The Birth of the $60 Billion Videogame Industry

Sonic the Hedgehog, Super Mario Bros., and Sega’s war on Nintendo

Console Wars

1. The Chosen One

Tom Kalinske had a secret.

For years he had managed to keep it to himself, covering it up with a combination of white lies, noncommittal nods, and uneven smiles, but as he lay on a magnificent beach in sunny Maui with his loving wife and three energetic daughters, he could no longer keep it inside.

It was the summer of 1990, and Kalinske’s life was at a crossroads. He had spent the better part of his career working at Mattel, where he enjoyed towering success transforming the Barbie line from a niche, has-been series of dolls into a timeless, billion- dollar property. Recognizing his potential, the company groomed him to become their next president. But shortly after taking the reins at only thirty-eight years old, he found himself embroiled in a dangerous game of office politics. Now, following a short stint at Matchbox, he couldn’t help but wonder if the best years of his life had passed him by. The anxiety was wearing on him, as was the density of this secret, but as he thought about who he ought to speak to about all this, an unexpected guest appeared.

“Hello, Tom,” a cheerful voice said, blocking out the sun. “You are a difficult man to track down.”

Kalinske looked up to find a Japanese man with brown eyes and a messy, wind-mangled combover: Hayao Nakayama, the president of Sega Enterprises.

“What are you up to?” Nakayama asked, trying to emit a friendly smile, which came out looking more like an ominous smirk. Kalinske would soon learn that Nakayama was incapable of producing a genuine smile. His round face always held too much mystery, making simple, genuine emotions too hard to pull off.

“Well, I was trying to have a nice, relaxing moment with the sun here, until you got between us,” Kalinske gracefully shot back. He never allowed himself to appear off guard in conversations and was committed to masking any discomfort or unease with a Jamesdeanian coolness. Nakayama realized that he was casting a shadow over Kalinske and took a couple of steps to the side. As the sun hit his face, Kalinske smiled and greeted his unexpected guest. “Great to see you, Nakayama-san. What brings you out to Hawaii?”

“I came here to find you. As I just said, you are a difficult man to track down.”

2. The Overlord

Nakayama spoke nearly perfect English, albeit with a strange slight Brooklyn accent. It was smooth and seamless, except for the occasional broken phrase. His errors, however, seemed to have less to do with grammatical difficulties and more to do with the rhythm of his conversation. It was almost as if he threw in a few “mistakes” from time to time as camouflage, allowing himself to hide behind the language barrier and play the role of clueless foreigner if need be.

“When I heard about your departure from Matchbox I left many messages at your home.” Nakayama tried another smile, this one coming out like a spooky grin. Kalinske bowed his head a bit. After leaving Matchbox, he had tried his best to hide from the universe. He screened all his calls, turned off the fax machine, and rarely left the house. He had been feeling small in the world and he dealt with it by making his world as small as possible. His wife Karen had been good about dealing with his reclusive behavior. She knew he was down and didn’t press the issue. Her husband had bounced back from many things over the years, and there was no doubt in her mind that he would soon return to the world more spectacular than ever before. In the meantime, she didn’t mind having him around the house. For a temporary recluse, he was quite friendly, good with the dishes, and only sometimes a liability when doing the laundry.

“Yeah, I got your messages. Sorry I hadn’t gotten back to you yet,” Kalinske said. “I’ve just been trying to take some time to myself and figure things out a little.”

“Ah, yes,” Nakayama said. “But don’t you know that this is why I called?” Then, right there in the middle of Kalinske’s family vacation, Nakayama made him an offer to become the next president and CEO of Sega of America.

“What do you say, Tom? I am certain you are the man for the job. We have a wonderful new videogame console.”

Raising an eyebrow, Kalinske turned to Nakayama. “This new thing you’ve got is like the Nintendo, right?” via Flickr user unloveable

3. Nintendo Mania

Kalinske had never played Nintendo’s 8-bit system, dubbed the Famicom in Japan and the Nintendo Entertainment System (NES) in the United States, but he was certainly aware of its massive success. Everyone was. Nintendo was a small but ambitious Japanese company that, in 1985, dared to try to resuscitate the videogame industry in the United States where it had been dead since the failures of Atari and Mattel.

Against immense resistance, the NES finally knocked down the fickle walls of pop culture and proved that videogames were not a fad: they were big business.

