TRIPPED UP - GENESIS - Console Wars (2015)

Console Wars (2015)





“Don’t act so surprised,” snapped Trip Hawkins, the brilliant but mercurial founder of Electronic Arts. “You had to imagine it would only be a matter of time.”

On Nakayama’s instructions, Kalinske had traveled with Rioux, Toyoda, and Sega’s legal counsel, Riley Russell, to the offices of Electronic Arts, where they met with Hawkins, marketing wizard Bing Gordon, CEO Larry Probst, and EA’s legal counsel. Over the past several months, negotiations had been going on between the companies about how to proceed now that EA had reverse-engineered the Genesis. It was a potentially fatal situation that could knock Sega out before they ever really entered the ring.

Kalinske wondered what other problems were out there, ones that he didn’t yet know about. After all, he had only just recently been informed of the fiasco involving Sega’s planned football game. As part of Michael Katz’s plan to hitch Sega’s wagon to a constellation of superstars, the company had signed Joe Montana to a $1.7 million licensing agreement. Since Sonic wouldn’t be released until next year, late 1991, Joe Montana Football was intended to be the flagship title for the Genesis—the game that branded Sega, the game that sold consoles, the game that kids begged Santa for this Christmas.

The problem, though, was that Sega’s games were designed in Japan, where they didn’t know the first thing about football, so Katz had decided to find a software developer in the West who could create a quality product in a short period of time. Luckily, a local software company called Mediagenic already had a football game in development that was about 30 percent complete. It was far enough along that it could be ready in time for Christmas, but unfinished enough that there was still room for it to be built around Montana. A few weeks before Kalinske joined Sega, however, Katz had discovered that the game was nowhere near complete. Ironically, when Katz found out about this, his first call was to Hawkins in the hopes that EA would sell them their new John Madden Football game and allow Sega to tweak it and rename it after Joe Montana. But Hawkins refused, believing he had a hot franchise in the making.

“Come now. You must have something to say,” Hawkins asked. “Comments? Questions? Perhaps a more eloquent form of flabbergast?”

“I guess the only question that comes to mind is how the hell you pulled it off, but I suspect that I don’t truly want to know the answer to that.” Hawkins didn’t respond, but his eyes shone with the glimmer of a shooting star swiftly slashing through the sky—one about to crash down to earth and destroy everything in its path.

It had all started about a year ago when Hawkins had a significant change of heart. Since founding Electronic Arts, he had been viciously resistant to the idea of creating software for videogame consoles. He saw them as pesky toys, nothing at all compared to the future of personal computers. This mind-set had made him look like a genius when Atari blew up in 1983, but by 1987, when the Nintendo phenomenon was in full effect, it made him look like some combination of foolish and pretentious. Even as Nintendo continued to rise, Hawkins vehemently defended his position, believing that the NES was no more than a Cabbage Patch Kid-like fad, and reminding his employees that the computer was the future. Besides, the graphics on the NES were mediocre at best and couldn’t handle EA’s enormous talents. But this all changed with Skate or Die!

With pressure mounting from his EA cohorts, Hawkins finally agreed to a small concession: he would allow EA to license their game Skate or Die! to another software company named Konami, granting them rights to distribute the game on various other systems (including the NES). The decision to forgo directly putting the game on the Nintendo yet allowing it to happen anyway may seem strange, but it stemmed mostly from the fact that Hawkins simply didn’t want to deal directly with Nintendo and their strict licensing agreements, which didn’t exist in the computer world.

EA received only a fraction of what Konami had made (which was only a fraction of what Nintendo had made), but the royalty from Skate or Die! for the first month alone was more money than EA made on its best-selling computer games. It was then that Hawkins decided while personal computers were still the future, console games apparently were also the future. Yet despite this realization, Hawkins still couldn’t stomach the notion of becoming beholden to Nintendo, which caused him to take a closer look at Sega. From a technical standpoint, the Genesis (with its 16 bits and 68000 Motorola processor) was better equipped to handle EA’s games, but even though Sega had such a puny market share, their licensing agreement wasn’t all that different from Nintendo’s. The rates were cheaper, of course, but conceptually they both believed that the hardware companies deserved to be paid a toll by the software makers. So to avoid this, Hawkins arranged for Electronic Arts to reverse-engineer the Genesis. Unlike Tengen, who bent the law to discover a work-around, EA would do this legally by setting up a “clean room” environment, which would create a Chinese wall between the engineers dismantling the machine and the engineers trying to rebuild it with the desired change (in this case, circumventing the console’s lock-out system). Now, a year later, Trip Hawkins excitedly stood before the guys from Sega with the grandeur of someone who had just knocked over a little boy’s sand castle.

“All right, Trip,” Kalinske said, while replaying the connect-the-dots of crap that had made up his day, “tell me how you did it.”

“Eh, who cares?” Hawkins mused. “A to B to C to D, and here we are. The question is, now what? What do you think is fair?”

“You’re getting nothing!” Rioux bellowed. “I’ll bet you they didn’t legally reverse-engineer the thing! Those guys are too dirty to ever bother with a clean room.”

