,

Nintendo was working on the Super NES.

- What do you do after you've made a fortune

selling American kids on a product

that drives their parents crazy?

You declare it obsolete, of course, and introduce

a new and improved version next month.

- Nintendo wants a generation of video freaks

to forsake the gear they've already spent

several hundred dollars on

for this, Super Nintendo.

- So we arranged with Sega Japan

to go and pick up one of the new systems for us.

And we all got together in Tom's office,

took it out of the box,

hooked it up to the TV, hit the on switch,

and we were ready to see what they had in store for us.

- We had a Mario launch game.

I knew instantly we had a winner.

That game was that good.

- "Are you sure?"

This didn't look like 16-bit.

It kind of looked 12-bit, if I want to coin a phrase.

It just wasn't taking it to the next level.

I was like, "Yeah, we're okay.

"We've got this guy named Sonic in our back pocket.

This could go and be very, very interesting."

So I came up with an idea.

- ♪ Ah, push it

- Ask not what machines can do for you.

Ask what you can do for machines.

- The Consumer Electronics Show is a twice-a-year extravaganza.

More than 140,000 products are now on display.

Hundreds of companies are taking part,

and more than a third of the industry's annual business

is done right there.

- But this time, it's for the ducks.

- Wait. - Uh-oh.

- Whenever you're at war,

you always hit the guy in the mouth

as hard as you can.

If you can't hit him hard,

you might as well not even fight.

That's the attitude in real war,

and it's the attitude in business.

You've gotta be prepared to take on

the competition and win.

- ♪ Ow, dig it

- Do you think the technology exists

that these'll shrink even more?

- I don't know how much smaller they can get.

You know what the problem with them getting smaller

is holding them steady,

because if it's lightweight, it tends to move.

- ♪ Salt-N-Pepa, Salt-N-Pepa ♪

- Nintendo had some new games

and accessories on display

inside the enormous Nintendo pavilion.

Nintendo now has the lion's share

of the $5 billion video game market.

Sega of America will offer two new games,

one featuring a hedgehog.

- Normally before a big launch of a--of a major title,

you would start getting early press.

We didn't do any of that.

We waited until the very, very last minute

to surprise Nintendo.

- ♪ Show the guys that we know ♪

- Ta-da.

- ♪ I don't know what I'm doing ♪

- I can't believe it. Mario, jeez.

- I'm a nice guy, and I felt that the nicest thing

that I could go and do for Nintendo

was to introduce Super NES to America for them.

I see this reporter.

His opening words were,

"Super Nintendo has 32,768 colors.

"You only have 512.

What are you gonna do about it?"

We walk over to where we had the two monitors stacked

one on top of each other,

and I said to him, "Which one has more colors?"

- ♪ Push it

♪ Push, push, push, push it, push it ♪

♪ Push it

- He just turned around and walked out of the booth.

- ♪ Push it, push it, push it ♪

♪ Push it, push it, push it

- And it's like, "Hmm.

"What can we do with this?

"Let's do what we did at CES

but this time a mall tour going around the country."

- Here's the challenge.

Super Nintendo, brand-new competitor of ours, 16 bits.

We challenge them.

We think we're better than them,

but it's up to you to decide.

- Our small initial team was very good,

but it was clear to me we needed help.

- The American marketplace

is a very vibrant marketplace for the video game industry.

- We were one of the first video game companies

to have senior women in the management ranks.

And Ellen Beth Van Buskirk

was a very special find for us.

- You have the 8-bit segments.

I spent my entire summer going from mall to mall

to mall to mall to introduce Sonic the Hedgehog.

And on occasion,

I would don the Sonic the Hedgehog character uniform.

You could project that the little kids

were gonna pet me.

They were gonna wanna be hugged.

"Oh, Sonic," kisses and hugs and sweetness.

But the teenage boys responded to me quite differently.

They kind of wanted to do high-fiving, fist pumping,

and I kind of got pushed around a little bit.

- I think Genesis is gonna win all the way.

- They wanted something different.

They wanted attitude.

They wanted sass. They didn't want hugs.

- For Christmas, I'm gonna ask my mom for a Sega Genesis

because it's way better than Nintendo.

- Mario was a very slow-moving,

left-to-right scroll game,

and Sonic was hip and fast and cool.

- Sega Genesis is way better

because Nintendo is kind of slow.

- When Sonic was first released,

everybody kind of scratched their head and said,

"A hedge-what?"

- You know, was it impressive that he could roll really fast?

I don't know. You know, for me,

I didn't probably have

the reaction time to deal with it.

- But for a lot of people, they found it really fun

and liked the fast action, using that pachinko mechanic

of lots of "ba-ding-a-ding-a-ding,"

very fun to kind of get that going and keep it going.

And Sonic is a character.

He had that little bit of edgy kind of wiseness

that Mario--you know, Mario-- "hoo-hoo"--never had.

- It wasn't empirical science when you say,

"Which one do you like better?"

Doot, doot, doot, doot, doot, doot.

- In speed of action, we looked better;

graphics, we looked better.

They had never experienced anything like it.

- I don't think Sonic the Hedgehog

was a masterpiece or something,

but it gave them additional momentum.

- By then, I knew we had a winner,

but we needed to find a way

to get in the major retailers.

- ♪ Wal-Mart's one of those

- Wal-Mart wouldn't agree to carry Sega products.

- The only thing... - Hotter than Nintendo games...

- Is Wal-Mart's price.

- Wal-Mart was making a lot of money from Nintendo,

and they did not need any unknown second supplier.

- And Wal-Mart just refused because of this pressure

that Nintendo put on them.

