Console Wars (2015)

PART FIVE

THE TORTOISE
AND THE HARE

57.

LIFE ON MARS

Tom Kalinske, Paul Rioux, Shinobu Toyoda, and Joe Miller were all in Vegas for the 1994 winter CES, and they could all be found slowly walking down one of the exquisite hallways in the Alexis Park Hotel as they approached Nakayama’s suite.

“Do you think he watched the hearings?” Miller asked.

“Watched them?” Kalinske asked. “Or will admit to watching them?”

“I know that he saw at least a part,” Toyoda put in, anticlimactically ending the group’s speculation about Sega of Japan’s volatile ruler.

When they arrived at his suite, they were ushered in to sit down with Nakayama-san and his chief lieutenants at SOJ to discuss the future. In the hours that followed, a lot of strategies for the year ahead were tossed around, but amongst SOJ’s diversity of strategies one thing was clear: they were ready to kill the Genesis.

“Look,” Kalinske said, “I think that staying on the cutting edge is as important as everyone else in the room, but not at the expense of something that’s still working. I mean, we’re barely even in the middle of the console’s life cycle!”

This statement was generally accurate, but it was also false, which is what accounted for part of the schism in the room. Kalinske considered the summer of 1991 to be the de facto American launch of the Genesis. That was when SOA had dropped the price, introduced Sonic, and started doing the kind of marketing that would redefine Sega. If that was considered the starting point of the life cycle, then this was really only year three. Sega of Japan, on the other hand, had released the Mega Drive in August 1988, never enjoyed the second wind that SOA had, and consequently viewed this as something like year six. Ultimately, though, this all boiled down to the fact that despite SOA’s earth-shattering success with the Genesis, SOJ had continued to strike out with their Mega Drive. As a result, Nakayama proposed moving forward with a pair of systems to take Sega into the next generation:

Project Saturn: A CD-based system with 32-bit technology that would effectively serve as Sega’s next-generation console. No surprise here. This was the SOJ-only system that had been selected in favor of developing something with Sony and Silicon Graphics.

Project Mars: A cartridge-based system with 32-bit-like capabilities. This was basically a souped-up version of the Genesis.

Kalinske understood the merits of the Saturn, which would eventually replace the Genesis as Sega’s next-generation console, but what exactly was Mars supposed to be? SOJ had been pitching this “32-bit-like” device for almost a year now (he had been shown something very similar to this back when he’d first seen the Pico), but as much as he enjoyed pushing the envelope with new products, he wasn’t convinced that Sega would have the resources to fully support this. Nor were Rioux, Toyoda, and Miller (as well as Nilsen, who was adamantly against this until the day he left). Sega was already asking developers to create games for the Genesis, the Game Gear, the Sega CD, and the upcoming Pico. That already pushed the limit, and that’s why the guys from SOA couldn’t help but look at one another, spooked by the idea of adding more hardware to the mix.

To clarify the supposed necessity, Nakayama explained that Mars would bridge the gap between the Genesis and the Saturn. Kalinske didn’t understand what gap needed to be bridged: the Genesis was still selling well and the Saturn would be out in just over a year. But Nakayama explained that this wasn’t an issue up for debate. It was now starting to become clear that Kalinske was no longer the chief decision maker. Sega of Japan was sick of being compared to the much more successful SOA (and sick of watching the company’s name get dragged through the mud in Washington), so they had decided that it was time to take back the company, at whatever cost. So Kalinske had better buck up and get used to life on Mars.

Frustrating as the meeting in Nakayama’s suite may have been, it wasn’t the only get-together between those with opposing ideas for the future. In an effort to prevent Washington from putting the videogame industry at the whims of the FCC, representatives from Sega, Nintendo, and the prominent players in the software industry agreed to a secret, off-site meeting in Vegas. The cloak-and-dagger aspects may have felt a bit excessive, but they were necessary to avoid allegations of market collusion.

The first few hours consisted of little more than shouting and swearing. This is all your fault! No, it’s all yours! Fuck you. No, fuck you! But beneath the infighting, the meeting provided an interesting opportunity for the folks from Sega and Nintendo to finally sit down in the same room. Tom Kalinske, Shinobu Toyoda, and Bill White; Howard Lincoln, Peter Main, and George Harrison. All the alpha dogs had willingly come to the trough.

