History of Sega
The history of Sega, a Japanese multinational video game and entertainment company, has roots tracing back to American Standard Games in 1940 and Service Games of Japan in the 1950s. The formation of the company known today as Sega is traced back to the founding of ', which became known as ' following the acquisition of Rosen Enterprises in 1965. Originally an importer of coin-operated arcade games to Japan and manufacturer of slot machines and jukeboxes, Sega began developing its own arcade games in 1966 with Periscope, which became a surprise success and led to more arcade machine development. In 1969, Gulf and Western Industries bought Sega, which continued its arcade game business through the 1970s.
In response to a downturn in the arcade-game market in the early 1980s, Sega began to develop video game consoles—starting with the SG-1000 and Master System—but struggled against competing products such as the Nintendo Entertainment System. Around the same time, Sega executives David Rosen and Hayao Nakayama executed a management buyout of the company from Gulf and Western, with backing from CSK Corporation. Sega released its next console, the Sega Genesis in 1988. Although it initially struggled, the Genesis became a major success after the release of Sonic the Hedgehog in 1991. Sega's marketing strategy, particularly in North America, helped the Genesis outsell main competitor Nintendo and their Super Nintendo Entertainment System for four consecutive Christmas seasons in the early 1990s. While the Game Gear and Sega CD achieved less, Sega's arcade business was also successful into the mid 1990s.
Sega had commercial failures in the second half of the decade with the 32X, Saturn, and Dreamcast, as the company's market strategy changed and console newcomer Sony became dominant with the PlayStation, in addition to further competition from Nintendo. Sega's arcade business, on the other hand, continued to be successful with arcade revenues increasing during the late 1990s, despite the arcade industry struggling in the West as home consoles became more popular than arcades. A merger was attempted with toy company Bandai during this time, but failed. Following five years of losses, Sega exited the console hardware market in 2001 and became a third-party developer and publisher. In 2001, Sega CEO and CSK chairman Isao Okawa died; his will forgave Sega's debts to him and returned his stock to the company, which helped Sega endure the transition financially.
In 2004, Sammy Corporation purchased a controlling interest in Sega through a takeover, establishing the holding company Sega Sammy Holdings. Chairman Hajime Satomi announced that Sega would focus on its then-recovering arcade business and less on console games, returning the company to better profits. Sega has since been restructured again, with the establishment of Sega Holdings Co., Ltd. and the separation of its divisions into separate companies. Recent years have seen the company achieving greater success in console games and parting with a number of its arcade divisions, though Sega continues to be prevalent in the sector through licence agreements and the remaining games that are still developed for Japan.
Company origins and arcade success (1940–1982)
Service Games and Nihon Goraku Bussan
The businessman Irving Bromberg had been a major player in coin-op distribution since establishing the Irving Bromberg Company in New York in 1931. His son Martin Bromley joined the business after graduating high school. They saw that the onset of World War II, and the consequent increase in the number of military personnel, would mean there would be demand for something for those stationed at military bases to do in their leisure time. In 1940, Bromberg, Bromley, and family friend James Humpert formed Standard Games in Honolulu, Hawaii, to provide coin-operated amusement machines to military bases. In May 1945, Bromberg, Bromley, and Humpert established a second Hawaiian coin-op distributor called "California Games", and they subsequently dissolved Standard Games that August. California Games was likewise terminated the next year, after which the trio established "Service Games" to replace it on September 1, 1946. At the time, the United States Army ceased operating slot machines and sold its inventory to Bromley. Service Games then restored the machines and sold them. In 1951 the Transportation of Gambling Devices Act outlawed slot machines in US territories, so Bromley sent two of his employees, Richard Stewart and Ray LeMaire, to Tokyo, Japan, in 1952 to establish a new distributor. Initially operating under a few different names such as "LeMaire and Stewart", the company provided coin-operated slot machines to U.S. bases in Japan and changed its name to "Service Games of Japan" by 1953.A year later, all five men established "Service Games Panama" to control its various entities. The company expanded over the next seven years to include distribution in South Korea, the Philippines, and South Vietnam. Service Games Panama was equally owned by all five men, and purchased coin-operated machines from Chicago-based Gottlieb and Bally Manufacturing for distribution. The name "Sega", an abbreviation of "Service Games", was first used in 1954 on the Diamond Star Machine, a slot machine. During 1954 Humpert sold his interest in Service Games back to Bromley and Bromberg at a price of US$50,000 each. Stewart and LeMaire later purchased shares from Bromley and Bromberg, resulting in an equal split among the four men for ownership of the company. Over the next seven years, Service Games continued to grow.