- We were fanatics about retail space, okay?

That became a thing we leveraged.

"Hey, you're really doing well with the product, Mr. Retailer,

"but guess how much better you could be if you had 20,

30, 40 feet of Nintendo product."

- And "Super Mario World"is included.

- Okay, okay, we'll get it for him.

- So we developed a strategy on how to change this.

- I came up with an idea of opening a Sega Game Store

right in front of Wal-Mart headquarter in Arkansas.

- We rented a store in a shopping mall

literally as close to Wal-Mart headquarters

in Bentonville as you could get,

and we put as many TVs and Sega Genesis

in there as we could and a big sign out front

that said, "Come play Sega Genesis."

- Free of charge.

- We had lines of teenagers out the door.

- The store became very popular for Wal-Mart employees.

- We bought every billboard leading in and out

of Bentonville with Sega advertising.

We bought the football cushions

at the University of Arkansas football stadium.

After a while, a senior VP of Wal-Mart called me up,

and he said, "Tom, stop it.

We'll give you a four-foot section in Wal-Mart stores."

Because Wal-Mart is such a powerful retailer,

all the other retailers gave us more space

and were less afraid of Nintendo punishment.

That changed the business dramatically.

- As the company started to grow very fast,

we brought in people from much bigger company

because we are aiming to be a bigger company.

- Sega was such a distant player.

It wasn't like they were second.

It was like they were 14th. They were that far down.

Nintendo was so dominant. - "Nintendo Power."

- So I got a call from Tom, from Tom Kalinske.

He needed some help doing marketing,

and he asked if I would do it.

- Mario!

- It was not dissimilar to what I did at Reebok,

which was trying to unseat a category leader.

- No-no-nobody.

- Part of the reason of going to Reebok

was the challenge of slaying the beast of Nike.

- Impossible.

- And we came up with this idea

called the Reebok Pump.

It was totally a marketing gimmick.

It made your foot a lot hotter.

It didn't really give you any more support.

But at the end of the day, it was one of those things

that just caught the consumer psyche.

- Steve Race, the first thing we heard about

is his wild TV commercial at Reebok.

- One guy is wearing Nikes.

The other guy is wearing Reebok.

They both jump off this bridge.

Commercial ran once.

- Steve Race was a terrorist for A-type personalities.

If he was a college course, he'd be Trouble and Difficulty.

- I remember Steve and I playing tennis.

He had a mean serve.

I think he was aiming for my head most of the time.

- Sega had a bad reputation.

I just didn't wanna be the puppet that would be pulled

by a puppet master 7,000 miles away.

I didn't know who the puppet master was.

Obviously, it turned out to be Nakayama-san.

Nakayama was the head of SOJ,

and he really was the patriarch

and the prime mover in all of Sega.

Nothing went out without Nakayama's approval

and endorsement.

- Nakayama-san was very difficult for many people.

If you do not deliver, he was brutal.

- We'd all be on alert that he was coming in,

and there was this presence,

almost of evil, that came into the office.

- He had very long hair

that he kind of wound around the top of his head.

- We had all these ways that we thought

Nakayama might meet his demise,

and one of those was that his hair would get caught

in the rotor blades of a helicopter

and pull him around in a very Gatsby-esque death.

- To me, Hayao Nakayama was a cartoon character,

and I loved talking about him.

I mean, we all did, you know?

He had weird hair,

he had a weird sensibility,

and he carried a very big stick.

The Japanese-U.S. relationship is kind of confusing.

It really kind of starts with an American serviceman,

David Rosen, in Japan during the war

and then coming home and saying,

"Hey, there's an opportunity me

to sell arcade games from Japan into the U.S."

We called each other SOJ and SOA,

Sega of Japan and Sega of America.

- I don't think anyone in Japan thought

taking Nintendo on directly was a good idea,

but it was something I felt we needed to do.

- People hate advertising in general.

You know, if I go to a party and I say I'm a filmmaker,

they go, "Oh, what films did you make?"

And they think of, like, really good films.

And you say, "Oh, I'm an author,"

they think of a good book that they've read lately.

And if you say you're in advertising,

they think of the shittiest ad they've seen in months.

- Oh, yeah! - Snap into a Slim Jim!

- Sizzler.

- We had four agencies pitching to us, big names,

and Goodby was a small group.

Jeff was the lead.

- We, at the time, had just had

one of our original partners leave,

and Rich and I were left here and were kind of like,

"We gotta win this, you know?"

Good morning.

Thanks for having us here.

The pitch to Sega was probably one

of the most elaborate pitches we've ever done.

We had every person in the company become an expert

in every game you could play on the Genesis.

So everybody came out

with these beautiful athletic jackets,

and we put a sound system in there

that we rented from the Grateful Dead.

We definitely went overboard.

Eh, lighten up.

The agencies we were up against

were really the best agencies in the country,

and I really thought they'd think of something

to beat us with.

- This work is the best work

we have ever done as a company.

I can't wait to produce it. So I hope you like it.

- This is your brain.

This is your brain on Nintendo.

And this is your brain on Sega.

- Whoo! - Ooh!

- What a ride.

- And it worked.

- They overwhelmed us with their pitch.

- We did the first commercials,

and one of them was about this guy who started off

in a very straight kind of outfit...

- And then transformed into a really cool guy...

- Welcome to the next level!

- Playing Sega Genesis.

- Welcome to the next level.

- I thought "Welcome to the next level"

was a great line because it rewarded you

for playing the thing well.

It promised that there was depth to the games.

You got better and could get up higher.

- On the Sega Genesis.

- It was also saying to the competition

that "you're not the next level.

You're behind."

