Console Wars (2015)
PART ONE
GENESIS
6.
THE NAME OF THE GAME
“There you are!” Sega’s plucky product manager, Madeline Schroeder, said as she sidled into the office’s tiny kitchen and found Tom Kalinske standing in front of the coffee machine with a cup of joe in his hand.
Although she felt certain that he had heard her exclamation, her new boss did not look up from the papers in his other hand. She thought this odd (and rather rude), until a split-second forensic analysis of the situation revealed the following: the cup in his hand was empty and upside down, the coffee machine wasn’t even turned on, and the dazed look on Kalinske’s face was symptomatic of one who’d just seen a ghost. Either Tom Kalinske didn’t know how to use a coffee machine or whatever he was reading had made him catatonic. “My, oh my,” Schroeder said, settling upon the latter. “That must be some compelling literature right there.”
In a flash, the pale expression on his face became an a-okay smile. “Oh hey there, Madeline,” Kalinske replied. He was good like that, with names, only needing to hear them once to remember them forever. “You’ve probably seen this already, but as you suspected I found it to be particularly engrossing.”
He handed her an article that he had been reading as part of his crash-course on all things Nintendo. It was a piece written by Anthony Gonzalez that had appeared in the New York Times the previous year, titled “The Games Played for Nintendo’s Sales.” This is what Kalinske had been reading when his coffee craving suddenly disappeared:
THURSDAY, DECEMBER 21, 1989
SEATTLE - Meet the man behind Nintendo, the video game maker that is the talk of America three Christmases running.
To his admirers, Peter Main, vice president of marketing for Nintendo of America, is a master seller of children’s entertainment. They say he is a skilled businessman who has learned lessons from the unhappy history of the video game business and helped revive it into a $3.4 billion industry in only three years.
To his critics, however, he is an aspiring monopolist, squeezing supply and jacking up prices. Charging monopoly, a competitor has sued and a Congressman has called for a Justice Department investigation.
Of all the pieces that Kalinske had recently read about Nintendo, the beginning of this one seemed to perfectly sum up his competitor: they were either heroes or villains, and the truth was entirely a matter of perspective. Unlike other companies obsessed with the facade of political correctness, Nintendo made no effort to hide its obsession with control (the article goes on to say “By design, the company does not fill all of a retailer’s order and keeps half or more of its video cartridge library inactive”), nor did the company worry about alienating other developers (“But far more in dispute is the company’s other tactic: building the hardware system in its games with a special ‘lockout’ computer chip”).
When Kalinske first began to investigate what lay at the heart of Nintendo, their controlling, our-way-or-the-highway philosophy scared the hell out of him, mostly because it made sense. Although Nintendo didn’t always act with the best bedside manner, their tactics generally tended to benefit the industry. They had just resurrected the videogame business from a terrible crash, and they had taken it upon themselves to put in safeguards to prevent such a thing from happening again. So retailers might complain that orders weren’t being filled, or developers might grumble about being locked out, but this was all Nintendo’s way of avoiding an Atari-like glut of bad games. Nintendo, in many ways, really did know best.
Although this realization had indeed petrified Kalinske after he stopped asking himself what the hell he had gotten into, he began to wonder if this might actually be Sega’s greatest advantage. Maybe Nintendo really did know best, but if there was one thing Kalinske had learned about consumers throughout his career, it was this: the only thing they valued more than making the right decision was making their own decision. So if Nintendo represented control, Sega would represent freedom, and this cornerstone of choice would be the foundation of Kalinske’s plan to reboot, rebuild, and rebrand Sega. He was in the midst of this mini-epiphany when Schroeder entered the kitchen, hence the dazed look on his face. He had seen a ghost all right, but it wasn’t anything malevolent—no, it was the alluring ghost of Sega’s Christmas Future.
“You have to hand it to Nintendo,” Schroeder said, finishing the article. “Like them or not, everything those guys touch turns to gold.”
“You’re right,” Kalinske replied, turning on the coffee machine. “So I guess we’ll just have to make sure everything we touch turns to silver. And, you know, while we’re doing that, we’ll find a way to convince the world that silver is more valuable than gold.”
“Count me in,” Schroeder said and then smiled, a Cheshire grin through and through. For weeks prior to Kalinske’s arrival, she had been hearing how great things would be with him in charge and how everything would turn around after he took over. At the time, she thought it was just false hope for the hopeless. Now, while that skepticism still persisted, she couldn’t deny there was a whole lot more hope.
“But enough pontificating,” Kalinske said. “I vaguely recall your entering with the words ‘There you are.’ So what can I help you with?”
