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Shawn Hallman Martinez Organizational Communication 29 April, 2011 The Rise and Fall of SEGA: Console Dreams Cast Aside SEGA was once a corporate powerhouse sitting atop the gaming industry. They were pioneers and innovators of the early home entertainment console industry. Their hardware was consistently state of the art and many of their games turned into blockbusters with characters that are to this day recognized by even the most casual of gamers. They had massive success from as early as the 1970s. Today, SEGA isnt even in the top five game developers or distributors. It only took a few simple mistakes for SEGA to go from the top of the market to where they are now. The history of SEGA is one rich in innovation in both hardware and software. As far as hardware goes, SEGA developed the first consoles to incorporate 3-D graphics, online compatibilities, touch screen compatibility, and the use of compact discs for console gaming. When it comes to software, SEGA was responsible for such games as Sonic the Hedgehog, Crazy Taxi, the 2K Sports series, and Super Monkey Ball (Wikipedia). SEGA let many chances get by that leave people wondering what could have been in the gaming world. A lack of cooperative communication and regretful business decisions would eventually lead to the end of this gaming giant.

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SEGA was a successful arcade and service game manufacturer and distributor that found its start in Japan, however the company was started by two Americans. After gambling became illegal, the two founders of SEGA began to start buying out service games from America for cheap and bringing them into Japan. They found great success that continued into arcade games. SEGAs humble start helped give it the funding and momentum necessary to expand it into the giant it would soon become. SEGAs first fatal threat was their rival Nintendo. During SEGAs early years, the company had a hard time marketing and selling their Master System console. The NES had already taken control of the American market as well as the Japanese. At this point, SEGA targeted the European market to stay alive. SEGA Japan had sold distribution rights of their Master System consoles to Tonka Toys and shifted their focus on their next generation of consoles. The SEGA Mark III, which would come to be known as the SEGA Genesis was soon after created. SEGA knew that something had to be down in order to get a share of the growing American gaming market that Nintendo was dominating. SEGA put a new president, Michael Katz, in charge of their American branch and decided to distribute it on their own. Katz had many great ideas that would build the foundation for SEGAs success and their time on top of the industry. It was Kalinskes idea to make the Genesis cheaper and bundle it with what SEGA Japan thought would be their blockbuster hit, Sonic the Hedgehog. SEGA Japan was a little weary of the idea as they believed they could gain a great amount of profit from selling Sonic separately, but Katzs move paid off. Since Nintendo had exclusive rights with many third-party game developers, Katz turned to gaining celebrity rights for their games. This proved very successful in SEGAs development in America.

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Katz set up a strong American consumer base and made many new fans, but he failed to meet the goal SEGA Japan had set for him, selling one-million consoles. SEGA then turned to Tom Kalinske to become their next American president. Kalinske had to make the system more available, and as it was not sold in Wal-Mart, K-Mart, or Target, Kalinskeys first goal was to over-saturate the city where Wal-Mart was based with SEGA products. He made billboards, radio ads, and even bought out a store in the local mall where teens could try the system for free. It wasnt too long until the SEGA Genesis was found in store shelves all around America. The Genesis helped make SEGA a dominating force and, for a short while, put SEGA ahead of Nintendo in market share. Add-ons to the Genesis also helped keep it alive and on top. A 32-bit adapter and a CD-ROM add-on were both rather gimmicky, but gave the Genesis the extra boost it needed to stay on top of the market. The CD-ROM capabilities were groundbreaking at the time and many other systems would eventually follow. By this time, SEGA Japan had already started work on their next system, the clunky failure that would become the SEGA Saturn. SEGA America did not think to highly of the Saturn and tried to convince SEGA Japan to use different chips in their system that would late be sold to Nintendo to develop their N64. SEGA Japan continues to push the Saturn, even asking the America branch to release the system earlier than they had hoped and to cut production of still widely successful Genesis software. The leadership of SEGA Japan President Hayao Nakayama had a top down approach; what he wanted is what would happen. He failed to listen to the concerns from other divisions of his company. His lack of concern for total quality management and focus on his own desires would eventually hurt the company by the time the Saturn had hit shelves. SEGA rushed the Saturn into the market when its Genesis was still the champion; the release date was forced forward. This push angered and annoyed both game

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developers and console distributers. The SEGA Saturn had slight success when it was first released, but faded soon after as word of the first PlayStation and the N64 began to come around. The Saturn was very hard to code for was one of the biggest flops in the console wars. After a couple years, SEGA America announced that the Saturn was not their future and began development on their next hardware system. SEGA America and SEGA Japan were both set to work on separate projects and the best product would be chosen as the compan ys next system. Although this approach did spawn the powerful beautifully crafted SEGA Dreamcast, it along the past history between SEGA America and SEGA Japan seemed to only weaken the working culture of SEGA. Rather than working together for the best possible product both could offer together, the company picked a winner and a loser. SEGA America would come out on top of this battle and the 128-bit, online capable SEGA Dreamcast was launched. At this time Microsoft approached SEGA about a console partnership that could have prevented the Xbox which would later come around to kill the Dreamcast. SEGA Japan declined (Fahs). The Dreamcast launched on 9/9/99 and, despite only having a few games out at launch, would go on to be one of the most successful console launches in history. The Dreamcast was a powerful machine that dominated the market for its first year. SEGA was back on top after the release of the Sony Playstation and N64. The graphical capabilities were undeniably the best available for a console. The Dreamcast was a huge success, but not for any longer than a year. The SEGA Dreamcast had perhaps the worst timing. Not long after the powerful beast came out, Sony and Microsoft both launched their own consoles that were made to compete with and be better than the then already over a year-old Dreamcast.