I thought that was absolutely brilliant.

- But I don't think it would have worked

without the Sega Scream.

The Sega Scream was what really drove the thing in the end.

Sega!

- There was something about the way

the guy did it... - Sega!

- That was just really funny.

- Sega! - It was slightly Japanese.

- Sega! - Just absolutely--

you couldn't get it out of your head.

- Sega! Sega! Sega! Sega! Sega!

- Sega! - Sega! Sega!

- I would go pick up my daughters at school,

and when they saw me, they'd say, "Sega!"

- Sega! - Sega!

- Sega! - We kind of owned

something that Nintendo didn't have.

They were kind of scrubbed and clean

and Disney-ish and so on,

and we wanted it to be kind of uncool to be a Nintendo kid.

That was our explicit intention.

- Sega! Sega!

- The advertising was extremely competitive.

I mean, we made a lot of fun of Nintendo.

- Look, a cat massager.

Spread cheese snacks.

Use them to tenderize meat.

- Team Sega represented the antiestablishment team.

Nintendo was the Soviet Union, and Sega were the guys

that were throwing Molotov cocktails.

- Hey!

You still don't have a Sega CD?

- Huh? - What are you waiting for,

Nintendo to make one? Show him.

- Whoa!

- Whoa, color.

- And you just try not to respond

to those kinds of things. - Sega!

- Treat them as though they're--you know,

they're doing that because they're desperate.

We kicked off each launch

with a three-pronged attack, including...

I joined in March of 1992.

"Nintendo Power" coverage, and online...

When I first arrived, there was still sort of a--

I wouldn't say a dismissive attitude but a feeling that,

"You know what? This is really not serious."

That quickly changed.

- The Sega Genesis has blast processing.

Super Nintendo doesn't.

So what's blast processing do?

- This "blast processing" thing,

it was a total fabrication of advertising people.

- I like the one when they said the blast processing.

- Kids would come into focus groups, and they'd go,

"Yeah, I know that Nintendo has 16-bit,

but Sega has blast processing." It was crazy.

- And what if you don't have blast processing?

- And they have a little truck for Nintendo.

- I would have loved to have seen the faces

of the Nintendo people when that thing ran.

I would just love it.

- "Blast processing,"

as though it was technology-related,

was kind of vaporware, but it was catchy,

and it worked.

- Their advertising was very effective.

It tended to make it uncool to play Nintendo.

- Which is fine, really,

if you don't mind being sucked dry.

- You gotta give them credit. - Sega!

- I think Kalinske did a great job.

- Sega! - Sega!

- What Sega has been doingto make these ads,

they should just keep ondoing more of it

because these ads are great.

- All the kids thought it was cool.

- Sega has the coolest ads, the best games.

- And as a result, the company was cool.

- Nintendo's like, "Where have they been?"

- You saw it on TV shows.

People were picking up the popularity of Sega.

- I'm going to Todd's.He has Genesis.

- She doesn't even have Sega.She's such a troglodyte.

- Hell hath no fury like a woman scorned for Sega.

- I mean, we were becoming

as popular or more popular than Nintendo.

- To Sega, we say congratulations

for bringing us the 16-bit Game of the Year,

Sonic the Hedgehog.

- I got a call the other day that an 18-year-old was saying

that Sonic the Hedgehog made him forget about girls.

So I consider that a great achievement.

- When the very first Sonic game came

to be released and became very successful,

obviously, we wanted to create a sequel.

- And part and parcel with making that successful

was, "How are we gonna launch it?

How are we going to support it?"

- We started looking at what else we could go and do.

- "Ha! Let's do something like the movies.

Let's do a world distribution date."

- We were going to make the game available

at every retail outlet on the same day.

I know this sounds silly today, but it was hard to do.

- "We'll do it on a Tuesday...

Sonic Two-sday."

- Last Christmas, the world felt its first Sonic boom

when "Sonic the Hedgehog 1"

became the most popular video game of 1991.

- Writing for Tom was always great.

I don't know what it was.

He has a natural sense about what it will take

to draw in the audience.

He's charismatic, and he knows it and uses it.

I'll say he uses it for good rather than for evil.

- We believe "Sonic 2" will be America's hottest video game

this Christmas, and...

both: We project to sell more than 2 million copies...

- In the United States between now and Christmas.

- We have Tom speaking, and then I have Joey Lawrence

running out from behind the curtain.

You know, we could never afford the big Hollywood names.

- Dustin Diamond, come on up here.

- But we could afford teen idols.

- And if you thought the first one was good,

wait till you see the second one.

- You know, "Sonic 2" is great.

It's better than the first one. You have great graphics.

Sonic has a new friend called Tails,

a fox, two tails, cool.

- Sonic Two-sday was so big.

It was a bodacious idea.

- Oh, it's great, and it's great

because it's two-player, you know?

So you get to play with more than just yourself.

- But she's--but this is the exact same board,

and we're playing here together,

but she's in a different part of the board than I am.

So it's something never seen before, really.

It's great.

- We launched in Japan,

Australia, Europe, all over the world.

"Sonic 2" is super.

- Pretty good. - It's brilliant.

- Never, ever been done before.

- It's comparable to the launch

of Madonna's "Sex" book, you know, Sonic Two-sday.

- I'm right below you.

- It was an amazing hit.

- Sega!

- Oh!

- When Genesis succeeded so much

here in America, in Japan,

it did not necessarily do great.

So that way, I think Sega of America

became the valuable core of entire Sega business.

- Sega was able to make a dent in the U.S.,

and it kept us on our toes

because we were in a real battle.

- As we grew, as we added more people,

Nintendo was in our target.

