When we talk about great companies that marked history in the world of video games, Sega is one of the names that can not miss.
However, the company is not going through its best moment these last years, and the truth is that little by little it is being lost into oblivion, so much so that the younger generations of gamers may not have heard of it, much less of its consoles.
But we must remember that in its best days, Sega was the only company that managed to shake the executives of Nintendo, the king of home video games at that time. In addition, Sega has great franchises to its name beyond the legendary blue hedgehog, which left a mark in the hearts of millions of gamers who hope that someday it will rise from the ashes.
We are going to cover the rise and fall of Sega’s history, from huge success in the arcade to their downfall in the video game console market. This is the History of Sega.
Origin of Sega
Let’s travel back to the distant 1940s, when video games didn’t exist but there were still many other forms of entertainment.
In Honolulu, Hawaii, American entrepreneurs Martin Bromley, Irving Bromberg, and James Humpert founded Standard Games, a company dedicated to the production of jukeboxes, which lined the dance halls and bars of the time. They also created slot machines that were initially distributed to U.S. military bases. Very quickly, Standard Games’ main source of income became the Army.
Bromley, Bromberg, and Humpert enjoyed the success of their company for a while until a new law in 1942 banned pinball and slot machines in cities across the country because the authorities thought they encouraged gambling addiction in children.
Renaissance in Asia
At the end of World War II, when Japan established a more stable economy after the hard defeat, Standard Games moved to that there in 1951, where they changed their name to Service Games.
During that time they dedicated themselves to the same thing they did in American territory, which gave them stability during those years and increased their popularity. However, the company was dissolved in 1960 under pressure from U.S. government investigations for illegal practices.
At that point, two Japanese companies entered the story: Nihon Goraku Bussan and Nihon Kikai Seizō, both founded by Bromley to continue his business and acquire the assets of the former Service Games.
Gradually, the new companies entered the Japanese entertainment market, which led them to cross paths with Rosen Enterprises, which imported coin-operated games from Japan.
Bromley’s conglomerate eventually merged with Rosen, forming the Japanese video game company Sega Enterprises, Ltd., which officially entered the arcade business in 1966.
Sega’s Entry Into The Arcades
Although Sega was fully into the Arcades by the end of the ’60s, at the beginning of the decade, when they were still Service Games, they had already tried to enter this market, with several hits and misses.
An example of this is Punching Bag, Sega’s first electromechanical machine. As they did well with that one, they launched shortly after the Skill Diga, although it did not enjoy the same success.
Four years later, they tried their luck again with a basketball machine, making great strides in the arcade business.
Eventually, a little company called Namco launched an arcade game called Torpedo Launcher, from which Sega was inspired to create the most popular arcade of the time, the submarine simulator Periscope.
That machine caused a sensation in 1966, giving Sega enough prestige to receive more income and start distributing their products to other continents, but something inevitable ended up weighing them down, piracy.
In addition to that, the Periscope game was starting to lose its charm, decreasing the revenue the company was receiving. Therefore, Sega decided to focus on the loyal Japanese market, where they launched the arcade game Rifleman, which was very much inspired by Periscope but with cowboys instead of submarines.
This gave Sega the push it needed to establish itself as the largest exporter of arcade machines in Japan, surpassing giants like Namco.
However, the popularity of electromechanical machines was not destined to last, and Sega’s last success in that arena was Jett Rocket, released in 1970.
Leap Into The World Of Video Games
When Sega and the arcade machine companies were sailing aimlessly, Atari appeared in 1972 with its legendary Pong to light a new path for them: video games.
After the enormous success of that game, Japan began to produce many electronic titles, and Sega was all in.
They made their debut in the gaming market in 1973 with Hockey TV, and soon after they launched other titles such as Pong-Tron (not at all inspired by Pong), and many other games that helped them to close the production of electromechanical machines in 1977 and dedicate themselves fully to video games.
However, Sega did not have it easy with its competition, especially with a game called Space Invaders that revolutionized the world in 1978.
Although Sega never created a game that could stand up to Taito’s success, other titles such as Space Tactics, Space Fighters, and many more arcade games helped them stay afloat, although they lost some ground in the process. They had to do something if they wanted to position themselves at the top of the industry.