Now, by 1990, less than five years later, Nintendo owned 90 percent of a $3 billion industry. The other 10 percent of the market was made up of wannabes who had seen Nintendo’s success and wanted in on the action. Among this group was Sega.

Nakayama rolled his eyes. “No, it is nothing like the Nintendo. Our system is much better. The Nintendo is a toy, but what we have, it is like . . .” He trailed off, struggling to find the perfect words. “Tom, I need for you to come with me to Japan. You must see this for yourself.”

4. The Infamous, Impromptu Vacation From Vacation

“Nakayama-san, can I tell you secret?”

“Yes, Tom. Of course.”

Kalinske looked over his shoulder before leaning in. “I don’t even like the beach.” Nakayama didn’t seem to react to the words, but Kalinske had gotten them off his chest. “I mean, I understand why someone would like it. The sun, the sand, the water; I guess that’s relaxing. But I just don’t feel that way. All that stuff, I think it’s . . .”

Nakayama jumped in to finish his sentence. “Boring.”

“Yes!” Kalinske said. “Exactly. It’s nice and all, but it’s boring.”

“Of course, Tom,” Nakayama echoed. “It is different for people like us.”

Kalinske didn’t feel so alone.

Nakayama put his arm on Kalinske’s shoulder. “Okay, then, let us now go on a real vacation.”

5. Fables, Fairy Tales, and Virtual Realities

Like a shark swimming by a school of fish, a hulking yellow Cadillac de Ville crept past awestruck motorists on Tokyo’s busy streets. Kalinske and Nakayama sat in the back of the chauffeured car, watching the people they passed instinctively try to peer through their tinted windows. Guppies.

As the automotive extension of Nakayama’s personality cruised through narrow streets, Kalinske leaned forward with a question. “What about Katz?”

In October 1989, Michael Katz had been hired to make the Genesis a smash hit in America. In Japan, the Mega Drive had achieved mild success with its initial release, and this gave the powers that be high hopes for their American counterparts. So high, in fact, that Nakayama came up with the rallying cry “Hyakumandai!” (one million units). Despite the shadow of Nintendo, Nakayama fully expected that Katz would be able to sell more than a million Genesis systems by the end of his first year on the job. Katz had tried his best to reach this goal and make a name for the Genesis, but after that year was up he had sold only about 350,000 units and Sega still lacked an identity.

“He thinks he’s running a movie studio,” Nakayama began, “not a videogame company. He spends my money like a madman and then calls it an investment. He thinks everything is an investment.” Katz had spent a lot of money to secure deals with celebrities, highlighted by $1.7 million for Joe Montana and, most recently, boxer James “Buster” Douglas, the current heavyweight champion of the world. “He has no vision for the company. No identity. So all he does is go out and try to buy one.”

“You know Katz, though. He’s a builder,” Kalinske said. As much as he understood where Nakayama was coming from, he had a soft spot for Katz. They had become buddies at Mattel, they played tennis together, and their wives got along. “Katz is slow and steady. I thought that’s what wins the race, no?”

“This is not a fable, Tom.” Nakayama shook his head. “I want you to take his job because you will be able to do it better.”

6. Kid in a Candy Shop

They were dropped off in front of Sega headquarters, which Kalinske was surprised to find was bland and innocuous. It looked almost like a college dorm complex, nondescript and painted in a crusty, faded-looking yellow-white. The only difference here was that at the top of this humble ten-story building, the name Sega was emblazoned in blue capital letters.

Nakayama led Kalinske into what he considered the crown jewel of Sega’s operation: the top-secret R&D lab, where long tables were overrun by large computers, unrecognizable mechanical tools, and several televisions that had been taken apart. Kalinske felt like he had entered an evil scientist’s lair— that is, if the evil scientist in question had planned to take over the world by means of videogame domination.

Nakayama proudly escorted Kalinske around the room, introducing him to all sorts of gadgets and gizmos that seemed too small and sophisticated to actually exist. With marvelous graphics moving at racecar speed, these seemed less like games than they did playable dreams. Nakayama pulled him over to a small station and handed him a little black device. “This is called the Game Gear. It will come out here in October and then sometime next year in America.”

Eventually Nakayama pried him away and dazzled him with more glimpses of tomorrow: a CD-based device that played games with near movie-quality graphics, a pair of 3-D glasses that could be worn to bring certain games to life, and some kind of hefty virtual-reality headset. Finally, the tour concluded in front of Nakayama’s crown jewel: the Sega Genesis. Kalinske stared at this beautiful black beast.