It became a kind of "Spy vs. Spy."

Whatever Nintendo would do, we would try to do better.

- With the Sega Menacer in my hands,

I'm not afraid of enemy tanks.

- Sega!

- At one point, I was told there was a dartboard

in Nintendo's office with my face on it.

- When we went to analyst meetings,

it would be Tom Kalinske and Peter Main.

- Well, Peter and I didn't get along very well.

- A lot of yelling and screaming at various events.

- I remember getting up to speak

at one of those meetings, when I said,

"Boy, following Peter Main

is like following Dr. Kevorkian."

- It erupted into a bit of an interesting

after-three-glasses-of-wine conversation

that carried on down Fifth Avenue

in a raging snowstorm.

Thank goodness third-party intervention happened.

- As '93 started, there was a big game coming...

and it's gonna be available not just for Super NES

but also for Sega Genesis.

- Mortal Kombat!

- Mortal Kombat!

- "Mortal Kombat" was a huge coup for us.

For once, we get a big title.

- Ahh!

- We had "Mortal Kombat" in its original version

with all the possibility for gore and, you know,

chopping people's heads off and stabbing them

and what have you.

- There has been so much violence swallowed into my soul

over the years; nothing was new.

I mean, consider Roadrunner.

- "Mortal Kombat" went into a graphic violence area

that Nintendo hadn't allowed on their consoles.

- We had long discussions about whether

we should allow the blood.

I ultimately decided that we would not.

- Fight!

- The Nintendo version showed green gore.

Well, what human being has green gore in them?

- I was expecting we might actually get

some positive feedback from parents that say,

you know, "Bless you.

"You kept the violence

out of this game."

And on the contrary,

I got lots of letters from parents

criticizing Nintendo for censoring the game,

and we got our clocks cleaned.

- Ahh!

- Tom wins! - We outsold them five to one.

- Sega! - Sega!

- Sega! - Sega!

- Sega! - Sega, Sega, Sega!

- All right, a Sega Genesis!

- Sega! - It's a Sega!

- Sega!

- Whoa!

- No way!

- ♪ Back with another one of those block-rockin' beats ♪

- I mean, we dethroned Nintendo.

- Fight!

- "Mortal Kombat" on Sega Genesis

is the best video game ever.

- Urkel wins!

- I think "Donkey Kong" is the best game ever.

- "Donkey Kong" sucks.

- You know something? You suck.

- The most complimentary thing I can say about Nintendo

was the fact that they... reinvented video games.

- Thank you, Peter.

- They had to create, out of nothing, an industry.

They not only did that; they did it well.

- Good afternoon. Nintendo. Nintendo. please hold.

Thank you. May I help you?

- My path to Nintendo was not so purposeful.

It was just kind of pure luck.

I was at a time in my life where I was really searching

for something great and fun to work on,

and it was a place that was meant--meant for me.

- You always had to spell Nintendo

back in the early '80s. Nin-ten-do.

- I would get on airplanes,

and you'd start talking to somebody,

and you'd give them a business card,

and they'd say, "What's a Nine-tendo?"

- People, when I told them I was working for Nintendo,

they said, "Huh?

What a--you know, what is that? Is that a dry laundry?"

- For most of its 99-year history,

Nintendo made board games and playing cards,

traditional products for a traditional way of life.

- Nintendo was some obscure company

that just had these random helicopter games

and another kind of wannabe shooter game,

so it was really nothing from an arcade game standpoint.

But then Mr. Miyamoto came along.

- Mr. Miyamoto was the original developer of Donkey Kong

and the creator of Mario

as the character chasing him up the construction site.

- Whereas I was just a guy at Nintendo,

Miyamoto is the guy, the master,

and would go on to design some of the best games at Nintendo.

When "Donkey Kong" first came in, it was really cool

because you had this little guy

who you could push up on the thing,

and he'd climb up ladders.

You'd go up and, doink, make a mistake.

One of the barrels would get you.

You'd say, "Oops. I can do better,"

and then you'd immediately start playing again.

I mean, just, like, it was unbelievable.

- We sold over $100 million worth

of "Donkey Kong" coin-operated video games

in less than one year,

and this is a company that had 30 employees.

- Nintendo of America.

- We'd get shipments from Japan,

and I wouldn't know what they were.

Then one of the days, I open the box,

and there was this little thing in it.

- I thought, "This is cool. This is great.

"Let's, like, give it to everybody.

Let's bring it over, sell it."

Well, Mr. Arakawa said, "Hmm, we need to think about this."

This thing was really risky, and it could fail.

So I started to get exposed to the fact that there was

this thing called the debacle of the Atari 2600

and that there was this thing called the "E.T." cartridge.

- "E.T." video game? Wow.

- The game was so bad, so unplayable,

millions of copies went unsold.

- It is a legendary landfill, a tomb

where an entire industry was buried.

Thousands of copies of one of the epic flops

in video gaming history

laid to rest in a New Mexico city's garbage dump.

- The video game industry is now becoming

very much like Hula-Hoops: there still may be

a lot of people fooling around with them,

but profits are getting to be quite negligible.

- Video game cartridges as Atari.

- Given the collapse of Atari,

the idea of actually introducing

a home video game system

in the United States was very risky.

- I was, "the original salesperson" at Nintendo.

I had family members say,

"You're out of your mind. You have kids.

"How are you gonna support your family

when this thing dies in six months?"

As far as appetite for video games,

there was none.

- Video games: play them for fun,

but invest in them at your own risk.

- But we still had really great games,

and that's when Mr. Arakawa said,

"We should do this."

- We ultimately made the decision

to introduce the NES to New York,

the epicenter of the toy industry.