As Service Games expanded, it began to attract attention from the US and Japanese governments. While the company had managed to get out of charges of bribery and tax evasion, between 1959 and 1960, Service Games was banned from US air bases in Japan and the Philippines. On May 31, 1960, Service Games of Japan was formally dissolved. A few days later, on June 3, two new companies were established to take over its business activities: Nihon Goraku Bussan and Kikai Seizō, doing business as Sega, Inc., focused on manufacturing slot machines, while Goraku Bussan, doing business under Stewart as Utamatic, Inc., served as a distributor and operator of coin-operated machines, particularly jukeboxes. As part of the operations move, the two new companies purchased Service Games of Japan's assets. Bromberg and Bromley sold Service Games Hawaii in 1961 for a price of US$1.4 million, while retaining the name. Kikai Seizō and Goraku Bussan merged in 1964.
Rosen Enterprises Ltd.
, an American officer in the United States Air Force stationed in Japan, started Rosen Enterprises Ltd. after the Korean War. According to Rosen, he saw that the Japanese required photos for identification, rice ration cards, and employment. Because of this, he came up with an idea to import automated photo booths from the US to Japan and adapt them for use for these purposes. Rosen's business began in Tokyo in 1954. By 1957, Rosen recognized that there was disposable income available in the Japanese economy, as well as an increase in leisure time in the Japanese culture. He began importing coin-operated games to Japan, particularly focusing on hunting and shooting games.Rosen stated that he had to acquire a license from Japan's Ministry of Industrial Trade and Industry to import games, and that he had to pay a 200% duty on his imported machines, plus duties on the shipping. As a result, importing games cost three times the cost of the machine. Despite this, Rosen says his machines made enough to pay for their cost within two months of operation because of how many plays they were receiving. He also claims that at his company's height, not a single Japanese city did not have one of his arcades there, and that he had a virtual monopoly for approximately two years. Later, Rosen had competition in the form of Taito and Nihon Goraku Bussan.
Merger and transition to manufacturer
In 1965, Nihon Goraku Bussan acquired Rosen's company to form Sega Enterprises, Ltd., although Rosen has called it a "merger". Rosen was installed as the CEO and managing director of the new company. According to Rosen, "Sega" was the brand name that Nihon Goraku Bussan was using, and that the decision was made to name the company with the most recognized name upon the merger, while the word "Enterprises" came from Rosen Enterprises. Shortly afterward, Sega stopped its focus on slot machines and stopped leasing to military bases to focus on becoming a publicly traded company of coin-operated amusement machines. Products imported included Rock-Ola jukeboxes and pinball games by Williams, as well as gun games by Midway Manufacturing.Because Sega imported second-hand machines that frequently required maintenance, Sega began the transition from importer to manufacturer by constructing replacement guns and flippers for its imported games. According to former Sega director Akira Nagai, this led to Sega developing their own games as well. Sega's first release of their own manufactured electromechanical game was the submarine simulator game, Periscope. The game sported light and sound effects considered innovative for that time, eventually becoming quite successful in Japan. It was soon exported to both Europe and the United States and was placed in malls and department stores, becoming the first arcade game in the US to cost 25 cents per play. Sega was surprised by Periscopes success, and for the next two years, Sega produced between eight and ten games per year, exporting all of them. Despite this, rampant piracy in the industry would eventually lead to Sega stepping away from exporting its games. One such example occurred when Sega developed Jet Rocket. According to Rosen, after its American release in 1970, it was cloned by three Chicago manufacturers. This negatively affected the game's market performance.