SG-1000: Sega’s First Video Game Console
By the beginning of the 80s, arcade companies knew that the next step was to reach their consumers at home, but the first attempts were through computers. Following suit, Sega launched the PC SC-3000, but the one that could be considered a video game console was the SG-1000.
Both devices were released on the same day in 1983 because it was a move by Sega to compete with Nintendo’s blazing video game console, the Famicom.
Although the Famicom was much more successful, the SG-1000 was a small victory for Sega, exceeding expected sales by 100,000 units.
The Master System
As time went on, Sega released the second version of the SG-1000, the Mark II, in 1983, but it ended up failing in sales in its attempt to take ground from Nintendo. Nevertheless, Sega took the risk of launching the Mark III to improve on everything they had done before and surpass the hardware offered by Nintendo.
With a flashier design and a modification to the controls, the Mark III reached the market in Japan in late 1985.
Although the console was not what Sega expected at first, they needed to exploit it in other territories, so they modeled it to have a futuristic style with red and black to launch it in the United States, giving birth to the well-known Sega Master System.
As Nintendo demanded that their third-party developers not make adaptations of their Famicom games for other consoles, Sega had no choice but to produce their own titles and port games from other companies.
They also marketed the Master System as a children’s toy, which helped boost its sales in the United States, but its range of 1.5 and 2 million units sold fell far short of Nintendo and Atari’s dominance in the market.
Sega VS Nintendo
Something very different happened in territories like Europe and certain countries in South America, where the Master System was a total success, especially because of Alex Kidd, the first AAA game for a Sega console.
That began to divide the market between those who liked Sega and those who liked Nintendo. Although the Big N had a lot going for it, with 2 territories dominated out of the 3 important ones, Sega had already taken Europe right out from under their nose.
The fanaticism that Sega generated was truly incredible considering their competition. Titles such as Alex Kidd, Altered Beast, Wonder Boy, Golden Axe, and many, many more games took the market by storm, and although they continued to produce arcade titles, their favorite territory became the home console market.
Determined to snatch the throne from Nintendo, the people at Sega set to work to create new hardware much more powerful than the competition…
Mega Drive And Sonic The Hedgehog, A Huge Leap In Quality
In October 1988, the famous Sega Mega Drive hit the stores in Japan, standing out for being the first 16-bit console at the time.
The intention was to eat into the market share of the Nintendo Entertainment System, but it backfired, as Nintendo, despite having weaker hardware than Sega, had managed to eclipse the Mega Drive with the huge success of Super Mario Bros. 3, considered the best game of that generation.
In its passage through Asia, only about 400,000 units of the Sega Mega Drive were sold, which seemed to be a failure for Sega, but with nothing left to lose, they decided to launch the console in the USA in 1989 under the new name of Sega Genesis.
To make their product more successful in the West, they implemented a very aggressive marketing strategy: to challenge Nintendo, Sega had to become their rival, the rebel that stood up to them and show them that they had nothing to fear.
As a result, the phrase “Genesis does what Nintendon’t” was born, something that caused the desired effect in the West because finally a video game company was not only raising its voice but was declaring war on Nintendo.
Of course, Sega was still missing a key piece to dethrone its rival, and that was a mascot. While Alex Kidd was their unofficial mascot, it couldn’t match the popularity of the Italian plumber.
The thing is, when Sega was gaining more ground in Europe and even in America and Japan, Nintendo released the SNES in 1990, its 16-bit console. That was a blow to Sega’s ambitions, as they were once again swimming against the tide due to the immediate success of the Super Famicom in Japan.
The following year, that console arrived in America, and the result was equally positive for Nintendo and equally negative for Sega, who did not know how to fight against the popularity of the excellent titles of their competition. But that’s where an important name comes up: Naoto Ōshima.
Mr. Ōshima, an artist and video game designer who had worked on Phantasy Star, had among his creations a hedgehog between blue and green with red shoes that caught Sega’s attention. This character was initially called Mr. Needlemouse, and was a little more human, he was still a hedgehog but more anthropomorphic.