- Our pitch was very simple.

- You're playing with power!

- This is not just a video game.

It's an entertainment system.

- It didn't make you think about your Atari.

- Will your family be the first to witness

the birth of the incredible Nintendo Entertainment System,

the first to play with R.O.B, the extraordinary video robot?

- Parents could say, "Oh, it's got this light gun,

which is totally new. Look, it's magical."

- We sent a number of Nintendo employees

to Hackensack, New Jersey,

where we had this warehouse that was infested with rats.

- I couldn't go to the bathroom in the warehouse

because it was that not-nice.

There was a huge hurricane that year,

and the warehouse flooded, and some barrels

start floating around the parking lot,

and they have, like, toxic waste symbols on them.

- For the three months, we did nothing

but get up in the morning and give demos to kids

and let kids play while we talked to their parents.

- Parents were saying, you know,

"What is this Nintendo thing?"

- People would show up with cameras and microphones

and notepads and say...

- "What are you, on drugs or something?

"Are you guys crazy?

No one wants to look at a video game now."

- I remember this woman walked up to me

and said, you know, "What is this?"

and I said, "Oh, it's Nintendo,"

and she said, "Nintendo?" and I said, "Yeah,"

and she goes, "I hope you fail."

- We left that research session

feeling a little unsure of ourselves.

- We had to go out and get rid of the doubt on so many levels.

We're at war, guys.

We gotta make believers out of the world

that this is for real,

this can happen, this can grow.

- The word Nintendo means, "Work hard,

and the fates will smile on you."

I like that idea that if we all just put forth

our best efforts, then we'd be successful.

- The buyer of video games at Toys "R" Us

was the ultimate skeptic, and his name was Hal.

When I came in with a video game, he said,

"Forget it. I don't want you to call me.

"I don't want you to contact me.

If I see it starting to sell, you'll hear from me."

- The day before the NES was supposed to launch,

commercials were on air.

We all went to the warehouse and opened champagne

and literally loaded the truck to take it to FAO Schwarz.

We went, and we stood outside the window of FAO Schwarz

and watched someone make the first purchase.

The person bought, like, every game.

- All of a sudden, the phone rings.

"Hey, how come you didn't call me?"

I said, "Well, Hal, you didn't think it was gonna sell,

and I didn't want to bother you."

"The thing's blowing out the stores.

"Get up here now. Today's Saturday,

and I'm ready to backup order immediately."

- It may be the most addictive toy in history.

- The product started selling like hotcakes.

- This is as big or bigger

than anything the toy industry has ever seen.

- "We're excited about the possibilities

for this new thing called Nintendo, whatever that is."

- When Nintendo entered the game,

the video game market was a losing proposition.

Nintendo says it brought it back

with better-quality games and graphics.

- We decided if we could make a video game system

with quality games that we would be successful.

We took that gamble,

and now I think it's appropriate for us

to reap the rewards of that gamble.

That is capitalism.

- If the NES had not been successfully launched

in New York, I think it's fair to say

there would not have been a home video game business.

- Suddenly, who knew what game was gonna come out?

Instead of Christmas happening once a year, it's like,

suddenly Christmas happened just all year long.

- What the hell are you?

- What are you? - I'm Batman.

- I'm from the future.

- Whoa!

all: Cowabunga!

- You know, I remember at the time

seeing Sega at every trade show and seeing the Sega people,

and they were trying so hard to be successful,

but Nintendo was the only game in town

until Tom came along.

- When Tom Kalinske joined Sega,

we knew his background.

We knew he was a very fine marketer.

He was a worthy competitor.

- When Tom showed up, it was a little bit

of a message to Nintendo that the game was changing.

- Tom Kalinske's a very smart marketing guy

feeding the retailer,

"Yeah, tell me more, tell me more, tell me more."

- I always thought of Tom Kalinske as, like,

the character in "The Music Man,"

come into town,

drum up a lot of sales, get them all excited,

and when you look kind of behind the scenes,

there wasn't quite as much there as you would expect.

- Sega was kind of chipping away at our business,

and in particular, they were going after the harder edge

that Nintendo wouldn't do.

- Something down there sucked their brains out!

- But we weren't going to chase the other guys.

That was never a part of Nintendo's strategy,

to follow the other guys

or try and do what they were doing.

Instead it was to do what we do but just do it better.

- I have to admit, I was not always in favor

of that strategy.

Having been at Nintendo for a while, I was young,

and I still believed that a lot of my thoughts

were the right way to go,

and they weren't taken, and maybe, you know,

burned some bridges along the way.

- All of a sudden, Bill

started smoking cigarettes and driving sports cars.

You know, he'd just kind of, like, turned to the dark side.

Once Bill got out of Nintendo, he was--he was Bad Bill.

- The Sega Genesis was doing extremely well,

and so it made sense for me to switch teams.

- When he left,

I think Nintendo felt a sense of--of betrayal.

- He went to work for Tom, and hey, that's life.

- It was easy for me, but I think it was difficult

for the Sega people to accept me.

- We were giving him a hard time about that,

perhaps he wasn't true-blue Sega,

and he says, "You know what I think of Nintendo?"

and he pointed toward Seattle,

dropped his pants,

and mooned Nintendo.

- Tom always said that it's easy to be

a number two company challenged to be number one.

Once we become the number one company,

that is the real challenge starts.

- Video games have become a $4 billion-a-year business.

There is a growing concern on Capitol Hill

that parents who buy some of those games

may not realize just how much violence they're getting.

- Games so violent, bloody,

and gruesome that parents and politicians have had it.

- Violent, sexual games available to youngsters.