“We’ve all come here for a common goal,” Kalinske explained, “and the answer seems rather simple. Why doesn’t everyone simply adopt Sega’s rating system?”

“How is that the simple solution?” Peter Main asked.

“Why adopt a system at all?” Lincoln asked. “Nintendo already closely reviews all of its content.”

“How many times do you plan to repeat that?” White wondered aloud, and the shouting and swearing escalated once again. In the middle of the bickering, Arthur Pober arrived to discuss the possibility of using his expertise to create an industry-wide rating system—something very similar to what he had created for Sega, but which would address the concerns of the other companies at the table. Shortly after surveying what was going on in the meeting, however, Pober was ready to call it a day. “I have no interest in this,” he declared as he walked toward the exit. “You are all men: act like it.”

Bill White chased after him, urging him to reconsider, but Pober was adamant and said to call him at the hotel if they ever managed to get their houses in order.

Later in the day, while watching some terrible movie that must only ever get watched from hotel rooms, Arthur Pober received a call: everyone was now on their best behavior and they would like for him to return. He accepted, put on his jacket, and looked at the clock. It had only taken a few hours. Not awful. Perhaps there was hope for them yet.

Pober’s optimism was confirmed when he got back to the meeting site. The guys from Sega and Nintendo no doubt despised one another, but beneath the anger and irritation they were all incredibly smart men. And they were smart enough to know that the he-said/she-said crap gets old real fast.

“Look,” Kalinske said, “it’s obvious our companies have different approaches to doing business, but while we’re stuck together in this room, we need to suspend the past.”

“Tom’s right,” Lincoln said in support. “We’re all in this thing together, and we need to come out of this with a united front. I don’t like it any more than all of you folks do, but I like it a hell of a lot more than the alternative.”

It became clear to Pober rather quickly that in a room full of leaders, Kalinske and Lincoln were the ones whose voices carried weight. And that was a good thing, because he’d worked with them before and knew them both to be capable of one of the rarest of feats: not letting personal feelings or selfish desires cloud their judgment. And so by the end of the day, while nobody would be fool enough to say that Sega and Nintendo (or Kalinske and Lincoln) had become friends, they had certainly become friendlier than they’d been before, and demonstrated that they were willing to put down their swords in order to fight for the greater good.

“What do you think?” Kalinske asked Joe Miller, who had come into his office not long after CES to check out the latest prototype of the Mars project.

“I think what you think,” Miller said, “just with some more technical language.”

“Can it be salvaged?”

“Anything can be salvaged, but the question is at what cost? Regardless, I’ve been speaking with a couple of the guys at SOJ, and if this is a road they are intent on going down, I have to seriously suggest that we consider doing this as an add-on.”

Kalinske shrugged. “Pitch it as the next Sega CD?”

Miller nodded. “Yes, except I would note that the movie-like quality of those titles and the unique look of a compact disc make it an easier pitch.”

“Yeah, well,” Kalinske said, “if we’ve got to cut off either our hands or just our thumbs, the thumbs seem like the better choice.”

Kalinske relayed this feedback to Nakayama, who was now preoccupied with Project Saturn, which had run into a lot of developmental issues. SOJ needed all hands on deck to fix the Saturn and decided that Miller and his SOA crew should finish up the Mars themselves. As a “compromise,” they let him do it as an add-on. It was now Sega of America’s problem to salvage a product they didn’t even want to exist in the first place.

Some merely saw this as a hiccup in Sega’s plans for world domination; after all, on the surface Sega still had a bigger market share than Nintendo. But there were others internally who could see that the tsunami was headed their way and it was time to get out. Two of those men were Richard Burns and Doug Glen, who had decided that it was time to ride off into the sunset and into another opportunity. Both losses hurt Kalinske, as did remembering that Glen had a reputation for leaving companies that had reached their tipping point in order to join the next big thing.

Whats that? Whatcha working on? Mind if I take a look?

Harman had recently grown accustomed to the constant interruption of questions like these from his colleagues, but it was starting to become a distraction. He knew there was nothing but good intentions behind these inquiries, and he wouldn’t have expected any less from Nintendo’s congenial open-door atmosphere, but as Rare got closer and closer to finishing the game that he hoped would finally crush Sega, staying focused was more important than ever. That’s why he decided he had to speak with Arakawa.