It was sleek and seductive, with graphics and gameplay that blew what little he knew about Nintendo out of the water.

He wondered how the hell Katz had struggled to sell this. Nakayama watched Kalinske’s eyes widen like a kid who not only was inside a wondrous candy shop but had just been told that he now owned it.

7. Rude Awakening

“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.”

The pale expression on his face became a smile. “Oh hey there, Madeline,” Kalinske replied. “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 the previous year, titled “The Games Played for Nintendo’s Sales.” This is what Kalinske had been reading when his coffee craving suddenly disappeared:

8. Freedom vs. Control

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, 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. 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. 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?”

Via Flickr user sharynmorrow

9. The Plot to Assassinate a Certain Cherubic, Red Plumber

“Right,” Schroeder said. “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.”

“Cool, cool, 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.

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 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: , 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.

“So basically,” Schroeder ended, “our entire jobs, careers, and livelihoods depend on this hedgehog guy.”

10. The Name of the Game

After hedging his way through the hedgehog conversation, Kalinske rushed into the office of Al Nilsen, Sega’s large-bodied, larger-than-life marketing dynamo.

“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. Beneath round-rimmed spectacles, Nilsen’s face rarely depicted emotions. But when he spoke, a wonderfully boundless, kid-trapped-in-an-adult-body enthusiasm could not be contained. “What can I do for you, sir?”

“Hey, Al,” Kalinske said. “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, up-lifting 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 , 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.”

“Perfect,” Kalinske said with a succinct nodded. “So as long as Japan gets us a good game, we can turn it into gold. Or, rather, into silver…”

11. Madonna’s Boyfriend

Back in Kalinske’s office, Nakayama’s ominously chipper voice boomed through the phone. “Tom! I am calling with good news. The new company mascot is ready, and he is sure to be a success.”

“This is the hedgehog named Mr. Needlemouse?”

“Ah, you have heard,” Nakayama said, surprised. “We have made some changes, and his name is now Sonic.”

“Okay,” Kalinske said. “Well, when can I see him?”

“I will send him over now,” Nakayama said, and then barked orders in Japanese to someone on the other end. “He will enter through the fax. I will stay on the line to hear your reaction. You will be very pleased.” Kalinske made his way over to the fax machine as it buzzed, printing out lines of what would be the company’s savior. “My guys here have already begun work on the game engine. They showed me an early version, and it is fast like nothing else.”

The fax machine stopped sputtering, and Kalinske picked up the sketch. “Ah,” he said, trying not to sound repulsed. “Very interesting.” Kalinske stared at the drawing, trying to see in it what Nakayama saw, but it was no use. The hedgehog looked villainous and crude, complete with sharp fangs, a spiked collar, an electric guitar, and a human girlfriend whose cleavage made Barbie’s chest look flat. “I assume this is his girlfriend?”

“Yes,” Nakayama said. “That is Madonna.”

“Kind of racy, no?”

“Tom,” Nakayama said, and sighed. “This is not the reaction I expected.”

Kalinske continued to stare at the drawing. “Sorry, Nakayama-san, sometimes it just takes a little while for things to sink in for me,” he said, still shocked that this bruiser was supposed to be his messiah. “I’ll tell you one thing, though—if Sonic and Mario were alone in an alley, I have no doubt who I’d put my money on.”

He had been expecting a Mario-killer, but not one that literally looked like a serial killer.

Maybe this Sonic could sell in Japan, but in America he belonged inside a nightmare.

Kalinske got off the phone with Nakayama and took the fax to Madeline Schroeder’s office. “I have good news and I have scary news.” He handed her the artwork. “What do you think?”

She looked it over. “I think we’ll be the first videogame company whose core demographic is goths.”

“Nakayama loves it.”

“Of course he does,” she said. “It’s so weirdly Japanese. I’m surprised the girlfriend’s boobs aren’t hanging out of a schoolgirl outfit.”

Despite his sour mood, Kalinske laughed. “Her name is Madonna.”

Schroeder put the drawing on the desk. After a long silent inspection they both spoke at the same time, saying the exact same thing: “Can you fix it?”