- The best thing about games is violence,

realistic things like blood.

- He scores--oh! - You know what, Mike?

You can make their heads bleed on this game.

- Make somebody's head bleed. - There it is, Mikey.

Check it out. His head's bleeding.

- These are not harmless toys.

They can indeed cause great emotional

and other damage to a child.

- They're just out for making money,

and they're not worrying about the kids' well-being.

- Along with that huge success came the criticism.

I did not expect the U.S. Congress to get involved.

- Like the Grinch who stole Christmas,

these violent video games threaten to rob

this particular holiday season of a spirit of goodwill.

These games teach a child to enjoy inflicting torture.

- They were threatening the industry

with severe censorship, so there was a lot at stake.

- It was largely political.

"We're gonna restrict your children

"from being exposed to these violent video games,

and we're going to make the world safe for democracy."

It was total nonsense, total bullshit.

It's business and politics

meeting in the worst way possible.

- What you're about to see are scenes

from the most violent new video games,

"Mortal Kombat."

Blood splatters from the contestants' heads,

and a player wins the so-called death sequence

pulling off the head of the opponent

with spinal cord attached.

I find this segment deeply offensive

and believe that it simply should be taken off the market.

Let me now call to the table Howard Lincoln,

senior vice president of Nintendo,

and Bill White, senior vice president of Sega.

- I'd never been in Congress before.

Of course, it's always a little bit intimidating

when the senators sit ten feet above you

and you're down on a little table in front of them.

- We debated a lot about who should go,

and we decided that Bill White was absolutely perfect.

Instead of having the senators address me and address Howard,

have them address Howard and another guy

who used to work for Nintendo.

- We knew that it also would irritate

the hell out of Howard.

- To meet our game guidelines,

we have removed the blood and death sequences

present in "Mortal Kombat."

We did this knowing that we would lose money

by sanitizing "Mortal Kombat," but sanitize it we did.

- Howard Lincoln was pontificating about

how Nintendo never would do anything as horrible

as what Sega had done with "Mortal Kombat."

All of a sudden, Bill White whips out this gun

that they used in a hunting game.

- Senator, I may also point out that Nintendo produces

product for a rapid-fire machine gun.

- This is a thing that-- it's called the Super Scope.

I think that this game is a target sh--this device

is for target shooting and whatnot.

- To me, that looks like a-- looks like a weapon.

It looks like an assault weapon of some kind.

- I was starting to get a little bit agitated with Bill.

He had worked for us, and he knew what was going on,

so I felt it was necessary to make our position

very clear, which I did.

And it seemed to go over quite well.

I can't sit here and allow you to be told

that somehow the video game business

has been transformed today from children to adults.

Small children bought this at Toys "R" Us,

and he knows that as well as I do.

We've got to get further into this.

- Well, thank you. Thanks for your forthrightness.

Thanks for assuming responsibility.

I appreciate--I believe you've shown some leadership here.

You've been a damn sight better than the competition.

- People were worried about video games being like drugs,

we were forcing them on kids.

They would become addicted to them.

They would ignore their studies.

And that turned out to be true.

No, it didn't. It wasn't true.

It was the opposite, actually.

I think that the kids that became video game aficionados

in many ways had better imaginations

and a better time with the world in some ways.

- After the Senate hearings,

Kalinske came out with some comment.

- What I had said was that Nintendo

started these hearings

by sending the senators videotapes of our video games.

- We thought Nintendo had planted this,

and it was convenient that Senator Lieberman

actually was getting reelected that year.

- I found that to be absolutely incredible.

This is the guy that sucks us into this.

I was trying to figure out a way to, in effect,

say, "Buzz off,"

so I decided to write a poem,

"Roses are red, violets are blue.

So you had a bad day, boo hoo hoo."

- Come on.

- I think it sent a message to Sega

that we were gonna continue to fight them.

- Every year at about this time,

the sharpest of the cutting-edge electronics

are unveiled,

and, oh, the places you'll go.

- Hey. - Hey.

- How you doing? - What a sight for sore eyes.

Come and sit down for a minute.

- All right.

- We just decided to come out here on a little hunting trip.

As a matter of fact,

there's some of those little suckers again!

- Hey.

- Peter, a lot of people thinkthat Nintendo

and this whole businessis going right down the river.

- Yeah, Nintendo had a bad year.

Sales dropped. Profits dropped.

But the future's gotta be bright.

- There was a feeling like, "You know what?

"This is a maturing industry.

We need to start acting that way a little bit more".

From now on, we'll see no repeats

of the "Mortal Kombat" incident.

"Mortal Kombat 2" will be the same

whether it's on our platform or on anyone else's.

- All right. - Yeah.

- We as a company had to make a decision.

Were we gonna waver from the Mario roots?

This was very tough for us.

- The contents may be new,

but the sales formula hasn't changed at all.

We did modify our approach but without sacrificing standard.

- If kids want video games to help them define

their image, then we're gonna do just that.

The music comes from two of the hottest grunge groups

out there, the Butthole Surfers and Sweaty Nipples.

So live it large, run it free, and play it loud.

- Play it loud!

- And I mean, they-- they kind of got it.

They started to see what the consumer wanted.

Hey, bravo for that.

Was it iterative of Sega?

Mm, yeah, it was, and we were complimented.

- Sega!

- We now needed to shift again

and try to figure out, how do we manage against a company

that's starting to awaken?

- Sega is the current leader but only by a slight margin.

In an effort to keep their edge,

Sega demonstrated the latest in player interface,

the Activator.

- Ugh.

- We had this strategy to use technology.

- Not just thinking one step ahead

but two and three steps ahead.