“Right,” Schroeder said, quickly rewinding her mind. “I had wanted to ask you about your trip to Japan. Was there anything new on the mascot front?”
“I’m not sure, but Nakayama-san assured me that he’d get us a Mario-killer sooner rather than later.”
Schroeder eyed Kalinske as if trying to somehow conduct a telepathic polygraph test. “And how much do you trust Nakayama’s assurances?”
Kalinske thought about this for a moment. “I’m from the innocent-until-proven-guilty school of thought. I have no reason not to trust him . . . at this point.”
“Okay, just curious,” Schroeder said. “Did he at least show you the hedgehog?”
“What hedgehog?”
“That freak from the mascot contest,” she said. Kalinske had no idea what she was talking about, so Schroeder filled him in. Prior to Kalinske’s arrival, Sega had held an internal mascot contest, encouraging employees to come up with a new face for the company (which would supplant the current face of the company: Alex Kidd, a disappointing rip-off of Mario). The Japanese programmers submitted a host of diverse entries, including an armadillo (later developed into Mighty the Armadillo), a dog, a cat, a cheetah, a Theodore Roosevelt look-alike in pajamas, and a peppy rabbit that could use his extendable ears to collect objects. The top two choices, however, were an anime-inspired egg and a teal hedgehog with red shoes created by Naoto Oshima that he called Mr. Needlemouse. Nakayama had presented these two finalists to Katz, who quickly declared that they both sucked. He thought the egg was absurd and the hedgehog just didn’t make any sense; nobody even knew what a hedgehog was, so how could anyone ever possibly care about one? Despite the vote of no confidence from Katz, Nakayama forged ahead with Mr. Needlemouse and asked Oshima to explore what kind of a game would best suit his character. Oshima partnered up with Yuji Naka, a brilliant hothead in the programming department who was responsible for one of Sega’s most popular series: Phantasy Star, a sci-fi role-playing game (RPG) about a resilient young female warrior bent on galactic revenge with the help of a muskrat named Myau and a wizard named Noah. Oshima and Naka worked together to build a game around Sega’s new mascot, and it would fall onto Schroeder’s shoulders to whip the game into shape and introduce it to the world. “I can’t believe the always-transparent Nakayama failed to mention all this. Curious,” she said lightheartedly. “So basically our entire jobs, careers, and livelihoods depend on this hedgehog guy.”
Kalinske realized the truth in her words. “Well, I can’t think of any animal I’d rather pin my hopes and dreams on than a good old-fashioned hedgehog,” he said.
After hedging his way through the hedgehog conversation, Kalinske entered Nilsen’s office.
“Well, if it isn’t Mr. Kalinske!” Nilsen announced as his boss closed the door and sat down on the chair in front of his desk.
“Hey, Al,” Kalinske said, jumping right in. “What the hell is a hedgehog?”
“You mean, aside from the demise of Sega?” Nilsen joked. “According to one Mr. Michael Katz, at least.”
“He wasn’t a fan?”
“He authored a scathing multipage letter to Nakayama saying why it wouldn’t succeed in the U.S. and other assorted doom and gloom.”
Kalinske was taken aback, feeling as if there were trapdoors hidden around every corner in this company. “That’s a tad disconcerting.”
“Seriously, though, don’t worry about it . . . yet,” Nilsen reassured him. “We haven’t even seen any gameplay. And in this business, it could look like a duck and talk like a duck, but in the end nobody cares if it’s a duck, or even a neon-green wolverine, as long as it makes for a fun gaming experience.”
His words worked, and Kalinske eased up. “Okay, that makes sense.”
“There’s only one thing you need to know to survive in this world.”
“And what’s that?”
“The name of the game is the game,” Nilsen said, with the bouncy, uplifting rhythm of a prayer worn into the soul by repetition. If Nilsen had known that the originator of the phrase was none other than Nintendo’s Peter Main, he likely would have washed his mouth out with soap. But with the bliss of quotational ignorance, Nilsen repeated the mantra and then pointed to a copy of Atari’s game E.T., which was framed on his wall. “I keep this here as a reminder. Most consider it to be the worst game ever made.” Nilsen pressed his finger up against the glass. “Look at this thing: based on a blockbuster movie, blessed by none other than Steven Spielberg, and had more marketing money pumped into it than any other game.”
“And still it failed?”
“Miserably! You can still see the markdown stickers on the game,” Nilsen said, pointing to the tiny stickers showing its various price points. “It went from $49.95 to $34.95 then, ouch, $12.99, $3.99, and finally I became a proud owner of the worst videogame ever at $1.99.”