Schroeder sighed. “You know, I expected something pretty terrible. I mean, the second-place winner in the contest was an egg, for God’s sake. This is certainly not ideal, but it’s actually not as bad as I was bracing for. We can make this work.”

Her optimism was contagious. “Great,” Kalinske said, standing up. “Then let’s turn this punk into a global icon.”

“And how exactly do you propose we begin?”

“Oh, I know of a little place where the icons all hang out together. Why don’t we grab Al and go check it out?”

12. The Birth of a Global Icon

Kalinske, Schroeder, and Nilsen went on a field trip to Toys “R” Us to pay a visit to some famous friends: Mickey Mouse, GI Joe, He-Man, Mr. Potato Head, and the newly popular and ever-rowdy Teenage Mutant Ninja Turtles. Kalinske walked them through the store, pointing out one billion-dollar property after another and explaining what made each character unique, likable, and timeless. There didn’t appear to be a single toy in the store that Kalinske was unfamiliar with; he knew which company had developed each toy, why they had done so, and how they had gone about marketing it. There was just no place that Kalinske felt more in his element than inside a toy store.

Toy stores were more than just a comfort zone or realm of inspiration to him. They were like a library of cultural mythology.

His biggest takeaway from the toy industry had been the importance of story.

A toy might be just a piece of plastic, but if you added a compelling narrative and a character mythology, you could transform that piece of plastic into the next big thing. He had proved it with Barbie and with He-Man and the Masters of the Universe, and he was starting to feel more and more confident that he could do it with Sonic as well.

They stopped in front of a Mickey and Minnie dollhouse. “He’s the ultimate friend,” Kalinske said. “No matter what, Mickey remains upbeat and encouraging. It’s like he lives to put a smile on the face of others.”

“Sounds kind of pathetic, if you ask me,” Schroeder said. “I prefer my friends to be a little more selective.”

“Well, not everyone can be as popular as you, Madeline. There are a lot of kids out there who just want someone to like them. Enter Mickey Mouse.” Kalinske continued his tour and stopped in front of a large display of Teenage Mutant Ninja Turtles, the most recent plastic sensation. “I’ve been thinking that these guys embody the tone that we should be trying to strike. Playful, but edgy—cool, but no leather jackets. You know what I mean?” Nilsen and Schroeder nodded, taking it all in.

Day after day, Kalinske, Schroeder and Nilsen worked to turn this critter into something more than lines on a page. At first their primary focus was subtraction, removing the fangs, the collar, the guitar, and the girlfriend. Then as he began to look more and more like a lost little hedgehog, they worked to add back some of that attitude, focusing less on gimmicks like a guitar or a girlfriend and more on his backstory and character. To better understand this speedy blue hedgehog, Kalinske had Schroeder write a thirteen-page bible that detailed the who, what, where, when, and why of his personality. He had grown up in Nebraska, lost his father at a young age, trained hard to develop world-class speed, and befriended a brilliant scientist who acted as a father figure until an experiment gone awry turned him into an evil villain.

Eventually, the creative forces at Sega of America got to the point where they no longer felt like they were making up the hedgehog’s story on the fly, but actually learning more about a character who truly existed. As they continued to redefine this character from a marketing standpoint, the designers and engineers at Sega of Japan were busy working on a “game like no other” in which the hedgehog would star.

13. Meanwhile at Nintendo…

A gust of wind rose from the Ujigawa River and reverberated through the night, rattling between the low-lying mountains of the Higashiyama, Kitayama, and Nishiyama ranges. From there, the breeze whispered its way through the tranquil city of Kyoto, weaving between an ornate contrast of Zen gardens and imperial palaces, before crashing into the impenetrable exterior of an unassuming warehouse.

Inside, oblivious to the persistent thumps of wind, an assembly line of Japanese laborers worked through the night. Together they operated with the coordinated chaos of scurrying ants. The laborers had been given strict orders that not a single second could be spared, and as a result, their routine became religion: unload, assemble, test, package, and ship. Over and over they did this, until every single unit of Nintendo’s new gaming console had been sent out for delivery. And while all of this was going on in Kyoto, similarly stealthy efforts were taking place at other warehouses throughout Japan as part of Nintendo’s master plan: Operation Midnight Shipping.