Although there are no designs of how the character was in his beginnings, they were working on his new look, until 3 years after his creation, Sega decided to make him the protagonist of their new flagship franchise: Sonic The Hedgehog.
Hirokazu Yasuhara occupied the role of main designer, while Yuji Naka as programmer was in charge of making all the ideas of characters and maps proposed by Naoto Ōshima come true.
Finally, Sonic saw the light of day in 1991, reaping a massive success. With that, Sega gave a resounding blow in the market to make it clear that it was no longer a matter of simple marketing, now they were seriously standing up to Nintendo.
Sonic became the mascot that Sega so longed for, and at the same time became Mario’s greatest rival.
The generation that grew up during the 16-bit era surely remembers fondly (or not so fondly) how they argued among themselves about their favorite company between Nintendo and Sega, which fueled the debate in commercials and other products, especially the latter. Just imagine how much their rivalry would have reached if social networks had existed at that time.
The debate was mainly due to the different philosophies of each company. While Nintendo aimed at a more familiar audience with Mario, Sega was much more transgressive and rebellious, being popular among teenagers and adults because of Sonic’s cool character.
Sega made more elaborate stories, risky and with a certain adult touch, something that Nintendo didn’t even dare to try.
Game Gear, Their First Portable Console
Nintendo continued to dominate 2 of the 3 most important markets in the gaming industry, home, and handheld consoles. As for arcades, the fight was closer, but in the end, SNK and Capcom were left with that market.
Because of this situation, Sega decided to go head-on against Nintendo and compete in the portable market, so in 1990 the Game Gear was released in Japan, a console superior to everything the Game Boy had to offer, everything except one. The Game Gear’s battery gave you a maximum of about 6 hours of fun, while the Game Boy could hold up to three times as long.
While it was a brave attempt, that handheld console was Sega’s first big failure, so much so that they never tried a deep push into that market again. And it was a wise decision because Nintendo to this day continues to destroy every rival that appears in the handheld market.
Sega’s Experimental Consoles
As for their consoles, Sega released an add-on for the Genesis, called the Sega Genesis 32X, designed to offer better performance than the original product.
They created the accessory that increased the initial 16-bit capacity to a 32-bit capacity. It could even be combined with Sega’s other Genesis add-on, the Sega CD, which the company launched in 1992 to play games in CD formats.
The Genesis 32X reached the market in 1994, and fared horribly, reaching just 600,000 units sold. The Sega CD, on the other hand, had a little better reception, selling over 2.24 million units. Of course, it was nowhere near the 30 million Sega Genesis consoles sold, but it gave Sega a significant boost.
Those products were not the only ones to fall short of expectations, most notably the Sega Nomad, an almost unknown re-release of the Genesis, the Sega Pico, an electronic toy in the form of a computer, the Sega Megajet, a portable version of the Mega Drive and a host of other products that were lost into oblivion.
By this point, it is more than evident that Sega was not working in an organized way at all. The company began to fracture, with Sega of America and Sega Japan each working on their own. There was no unity between the two.
Sega Saturn, The Beginning Of The Decline
Although Sega already had a very strong name in the industry and was achieving good numbers in game sales, despite having much fewer titles developed by third parties compared to the competition, they were still under the shadow of Nintendo.
Seeing that there were only two rivals in the market, several companies decided to compete. Atari, in one of its last attempts, launched the Atari Jaguar, which was an absolute failure. Apple also tried but ended up perishing, as did several others.
For its part, Sega already saw that the future was not in cartridges, but in CDs, so a more powerful console was necessary for the new generation. From that point on, Sega began to work separately to create new hardware while continuing to release accessories for the Genesis.
While Sega of America they were developing the aforementioned peripherals, in Japan they were developing the Sega Saturn, destined to compete in the market against the Nintendo 64 and Sony PlayStation.
It was at this stage that something happened that made it very clear that Sega’s days were numbered. In America, they released the Sega 32x on December 3, 1994, and in Japan, the Saturn was released only 9 days earlier, specifically on November 22.
The thing is, the Japanese had no idea that this was going to happen, but they had already released the Saturn, and the truth is that it initially performed very well. However, that hurt the people at Sega in America, as their job with the 32X was to get to the same power as the Saturn and match their counterparts in Japan. In short, a total disaster.