“I see,” Arakawa said, weighing the situation. “What shall be done?”

The most obvious solution would have been for Harman to work out of Rare’s office in Leicestershire until the game was complete, but that also would have defeated the purpose of building up NOA’s product development capabilities. So in the spirit of this objective, he offered an alternative solution. “With your permission,” Harman explained, “I would like to build a sealed-off area dedicated solely to development.”

“Okay,” Arakawa replied, surprising Harman.

“You don’t need me to provide additional explanation?”

Arakawa shook his head. The decision was made.

“I just want to make sure you fully understand what I’m asking for,” Harman said. “Basically, it would be the equivalent of a top-secret, game-centric fort somewhere in the middle of our office.”

“Yes,” Arakawa said. “This is a good idea.”

Harman smiled serenely, fantasizing about what exactly his treehouse for adults should look like.

When Glen, Burns, and other members of the team left, Kalinske did the same thing as always: smile, nod, and wish them the best of luck, never revealing the icebergs of discontent below that winning smile. That’s what he did during the good days (like the “Hedgehog Day” event that Fornasier arranged to take in Punxsutawney on Groundhog Day 1994), and that’s what he did during the bad days (like when he saw specs for Sony’s upcoming PS-X console).

It was rare that anyone could get far enough under Kalinske’s skin to unleash the full spectrum of emotions, but Peter Main had made a career out of accomplishing rare feats. And in February 1994, there was something about the way that Main painted Kalinske as a charlatan that got so far under the president of Sega’s skin that it sawed deep down into his bones.

They were at Piper Jaffray’s annual industry conference in New York, where a couple hundred bankers and retailers gathered each year to hear about the profits and potential of the videogame industry. Speeches would be made by a variety of analysts, representatives from premier software companies (like Acclaim and Electronic Arts), and of course Peter Main and Tom Kalinske. Just like at the CES shows, it was always a war of words between the two, but this conference each February (along with the Gerard Klauer Mattison one each October) offered an unusual chance for both men to engage in that war from the same room. It was especially exciting for those in attendance to watch as they slung arrows, argued over numbers, and couldn’t stop glaring at each other.

Normally, Kalinske enjoyed playing up the rivalry and reacting to Main as if they were mortal enemies. But this year, because of everything going on inside Sega, playing a game of heroes and villains just didn’t seem as appealing. He was sick of the charade, year after year, and wanted Nintendo to just go away. Hadn’t he done enough to vanquish them by now? Or at least relieve them of some of their arrogance before Sega went into decline?

Despite the fact that since the release of Mortal Kombat Sega had become the leader in 16-bit, Peter Main still talked about Kalinske as if he were some rube from the toy industry. “Now, after I’m done speaking,” Main said, “I’m sure my competitor will try to fatten you up with all sorts of numbers. But I’d like you to ask yourself what these numbers really mean, and where he came up with some of these magical statistics. Oh, and while you’re at it, find out if he has any idea what the difference is between sell-in and sell-through.”

After the snickers of laughter and a few never-short anecdotes from Main, Kalinske finally got his chance to speak. His words carried none of that for-the-greater-good attitude that they’d held at the offsite meeting in Vegas. “Is it just me, or does anyone else feel like calling up Dr. Kevorkian whenever Peter Main is done speaking?” And from there, Kalinske didn’t relent. “Did you ever notice how Peter Main or any of those guys at Nintendo never have the guts to say my name, or even the word ‘Sega’? It’s always ‘our competitor’ or ‘another company in the industry,’ but I suppose we should take this as a compliment. After all, it’s the same way my daughters refer to the boogeyman and other things that scare them.”

Although Main, like Kalinske, had a talent for removing personal feelings from judgment, he did not share Kalinske’s skill at removing them from his face. He looked angry, as well he should be, because just as with that dog-drinking-from-the-toilet commercial, Kalinske wanted to turn everything into a popularity contest.

“But we shouldn’t be surprised,” Kalinske continued. “I’d be scared too if I were them. Peter wants to talk about numbers, so let me pass along some figures that I notice he forgot to mention. In November, the Nintendo Company announced a drop in earnings for the first time in ten years.”