The clandestine nature of these arrangements had been ordered by Nintendo’s president, Hiroshi Yamauchi. While preparing for the launch of the company’s 16-bit Super Family Computer (Super Famicom), he had uncovered rumors that the Yakuza, Japan’s organized crime syndicate, planned to hijack deliveries. Though the organization typically trafficked in drugs, currency, and women, their interest in electronic goods was not surprising. Wherever strong demand existed, the Yakuza took the necessary measures to be ready with supply. And in late 1990, when retailers received word from Nintendo that the 16-bit system would be available later that month, demand soared to incredible heights.

On November 3, Osaka’s famous Hankyu department store announced that it would take reservations for the Super Famicom. A week later, they had to stop accepting preorders due to the sheer number of requests. Most retailers didn’t even last that long before changing gears. Some stores set up lottery systems to determine who would be lucky enough to purchase Nintendo’s new product, while others allowed customers to place preorders only if they agreed to buy other products as well. By the end of it all, 1.5 million people had managed to get their names onto the coveted preorder lists.

However, the majority of these chosen ones would be hugely disappointed. In keeping with their controversial tradition of understocking orders, Nintendo planned to ship only 300,000 units, leaving 80 percent of those with reservations out of luck. If Nintendo had completely had its way, however, they wouldn’t have shipped a single unit. Instead, they would have been content to keep selling their 8-bit products. But Sega’s 16-bit system, Kalinske’s plans for change, and rumblings about a top-secret mascot had forced their hand. Nevertheless, Nintendo was prepared. They had been working on a 16-bit system of their own since the late eighties, and from a technological standpoint they could have had something ready for market by late 1990. But because they had to move faster than expected, there was one issue that could not be rectified in time…

14. The Hitch

Backward compatibility. When Yamauchi had originally tasked his engineers with building Nintendo’s next-generation system, he made several demands related to price, performance, and graphic capabilities. He also insisted that the new hardware should be able to play the old 8-bit software. This was gravely important, because without that compatibility the millions of Nintendo games already purchased would instantly become obsolete, and the parents who had bought those games would become angry and less likely to want to pay for new products from the company that had made them feel that way. The burden of accomplishing all this fell onto the shoulders of engineering wizard Masayuki Uemura and his sixty-five-person team, dubbed R&D 2,who had been responsible for creating the original 8-bit system and the lock-out chip that rejected non-Nintendo games.

Uemura’s Super Famicom dazzled on numerous fronts. The new console could generate 32,768 unique colors (the Genesis had 512) and eight channels of audio (the Genesis had six), and it could retail for 25,000 yen (about $250). Yet despite his best efforts, Uemura was unable to incorporate backward compatibility without greatly increasing the price (by about $75). Yamauchi discussed this issue with his son-in-law, Minoru Arakawa, who harbored plans to soon release a U.S. version of the system. Arakawa pointed out that compact discs had recently begun to replace cassette tapes and vinyl records without causing much of a stir.

Perhaps modern consumers were becoming savvy enough to realize that new technology tended to make previous iterations obsolete.

They concluded that Nintendo was strong enough to deal with the possible backlash and couldn’t afford to hold off on a 16-bit system any longer.

To placate the possibility of angry parents, they wanted to make sure they had an “it” game for the new endeavor. Naturally, they decided that their new supersystem deserved a new game. This, however, resulted in another problem. Shigeru Miyamoto, the visionary game designer behind the and franchises, was still in the process of learning the limits, benefits, and nuances of 16-bit technology when he was asked to rush the completion of his new game, (later retitled ). He was proud of his latest iteration—the new costumes, the clever foes, and the bright, beautiful new worlds—but the perfectionist within him worried that it felt too similar to the previous Mario games. By this point, however, there was no turning back. Nintendo was moving full steam ahead, ready to enter the battle for 16 bits.

Via Flickr user clevercupcakes

Somewhere in Kyoto, another mighty gust of wind roared past a non-descript warehouse, signaling that sooner or later a storm would be coming.

15. David Sharpens His Slingshot

While Nintendo covertly launched its 16-bit system in Japan, Kalinske and his team of rebels prepared for the system’s eventual arrival in America by arming their Mario-killer with as much ammo as possible. Sonic wouldn’t just become the face of the company but also would represent their spirit: the tiny underdog moved with manic speed, and no matter what obstacles stood in his way, he never ever stopped going. Sonic embodied not only the spirit of Sega of America’s employees but also the cultural zeitgeist of the early nineties. He had captured Kurt Cobain’s “whatever” attitude, Michael Jordan’s graceful arrogance, and Bill Clinton’s get-it-done demeanor.