From then on, many more mistakes were made with the Saturn. As mentioned before, the console did very well in the Japanese market, where they released Virtua Fighter as the main starter game. The problem was that they released the Saturn in America in May 1995 with the same formula, unaware that in the West the Virtua Fighter saga was not so well known, and the rest of the games were not attractive.
Within months, the PlayStation completely took over sales both in the West and in Japan. The Saturn lasted 4 years in the American market, a very short time for a console. It was discontinued in 1998, along with the Sega Genesis.
Sega fought to the last breath to correct its launch mistakes and boost Saturn sales, but the damage was done.
Sony and Nintendo took over the market with great titles, while the Saturn only received ports for the most part, mainly because it was a console that was difficult to program and did not get along well with the polygonal technology of the time. Therefore, it was very complicated to release games there, although for 2D it was a real marvel.
Saturn destroyed Sega’s finances so much that they had to start a restructuring process, it was not looking good.
The Dreamcast, A Giant’s Farewell
Launched in Japan in 1998, and in the USA a year later, the Dreamcast was really something else, at least in terms of power, and some even believe it was the most innovative console of that generation. It was big deal! With the launch of the Dreamcast in 1998 gamers were introduced to sleek 3D graphics capability, mind-blowing 2D capability, a GD-ROM reader, and the first console to include internet connectivity out of the box.
Undoubtedly, with this new gaming console, it seemed to be the glorious return of Sega, and it should have been, but the console did very badly in Japan, since at the launch catalog was very limited, and the Japanese were fascinated by Sony, who sold and sold non-stop.
While in Europe the situation was similar, in America the Dreamcast was welcomed with open arms, giving Sega a much-needed break in a market that used to be dominated by Nintendo. On its launch day alone, September 9, 1999, the Dreamcast sold more than 200,000 units in the first day, something everyone was thrilled about.
Unfortunately, Sega ran out of stock to keep up with demand, while Sony was already showing glimpses of the PlayStation 2, and Xbox was showing its interest in entering the video game industry. Nor should we forget Nintendo, who in 2000 announced the GameCube.
It seemed that the Dreamcast would mark the resurgence of Sega, although the debts and all the losses that the Saturn took their toll, leaving them out of the console war when they had a pretty powerful one to sell.
Even in “failure”, the Dreamcast won the hearts of millions of gamers thanks to exclusive games such as Shenmue, which for a long time was the most expensive game ever produced. Undoubtedly, a jewel that continues to be talked about to this day.
Other outstanding games were Crazy Taxi, Resident Evil: Code Veronica, Phantasy Star Online, and many more incredible titles, including Sonic games that proved that the Dreamcast had tremendous potential. In addition, many renowned developers such as Midway, Activision, and Ubisoft produced titles for that console.
The sad end was that Sega had to leave the console world in 2001, something they had already suspected since last year with the “Manifesto of the Future”, in which the top management admitted that they could not compete with Sony, Nintendo, and the new giant in the market, Microsoft.
However, Sega was not completely dead, as companies like SNK were going bankrupt because their only source of income was the old-fashioned arcades, Sega had more products to offer, plus in Japan, they had a fairly loyal niche market in terms of arcades.
Brief Dominance In The Arcade Business
After retiring from the home console world, Sega decided to bet on arcades in Japan, but that decision didn’t come out of nowhere.
By 1998, when SNK was boasting its dominance as the most powerful arcade company in the East and much of the West, Sega released an arcade board called the “Sega Naomi”, a powerful piece of hardware with so much potential that it became the basis for the Dreamcast.
At this stage, Sega had a resurgence in the industry, and thanks to their arcade games, they stayed alive, but only in the East, as home consoles began to conquer gamers in the West.
At that time, Sega stood out with great arcade titles such as Crazy Taxi, Power Stone, Samba de Amigo, Virtua Tennis, Capcom vs SNK, and many more that are a must for every arcade fan.
The Post-Console Sega
A conclusion reached by Sega executives at the beginning of the new millennium is that they were one of the best software companies in the market, so they concentrated fully on that area.
Starting in 2001, Sega became a software publisher, and still had 50 titles left to release, their last batch of games from their last console.