- You look to the right, and you see the attacker

coming in on the right; you look above you,

and you could see the airplanes coming above you.

- Welcome to Sega Channel.

It's cable, but you don't watch it.

You play it!

- We see the Internet and online gaming

as one of the big revolutions in this business.

- They were kind of just throwing things

against the wall to see what would work.

- I didn't want us to become like Nintendo

and let somebody pass us by,

and so having the next great hardware system

was really critical.

- The next big battle in the video game wars

is about to begin as manufacturers

try to get people to trash their old systems

and trade up to new ones.

- I often get to introduce our money editor, John Stehr,

but right now, for the first time ever,

I am going to become John Stehr.

- It's our way of introducing you

to the machine behind today's movie magic.

- It's been a year of digital distortion.

Artists reanimated John Kennedy...

- I gotta pee. - And put Brandon Lee

into scenes shot after his death.

One brand of computer made all these movies possible,

the blisteringly fast computers of Silicon Graphics.

- I got a call from Jim Clark,

who was chairman of Silicon Graphics.

Said, "Hey, we've come up with a new chipset

"that we think is perfect for a video game system.

You wanna come over here and take a look at it?"

We called Nakayama, explained the situation,

and said, "You gotta send a hardware team out."

Nakayama even came himself.

We had a good meeting at Silicon Graphics.

They showed off these amazing graphics.

- ♪ That's what I said now

- They went back to Japan, and the response to us was,

"No, that's not good enough."

They thought there'd be too much wasted silicon,

so that was the excuse they gave.

- ♪ Yeah, yeah

- This was the first time that a major strategy

that I believed in had been overridden by Nakayama.

- It was a surprise to me.

It was a surprise to Tom,

a surprise to everybody that this happened.

- Initially, I thought it was honest differences

in hardware architecture,

but I began to see that there was this jealousy

that was developing between Sega Japan

and Sega of America.

You could imagine every week, your CEOs walking in

and saying, "How come you're not as good

as those guys in America?"

And they started looking for ways

where they could disagree with us

and perhaps, to some degree, undermine us.

I explained the situation to Jim Clark, and he said,

"Well, what should I do now?" and I said,

"Well, there's this other video game company in Seattle.

Maybe you should go take a visit to them."

- It's a pleasure to be here this morning.

There's a lot of talk today about new technology

soon replacing 16-bit video games,

but ultimately, only hit games will bring you customers.

- The Super Nintendo was doing well and making good money,

and so we kept reminding ourselves,

"It's not about the technology.

It's about the fun that you deliver."

- Here's an old friend of mine.

This, of course, is Donkey Kong,

the star of Nintendo's 1981 arcade hit.

Well, ladies and gentlemen, my friendly gorilla is back

in his new Nintendo game, "Donkey Kong Country."

- Since its release, Nintendo

has sold more than 6 million copies.

- "Donkey Kong Country" was a critical game for us

to sustain the momentum of Super NES

in the battle with Sega and push it right over the top.

- But while we were going through the battles with Sega,

another competitor was behind us,

and he's preparing to enter the marketplace.

- Mommy. Mommy. Mommy!

- It's only a movie,

except on a Sony big-screen TV.

- Oh, good, something romantic.

- Sony was just desperate

to get into the video game business.

- We support the content, the formats

that we think the consumer's going to like.

- Olaf Olafsson arrived in my office one day,

and we started talking about ways we might work together.

- Sony and Sega secretly agreed to come up

with a common hardware unit.

- But we'll each make our independent profit

off of the software.

We were a much better software developer than Sony was,

and so I thought, "Boy, this is a win for us."

- Consumer electronics giants Sony and Sega

are teaming up on the video games,

putting Sony music and movie software

behind the video game maker.

- Everybody involved thought the marriage would happen.

- Unfortunately, Sega Japan just couldn't agree

with the Sony engineers on specifications.

I was really upset

and felt like they didn't try hard enough.

- People were coming to our door to say,

"Hey, we want to be part of what you're doing here."

For whatever reason,

Sega of Japan didn't want to play.

- Kalinske did a good job of protecting us,

and it wasn't easy.

- He was a bit like the sin eater.

He was eating all the sins for the entire SOA group.

- He would tell me what was going on over there,

but I didn't really internalize it

'cause I didn't have to go there and get yelled at

like he did and scared like he did.

- Once the decision was made

not to do joint hardware with Sony,

I knew that things were different now.

- Nintendo, together with Silicon Graphics,

have entered into a worldwide joint development

and license agreement

under which our companies will develop

this new and unique product.

It will feature a new,

true 64-bit multimedia engine chipset.

- That freaked them out at Sega

because there was nothing to do about it.

They just could not get up to a 64-bit machine right away.

- At that time, the strings were being pulled by Japan.

We had very limited degrees of freedom.

Our ideas were typically ignored

or not responded to, more often than not,

and I just wasn't looking for that intellectually.

And then I got approached by an executive search firm

looking for someone to run the Sony PlayStation.

- PlayStation. - And I said, "Well,

"here's another interesting challenge.

I can just undo what I just did at Sega."

- I was a little bit surprised that they went for Steve.

- I was done, and I just wanted to move on

and didn't want to stay at Sega any longer.

- Sony wanted to really stick it in our eye

at this point,

and clearly, Steve was delighted to do that.

- My former wife used to always tell me

that there's no chance that I'll ever get a broken heart

'cause I don't have one.

To me, it's just a decision that one makes about business.

You can't be terribly emotional.

You have to be willing to cut off your hand to save the arm.

- Sony was really a scary competitor.