As murmurs rippled throughout the audience, Kalinske’s eyes glanced at the window, and he noticed that the snow was still coming down hard. There was a storm passing through the city and they were expecting a few inches or more, but as the relentless whiteness kept falling, he couldn’t help reflecting that there was a certain beauty to it. Of course, it wouldn’t make finding a cab any easier, but to a guest from California, the snow came as a nice surprise.

“Anyway,” Kalinske continued, “as I was saying, the numbers look pretty grim. Peter also forgot to mention that Nintendo’s first-half pretax profits dropped 24 percent from the same time last year. Meanwhile, for those in the audience who like to compare and contrast, Sega’s half-year pretax profits are up by 4.3 percent.”

Kalinske went on to describe the many reasons he believed the two companies were going in opposite directions, and did so with that poke-the-bear flair throughout. “Now, I realize that there are some of you listening,” he continued, looking to convert any lingering doubters in the crowd, “who might not believe a word that I’ve just said. Forget the marketing, you might say; forget my management style, the work of my team, and Sega’s commitment to remaining on the cutting edge. That’s not the reason that we have surpassed Nintendo, you might think; it’s all just because we were first to market way back when. Obviously I don’t agree with that analysis, but even if that’s how you feel, I’ve got news for you: it’s going to happen like that once again.”

It was true. Nintendo had made a grave mistake by letting Sega beat them to the 16-bit market, and they had conceded over the past few months that Sega was going to speed past them once again. Nintendo assured the press that everything was going extremely well with Project Reality and that the new hardware would apparently retail for under $250, but that as part of the company’s commitment to excellence there would be a slight delay. Project Reality wouldn’t hit stores until late 1995, which would be one year after the 3DO and likely several months after the Sega Saturn (as well as Sony’s hardware system, if they decided to take the leap and enter the market with a system they were now calling the PS-X). Kalinske still wasn’t particularly excited about SOJ’s mandate for Saturn and Mars, but at least they’d get to market quickly and provide Sega with additional opportunities to try to finish off Nintendo. And in keeping with the spirit of knocking them off the ledge, he didn’t stop needling them throughout his speech.

When Kalinske finished and the after-conference mingling had come to a close, it was snowing harder than before—there must have been at least eight inches on the ground already, maybe even ten. Just then Kalinske caught the tail end of a conversation between Main and Michael Goldstein, the president of Toys “R” Us, as they made they their way toward the elevator. Main was still trying to cast aspersions on Kalinske’s sales figures, and so Kalinske decided to intervene.

“Do you really think I make this stuff up?” Kalinske asked, following the two of them into the elevator.

“Why, hello, Tom,” Goldstein said, happy to have both men together to settle this.

“It wouldn’t be the first time,” Main replied, staring past Goldstein at his competitor. “And I hardly suspect it will be the last.”

“How about this?” Kalinske suggested as the elevator descended. “When we leave New York, why don’t you come back to Redwood Shores with me? I’ll show you the data we used to come up with these numbers.”

“What the hell is that going to accomplish?” Main asked. “I doubt your numbers, not your ability to create a paper trail.”

“Gentlemen, please,” Goldstein interrupted, but the sparring continued even as they reached the lobby, and it had nearly gotten physical by the time they stepped out onto the snow-filled streets. “Without Nintendo there wouldn’t even be a goddamned videogame industry!” Peter Main declared, now inches away from his competitor’s face.

“What the hell do I care?” Kalinske asked, moving even closer. “Do you expect me to be grateful or something? This is business, not charity.”

“It was a business until you came in here with all your bullshit!”

“Then it must hurt even more, to be losing to nothing more than bullshit.”

Before any punches could be thrown, Goldstein wedged himself between Main and Kalinske. “Come on, it’s time to go back to your hotels.”

Both men wanted nothing more than for Goldstein to suddenly vanish, leaving them to try to transfer years of unrelated frustrations into each other’s face, but the president of Toys “R” Us refused to give them this gift. He tried to flag down a cab so that he could send one of them away, but it proved very difficult because of the snow.

Eventually, after several failed attempts to hail a taxi, Kalinske decided to walk uptown, and he slogged away through the thick snow—maybe because he felt this made him the bigger man, or maybe because he was just too brittle to maintain all the anger. But more likely it was because by walking uptown on this one-way street, he’d be able to intercept a cab that otherwise might have gone to Peter Main.