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SEGA was losing money fast and Dreamcasts went to as cheap as $99 a unit. They continued to lose money and lose their grip on the gaming world despite having a wide array of multiple genre hits for their new system. They lowered the price even more in 2001 to just $59 per system (Fahs). SEGA had to make a quick change in order to save their business. It was late 2001 that SEGA announced they would switch their focus to making and distributing third-party games (Richtel). SEGA had dropped out of the console wars after so many slight errors and close calls. Some argue that SEGAs downfall was inevitable, but others believe that it was only a few costly mistakes that took this promising gaming giant down the drain. After looking more closely into the history of SEGA, I argue that it was a lack of effective organizational communication which led to poor business decisions as well of a simple lack of luck that led to SEGAs downfall. SEGA Japan and SEGA America were two very smart and well-run organizations. They each worked well as a group themselves. The two separate organizations did not work well as a single group. SEGA Japan paid little attention to the insights brought to them from SEGA America. While the American branch had the knowledge of what was going on in their country, SEGA Japan chose to keep a centralized leadership and make decisions for SEGA America. The Saturn disaster really highlighted this fatal flaw. The Saturn fared well in Japan after its release, but failed in America and prevented further game development for the Genesis, which was still doing well in America, but was on a sharp decline in Japan. While both groups of SEGAs developers were talented, a lack of proper communication and teamwork between the two groups led to the Saturn failing in America. This was SEGAs first step on their way out of the console wars.

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The main reason SEGA was able to survive so many different failures before finally caving in was their quick to adapt nature, but this is also what hurt them so bad when it came to the release of the Dreamcast. In an effort to recover from the weak sales of the Saturn, SEGA was a little too quick to hit the market with their Dreamcast. SEGA had the same problem with bringing in the Saturn too early, and instead of learning from the past and taking their time as well as effectively communicating with and analyzing the world they hurried their product to try and make up for lost ground. Another important communication factor that helped with SEGAs success and was also another reason for its downfall was teamwork. When the company had a strong team that worked together, they were on top of the market or growing at a rapid rate, when firings and resignations hit, so did SEGAs bottom line. With new leadership and employees came new leadership strategies. SEGA America went through everything from hands-off leaders to micromanagers and everything in between throughout its life. Though the company as a whole did a great job adapting, I feel like they would have been able to focus better on the company and its future rather than the focus on just right then and there. The only constant within SEGA was their Japan President, who would later go off to resign after SEGA started to go in debt following the Dreamcast failing (Industry). While their communication throughput was often a little off, SEGA had mixed experiences with their communication output. They were extremely successful at their marketing maneuvers and that is part of what helped them enter and dominate the American market, but they also had their problems. The Saturn release was one of the main examples of their poor output. By informing the public at a trade show that the device would be coming out

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immediately threw everyone off. It was a poor choice to not inform the public of the release date earlier and it ended up costing them. Poor organizational communication led SEGA in the desperate position they found themselves at prior to the Dreamcasts release, but only a couple strokes of bad luck put the nail in the coffin after that. The Dreamcast was a powerful machine, but it was plagued with often occurring issues with craftsmanship and a poor Microsoft Windows operating machine that kept it from its true potential (Lawrence). Despite these problems, the Dreamcast was still the best option on the market, but it never got its full share of market time due to Sonys PlayStation 2. SEGA soon found their selves in debt and had to change something. Despite all of SEGAs past problems with communication, it would be effective communication that would save the company from complete failure. While many do see SEGA as a shadow of what they once were, SEGAs shift to distributing and developing games for others systems managed to slow the losses and eventually make them profitable once more (Amaha). SEGA made clear communication with public and within itself that they would be shifting their focus and they stuck to their plan. SEGA has had its ups and downs in a rough industry that is not very forgiving, yet managed to survive. Their financial crisis that occurred after the Dreamcasts release was a result of ineffective organizational communication as well as poor timing, business decisions, and bad luck. Although SEGA is no longer the powerhouse they were, they are once again profitable and are responsible for distributing the current top-selling game for the first Quarter of 2011 (Total War). SEGA managed to learn from their past mistakes and it shows with their current success, however, many fans, me included, are still left to wonder what if

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Bibliography Amaha, Eriko. "The Toronto Star Archive." ProQuest Archiver. Web. 23 Apr. 2011. <http://pqasb.pqarchiver.com/thestar/access/421808981.html?FMT=ABS>. Fahs, Travis. "IGN Presents the History of SEGA - Retro Feature at IGN." IGN. 2009. Web. 23 Apr. 2011. <http://retro.ign.com/articles/974/974695p1.html>. "Industry | SEGA Get New President at C3 News." Wii, DS and Retro Nintendo Coverage at Cubed3.com. Web. 23 Apr. 2011. <http://www.cubed3.com/news/1251>. Lawrence. "Was Dreamcast's Failure Predetermined?" NFG Games. Web. 23 Apr. 2011. <http://nfggames.com/meat/2001/0128_segafall.shtml>. "List of Sega Video Game Franchises." Wikipedia. Web. 23 Apr. 2011. <http://en.wikipedia.org/wiki/List_of_Sega_video_game_franchises>. Richtel, Matt. "TECHNOLOGY; Sega Forsaking Consoles to Focus on Game Software - New York Times." The New York Times - Breaking News, World News & Multimedia. Web. 23 Apr. 2011. <http://www.nytimes.com/2001/01/31/business/technology-segaforsaking-consoles-to-focus-on-game-software.html>. "Total War: Shogun Leads First Quarter Revenues, as Steam Generates Estimated $193 Million in Q1." Media-Newswire.com - Press Release Distribution - PR Agency. Media-Newsire, 27 Apr. 2011. Web. 28 Apr. 2011. <http://media-newswire.com/release_1148685.html>.