When the newly refined hedgehog was ready, Kalinske called up Nakayama. “We made some changes. I want you to take a look.”

“Okay,” Nakayama said. “I will call you back.”

“No, I’d like to stay on the line and hear your reaction,” Kalinske said as he faxed over a copy of Sega of America’s revised hedgehog.

Nakayama chuckled, but his good mood devolved into a cold neutrality. “Oh,” he said. “This is not even the same hedgehog that we gave you! Where is his lady friend? And those sharp teeth of his?”

“This is not the reaction I was expecting,” Kalinske said, echoing not only Nakayama’s earlier words but also his distinctly disappointed tone.

Nakayama thought for a moment. He was a man who chose his words wisely, so it was significant whenever he took an extra moment to do so. “It doesn’t matter what I think. It only matters what will sell.”

But over the following days, tempers at Sega of Japan began to flare. The games designers believed they should be in charge of every aspect of Sonic. In normal circumstances, this would likely be the case, but since the character of Sonic had initially been created for the goal of success in the United States, Sega of America believed that they knew best when it came to the tastes and preferences of their audience.

Days later, Nakayama called Kalinske back, sounding less open-minded. “My people do not like what you have done to their creation. It no longer resembles what they had in mind. We must revert to the original.”

16. SOA vs. SOJ

Kalinske realized for the first time that despite being under the same umbrella, Sega was essentially two companies: Sega of Japan (SOJ) and Sega of America (SOA). It didn’t matter to SOJ that the new hedgehog might be better; all that mattered to them was that it wasn’t theirs. Although the friction between parent company and subsidiary was subtle, Kalinske knew this was the moment that could make or break the company. He had to put it all on the line and urge Nakayama to reconsider.

“I’ve been in the videogame business for about five minutes,” he began, “but I’ve been in the toy business for over twenty years. You know what the toy business really is? It’s not about size, shape, color, or price; it’s about character. You want to play with characters you like. You want to become a part of their world and let them become a part of yours,” Kalinske said, overwhelmed with passion. “I can only speak for myself, but there’s not a character out there that I’d rather spend some time with than our new Sonic The Hedgehog. And if I feel this way, I think there are a lot of others who will feel exactly the same.”

Kalinske stopped and took a deep breath. He thought for a moment about reminding Nakayama about his promise to let Kalinske do things his way, and he also considered suggesting they conduct some market tests to see which hedgehog was more popular, but at the end of the day none of that mattered. This was about a vision, and if Nakayama couldn’t see that, then he didn’t deserve Sonic.

Nakayama broke the silence. “Tom, maybe I agree, but you must understand that there are people here of premium integrity who think differently.”

“I understand,” Kalinske replied. “So how about we try and change their minds?”

To share Sega of America’s vision for Sonic, Schroeder was sent to Japan with the unenviable task of convincing the programmers that although they may know how to develop great games, she and her colleagues knew how to develop great characters. This fateful meeting at SOJ began friendly enough, but when it became clear that Schroeder wasn’t interested in revising her vision, tempers began to flare. As a compromise, they suggested that each faction of the company simply have their own Sonic: you use your Sonic, and we’ll use ours. To support this multi-Sonic worldview, they cited how Mickey Mouse wasn’t exactly the same all over the world.

First off, Schroeder thought, I don’t even think that’s true. And secondly, even if Mickey does get localized in certain regions, she felt fairly confident that there wasn’t a territory in the world where Mickey had fangs (or Minnie had double-Ds). Thirdly, and most important, she didn’t want two Sonics. This wasn’t about Sega of America getting their way, but about creating something immortal that existed in the world’s collective imagination. And to do that, there could be no S(OA)onic and S(OJ)onic. Schroeder tried to make this point, but soon enough everyone had left the room. Although this impromptu boycott seemed to point toward a Sonic schism, whatever she had said in Japan appeared to have done the trick. When Kalinske next spoke with Nakayama, he and his team were given the green light to proceed as they saw fit.

As Kalinske stared at this new and improved Sonic, he had the revelation that Sega actually, legitimately, inconceivably stood a fighting chance.

Console Wars: Sega, Nintendo, and the Battle That Defined a Generation

author of CONSOLE WARS

author of CONSOLE WARS