Console Wars (2020) - full transcript

It was 1990: Sega, startup gaming co. assembled a team to take on Nintendo, world's greatest video game company. A make or break conflict pit brother against brother, Sonic against Mario and, American capitalism against Japanese tradition.

- 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.

- 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.

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.

- 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.

- 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.

- 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.

- 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.

- Ta-da.

- 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?"

- He just turned around

and walked out of the booth.

- 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 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...

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!

- 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

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.

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!

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.

- 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.

- 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!

- I understand.

- We would like to convince you

that there is indeed a market

in which one money...

Money can be made

in the near future.