It was kind of like, the show business people

were gonna come into this thing,

and their sound and graphics

were gonna be way above what we could do.

There was a lot of fear around the Sega halls about that.

Kalinske was coming back from Japan

having nervous breakdowns about what was coming up.

We had no product at the time.

- At that point, Nintendo was on the wane.

- The biggest problem that we have with Nintendo 64

is to try to figure out

how to make great software real-time 3-D.

- We were teasing the retailer for, like, two years.

We were showing them these great graphics,

but from a sales perspective, it was a killer.

- When Nintendo announced 64-bit system,

Nakayama felt that we got to make it 64 too.

- Introducing... - Sega Saturn.

- Sega Saturn was 32-bit machine to start with.

It was too late to redesign the machine,

and we ended up putting two 32-bit chips.

That made the programming challenging and complex.

- The software looked like shit.

Not until three months before launch did we find out

that the software was not gonna be there to support it.

- Not only did we not have enough software.

We didn't even have enough hardware,

so we had to limit

the retail distributors who carried it,

and we cut out Target and Wal-Mart,

and these guys were furious with us.

I expressed all this to Nakayama,

and he disagreed with me.

He was afraid that Sony was gonna steal our thunder,

so he wanted an immediate launch of Saturn at E3.

- When giants in the video game industry

square off against each other at a major trade show,

people pay attention.

With $10 billion on the line,

it's all about which expensive toys

consumers will pay to play with.

- This is no game; this is a multibillion-dollar gamble

for a lot of entertainment companies.

To borrow from a couple of their more popular titles,

they're locked in "Mortal Kombat."

For the losers, it could spell "Doom."

- Without the right games,

we're delaying the launch of Nintendo Ultra 64.

- We feel it's more important

to make a good first impression,

have the absolute best possible software when we launch.

- So you're willing to wait till '96?

- Yeah, we're gonna wait.

- Product launched in Japan.

We sold 100,000 units on the first day,

300,000 units in the first month.

We're approaching a million units sold in Japan.

We just need to replicate that in the United States.

- No question in my mind, there are gonna be casualties,

and there are gonna be casualties soon.

- Tom and I were both staying at the same hotel,

and they had taken over the lobby

and the swimming pool,

and they had these large inflatable balloons

of some of their iconic characters like Sonic.

Somehow those blow-up balloons wound up

in the bottom of the pool.

- He had them deflated,

stuck pins in them or something.

- After Sonic was found dead in the bottom of the pool,

Tom came to me and said, "Steve, can you cut it out?"

and I said, "Tom, no.

There's no way we're gonna cut it out."

- Clearly they were trying to out-Sega Sega.

- You know, if you're planning to buy

a new video game machine this year,

you better start saving for one now.

Some supersophisticated new systems

are about to hit the market, and they are pricey.

- Sega rushed Saturn on the market,

and it sells for around $399,

and don't expect that price to come down anytime soon.

- I wish that we could say

we were gonna see prices come down,

because I think it would help my business

and we'd sell a lot more units.

- I'm gonna talk to my parents about this one.

I like this one a lot.

- You better tell them it's $399.

- Up next, the Sony PlayStation.

- I'm going to ask Sony Computer Entertainment

president of America,

Steve Race, to join me for a brief presentation.

- I was sitting right in front of him.

It was Tom and I and Shinobu, and...

we were just sitting there watching.

Sony PlayStation!

- What is that? What is that?

- It's an enormous parade, including 16 balloons.

- Yeah! - All right.

- It was a cold and windy day this Thanksgiving,

and some of the new balloons didn't fare terribly well.

Sonic the Hedgehog hit a utility pole

around 58th Street and Broadway.

- Oh! Oh!

- Sonic wounded an off-duty police officer

and caused minor injuries to a young woman

and a ten-year-old girl.

Sonic the Hedgehog didn't finish the parade.

- The success of Sega of America

really is American dream.

- All right. - Yeah.

- Americans like challenges,

so I think, overall, battle against Nintendo

was perfect for the spirit of Americans

to fight David and Goliath sort of battle.

So I think I'm very proud to be part of,

you know, whole Sega phenomenon.

- 19 more shopping days until Christmas,

and the heat is on for parents all over the country

from kids who simply have to have this year's hottest toys.

- It's no longer Sega. Now I'm into Nintendo.

- Nephew wants one, my son wants one.

- Oh, that's a--that's a lot of systems.

- Go!

- Nintendo's top execs traded suits and ties for helmets

and racing togs today.

- Here comes another finisher!

It's Howard Lincoln,

Howard Lincoln, ladies and gentlemen!

- An incredible race,an incredible effort.

What's with thecome-from-behind strategy here?

- Well, at first I thought his go-kart was faster than mine.

But then I found when I kept crashing into him,

he started moving a little bit to the right side,

and I was able to get by him.

- Hey, plumber boy, mustache man,

your worst nightmare has arrived.

Pack up your stuff.

- In my life, I've been very fortunate to have worked

with great, wonderful people,

and my proudest business accomplishment

was seeing all those people all doing so well,

all of you who I worked with, that I owe this--this honor to.

- Sega! - Sega.

- Sega! - Sega!

- Sega! - Sega!

- Sega!

- ♪ You know very well

♪ Who you are

♪ Don't let 'em hold you down ♪

♪ Reach for the stars

♪ You had a goal

- I understand.

- ♪ But not that many

♪ 'Cause you're the only one

♪ I'll give you good and plenty ♪

- ♪ Super Nintendo, Sega Genesis ♪

♪ When I was dead broke, man, I couldn't picture this ♪

- We would like to convince you

that there is indeed a market in which one money--

money can be made in the near future.