“Would you really like to gamble away your company on a hunch?” Hawkins asked. He turned to Kalinske. “You’re new to these conversations. What say you?”

Kalinske snickered. “Who cares what I think? You’re holding all the cards.”

Hawkins struck a defensive tone. “You can drop the high-and-mighty routine. You think I wanted to do this? You think I like driving off the course?”

“How is this my fault?”

“You, Katz, Nakayama, and those zombies at Nintendo. You guys just don’t get it. I spend years making a game, hundreds of thousands of dollars in development costs, and then when it comes time to recoup, I need to buy the cartridges from you, get your saintly blessing, and then after all that, pay you ten bucks for every game I sell.”

When Hawkins finished, Kalinske remained silent for a moment, this time by choice. Finally he said, “What? No fake tears? I mean, if you’re going to lob a sob story at me, at least go the whole nine yards.” The Sega team couldn’t help but crack smiles.

“I’m not being dramatic. I’m not by nature a dramatic person,” Hawkins said, which might have been the falsest statement he had ever spoken.

“It’s the price of doing business,” Kalinske said. “Those thousands you spent on making games . . . what about the millions we spent making consoles? We barely break even on those systems. We’re giving away razors in order to sell the blades.”

“But they’re my blades.”

“Yeah, well, they’re our razors!” Kalinske shouted. Toyoda nudged Kalinske in an attempt to calm him down.

Hawkins shot up. “Steve Jobs is an obsessive maniac and even he doesn’t make us pay him money to put our games on his computers.” This was, after all, the basis for Hawkins’s stubbornness. He came from the computer world, where anybody could make any game for any system. In some cases, the computer manufacturer even paid you money to develop for their system.

Kalinske sighed. “Oh, Trip, didn’t your mother ever teach you the difference between right and wrong?”

Hawkins sighed too. “Oh, Tom, the funny things a man will say when he’s down in the fourth quarter.”

Though the banter briefly lifted Kalinske’s mood, that comment reminded him of the Joe Montana Football problems. Even if Sega and EA found a way to play nice, there was still that to deal with. These battles with EA, Japan, and Wal-Mart only served to take Sega’s eyes off Nintendo and weren’t worth fighting. Kalinske briefly discussed the situation with Rioux, Toyoda, and Russell. They all agreed that having a close relationship with Electronic Arts, even if it wasn’t profitable, would be an incredible win for Sega. EA made great games, which was exactly what Sega needed at the moment. To make that happen and also save face, Toyoda came up with a strategy that he whispered to the others.

“Okay,” Rioux said. “How about we play Let’s Make a Deal?”

“I don’t like game shows,” Hawkins replied. “The hosts freak me out.”

“Well, despite your strange phobia,” Kalinske said, “here’s what we propose: Sega will grant you permission to make authorized games for the Genesis, and instead of the ten bucks for the cartridges, we’ll only charge you four.”

“And . . . ?”

Kalinske looked into his eyes. This really was a shakedown. In addition to the 60 percent cost reduction, Sega would also allow EA to publish up to sixteen games per year and self-manufacture their cartridges.

Hawkins took this in. “That all sounds well and swell, but you’re forgetting that we can do all of this for free, no?”

“I’m forgetting nothing. I’m sure you realize that if you go through with this, you’re gonna bankrupt both our companies with lawsuits back and forth.”

Hawkins thought this over, warming to the idea. “So that’s your final offer?”

“Actually, there’s something else that we want from you,” Kalinske said. “In exchange for keeping us out of court and saving us both from ever having to have a conversation about razors and razor blades again, I want you to give us Madden.”

“No way!” Hawkins yelped.

“What about for some cash and promotion?”

“It’s not about the money,” Hawkins said.

Kalinske understood and respected that. He knew from Mattel that these weren’t stocks, bonds, and commodities that they were selling; these were emotions, experiences, and ideas. “Why don’t you use EA’s Madden engine to make our Montana game? Same gameplay, but switch everything up so that it looks and feels different. If you guys can help us out with this, we’d even be willing to offer EA a nice royalty on Montana sales.”

Hawkins stroked his chin, playing out scenarios in his always-whirling mind. Essentially, EA would take their own game and tweak it enough so that customers didn’t realize that John Madden Football and Joe Montana Football were actually the same game. Hawkins thought this was a crazy idea. Insane, even. But it was a crazy idea that would leave Kalinske and company holding the bag if people ever figured it out (and, in the meantime, EA had managed to get the Sega royalty offer up to 24 percent of this proposed Madden-turned-Montana game).

Hawkins extended his hand across the desk and Kalinske did the same. It was a perfect moment . . . until Hawkins felt compelled to speak again. “I just want to say, that there really is a way of looking at this where I’m the good guy and you’re the bad guy.” He nodded rabidly, seemingly trying to persuade not only Kalinske but himself. “There’s a way of looking at this where I’m the hero who chops through the bullshit and oppression in order to come out the other end with a spoonful of freedom.”

“Please don’t say another word,” Kalinske said, trying to put an end to the long, arduous day. “Every time you open your mouth it makes me feel like I’ve just made a huge mistake.”