In a span of 9 months, Sega went from having a console that broke records on its debut to a company that stopped hardware production altogether.
Units of its final console reached an all-time low price of $50, and until the first half of 2002, several games from its catalog were still being sold. By that time, Nintendo’s GameCube and Microsoft’s Xbox were already on the market.
The Dreamcast’s cult following gained popularity, and the console received arcade conversions regularly for the next 5 years. By then, though, Sega had moved on, and the Dreamcast was simply a ghost.
Sega’s stint as a game publisher began quite promisingly. Super Monkey Ball was one of the GameCube’s initial titles, while Xbox was getting great critically acclaimed games like Jet Set Radio Future.
Sega exited the hardware business when its game development was in an unparalleled expansion.
The Acquisition By Sammy
In February 2003, rumors first spread that Namco, Bandai, and Microsoft were interested in buying Sega, as Sega’s largest shareholder, the conglomerate CSK, lost ownership interest after the death of Isao Okawa, former president of Sega Enterprises.
Negotiations with all these companies failed for various reasons, and in the end, Sammy Corporation, a pachinko manufacturer, became the new majority shareholder of Sega.
Because of the stricter measures of the new owners, Sega’s big names began to leave the company for new ventures. Since being acquired by Sammy, the number of games developed by Sega has been dwindling.
Sega’s Acquisitions
Needing a new direction, Sega sold its Western studio to Take-Two Interactive. With that money, Sega acquired Creative Assembly, the developer responsible for the Total War series, in 2005.
The following year, they bought the studio behind the acclaimed Football Manager simulation series, Sports Interactive.
After a corporate restructuring and founding new studios in several countries, Sega launched a site called PlaySEGA in 2008, where users could emulate classic Genesis games under a Netflix-like subscription system. However, the plan did not work out as expected, and they had to close the site because they had too few subscribers.
They also did not have much luck with their studios in San Francisco and Australia, as they had to close them in 2010 and 2012 respectively.
Sega Today
Sega regained some ground with the subsequent purchase of other developers such as Technosoft, and important franchises such as Hatsune Miku: Project Diva and Two Point’s simulation video games.
In addition, other franchises such as Yakuza and Bayonetta keep their name in the spotlight. And of course, I’m not forgetting everyone’s favorite hedgehog. Although Sonic hasn’t had any big video games lately beyond the successful Sonic Frontiers, the character is a sensation on the big screen thanks to his live-action movies produced by Paramount Pictures and starring Jim Carrey as Dr. Robotnik.
Outside of consoles, Sega also has a certain reputation in the mobile gaming industry, which features ports of classic gems like Street Fighter, Sonic The Hedgehog, Altered Beast, and more.
And you probably didn’t know this, but in Japan, they still produce arcade machines, such as the rhythm games Chunithm and Maimai.
To close with this topic, it is worth noting the launch of the Sega Genesis Mini in 2019, a product that emulates the original console with more than 40 classic games, perfect for fans of yesteryear.
The Sega Genesis Mini 2 arrived in 2022, with more games than the first one mainly due to the addition of the Sega CD peripheral.
For this and much more, Sega is by no means dead today, they just took a different path. And thank goodness they recognized at the time that they couldn’t compete with the other console companies, because it could have gone very badly if the executives had insisted on competing.
Final Thoughts On SEGAs Demise
After this long but necessary review, it’s time to ask again, what happened to Sega? The answer is easy: it’s all the Saturn’s fault!
Okay, that’s an exaggeration. While it is true that this console is undoubtedly the most infamous of the company and they had to bear their losses for years, they made very bad decisions both before and afterward, and the lack of organization among their studios ended up worsening the situation.
I dare to say that they were unlucky, because, beyond their problems, it is clear that Sega always wanted to innovate in the market, and their last console, the Dreamcast, was proof of that.
And even though Sega died as an industry giant with the Dreamcast, fans will never let that epic console die.
We will always remember Sega as a rebel that dared to challenge the industry giants at its peak, and despite their questionable decisions, they were never afraid to innovate and today, it still lives in the hearts of millions of gamers around the world.
Without Sega, video games would not be as we know them today.