“You really know this business, don’t you?”
“On occasion.”
“Maybe you should be the one in charge?”
Nilsen waved him off. “Oh, stop it. We both know that you’re going to turn this company around.”
“I am?”
Nilsen looked at him strangely, as if he were genuinely surprised that Kalinske had no idea that this was going to happen. “Never been more sure of anything in my life. Truly.” Kalinske graciously nodded, and then the two of them sat in Nilsen’s office for about an hour, talking about everything from videogames and toys to their families and sports. As Kalinske spoke with Nilsen, the company started to feel more like a home. This was his opportunity, and he would find a way to make it work. “I think you’re right, Al,” Kalinske said, sitting up. “I think that things might actually work out pretty nice.”
“Fantastic,” Nilsen replied. “Then I shall eagerly await the next senior staff meeting to see what you’ve got cooked up.”
Kalinske looked across the long table, sizing up his troops. He felt ready to shoulder the responsibilities as president and CEO, ready to turn these guys into his guys, and ready to lead them into battle. In a couple of months he would go to Japan to meet with the board of directors, outline everything he had learned, and propose the changes that needed to be made to turn Sega into a household name. In the meantime, however, there was only one thing on his mind: distribution.
If distribution was the lifeblood of a company, then Sega had just undergone a blood transfusion. In 1988, when Sega’s Master System proved unable to make a dent in NES sales, Sega had struck a deal with the toy manufacturer Tonka to allow them to handle distribution. But despite the weight that Tonka’s name carried in the toy world, the company had no idea how to market and sell videogames. If the Master System wasn’t already dead in the United States, Tonka’s failed attempts at distribution fired the final shots. Nakayama blamed Tonka for much of the Master System failures and wouldn’t allow such a thing to transpire again. As a result, Paul Rioux had worked tirelessly to unwind the deal with Tonka so that Sega of America would be solely responsible for their own distribution. In Nakayama’s eyes, nothing should hold back the company now. Kalinske, however, was savvy enough to know that many obstacles stood in his way: lack of brand identity, poor sales history, and, most important, Nintendo’s unbending grip over the retailers.
“The fact is, you can’t sell something if there’s no place for anyone to buy it.” Kalinske looked at his employees, who likely had to try their best to think of any response besides Well, yeah, and Duh. “Yes, I know, it’s a pretty obvious concept, but unfortunately that’s our biggest problem at the moment.” Kalinske pointed to a map on the wall, indicating which retailers were carrying the Genesis and in which regions the game systems were available. “We need to convince more stores to jump on the bandwagon. I know, I know, easier said than done, but I think instead of approaching each of them piecemeal, we’re better off using a top-down approach. If we sign up the big boys, the rest will fall into line.”
“What exactly did you have in mind?” Nilsen asked.
Kalinske narrowed his eyes and answered, “Wal-Mart.”
Getting the Genesis into Wal-Mart wasn’t as easy as sending them a free system and letting them see how much better it was than the Nintendo, though Kalinske believed it should have worked like this. Unfortunately, Wal-Mart sold Nintendo products, and they didn’t just sell, they flew off the shelves. Nintendo single-handedly accounted for about 10 percent of Wal-Mart’s profits, and the giant retailer felt an obligation to keep the game maker happy. Kalinske, however, was willing to rock the boat.
“Maybe it is best to look elsewhere first?” Toyoda suggested. “Take some time?”
“Time is a luxury we don’t have,” Kalinske explained. Nintendo had recently announced plans to release their 16-bit machine, the Super Famicom, in Japan later that year (which meant it would probably hit America one year later). Sega’s days had always felt numbered, but with this recent news the end felt even nearer. “Not with the Super Famicom knocking on our door. Can someone tell me where Katz was with Wal-Mart?”
Rioux explained that Katz had made a trip down to Wal-Mart headquarters in Bentonville, Arkansas, to pitch them on Sega and said that things went okay. Kalinske nodded. In his mind, okay was the worst possible result. Okay was worse than bad. At least bad was memorable. “Well, then,” Kalinske said, “I think it’s time that I go back down and show them that Sega is no longer in the business of being okay.”
The team vigorously prepared for weeks, leading to a combination of stress, brainstorming, and hijinks that, when laminated by Kalinske’s perpetual sheen of professionalism, created a dare-to-be-bold corporate culture. At some point, Sega started to feel less like the American outpost of a Japanese company and more like the cast of an exciting new Broadway musical with defined roles, a choreography of ideas, and ensemble numbers that brought everyone together. The pieces all seemed to be in place, and with the curtain now rising, it was finally showtime.