is a Japanese video game company and subsidiary of Sega Sammy Holdings headquartered in Tokyo. It produces several multi-million-selling game franchises for arcades and consoles including Sonic the Hedgehog, Angry Birds, Football Manager, Phantasy Star, Puyo Puyo, Super Monkey Ball, Bayonetta, Total War, Virtua Fighter, Megami Tensei, Sakura Wars, Persona, and Yakuza.https://www.segasammy.co.jp/cms/wp-content/uploads/pdf/en/ir/ir_2021_web_all_en.pdf (Page 35) From 1983 until 2001, Sega also developed its own consoles.
Sega was founded by Martin Bromley and Richard Stewart as on June 3, 1960. Shortly after, it acquired the assets of its predecessor, Service Games of Japan. In 1965, it became known as Sega Enterprises, Ltd., after acquiring Rosen Enterprises, an importer of coin-operated games. Sega developed its first coin-operated game, Periscope, in 1966. Sega was sold to Gulf and Western Industries in 1969. Following a downturn in the arcade business in the early 1980s, Sega began to develop video game consoles, starting with the SG-1000 and Master System, but struggled against competitors such as the Nintendo Entertainment System. In 1984, Sega executives David Rosen and Hayao Nakayama led a management buyout, with backing from CSK Corporation.
In 1988, Sega released the Mega Drive (the "Genesis" in North America). The Mega Drive struggled against competition in Japan, but the Genesis found success overseas after the release of Sonic the Hedgehog in 1991 and briefly outsold its main competitor, the Super Nintendo Entertainment System, in the US. In 2001, after several commercial failures such as the 32X, Saturn, and Dreamcast, Sega stopped manufacturing consoles to become a third-party developer and publisher, and was acquired by Sammy Corporation in 2004. Sega Holdings Co., Ltd. was established in 2015; Sega Corporation was renamed to Sega Games Co., Ltd., and its arcade division was split into Sega Interactive. In 2020, Sega Games and Sega Interactive merged to become Sega Corporation.
Sega's international branches, Sega of America and Sega Europe, are headquartered in Irvine, California, and London. Its development studios include its internal research and development divisions (which utilize the Ryu Ga Gotoku Studio and Sonic Team brands for several core franchise entries), Sega Sapporo Studio which mainly provides support for the Tokyo-based development teams as well as handling partial game development, and Atlus (including its R&D divisions) and five development studios in the UK and Europe: Creative Assembly, Sports Interactive, Sega Hardlight, Two Point Studios, and Rovio Entertainment (including Ruby Games). Sega is one of the world's most prolific arcade game producers and its mascot, Sonic, is internationally recognized. Sega is recognized for its video game consoles, creativity and innovations. In more recent years, it has been criticized for its business decisions and the quality of its creative output.
Being the entertainment contents division of Sega Sammy Holdings, forming one half of the Sega Sammy Group, Sega also owns a toy and amusement machine company, Sega Fave, which comprises its arcade development and manufacturing divisions and two animation studios: TMS Entertainment, which animates, produces, and distributes anime, and Marza Animation Planet, which specializes in CG animation.
History
1940–1982: Origins and arcade success
In May 1940, American businessmen Martin Bromley, Irving Bromberg and James Humpert formed Standard Games in Honolulu, Hawaii. Their aim was to provide coin-operated amusement machines, including slot machines, to military bases as the increase in personnel with the onset of World War II would create demand for entertainment. After the war, the founders sold Standard Games in 1945, and established Service Games the next year, named for the military focus. After the US government outlawed slot machines in its territories in 1952, Bromley sent employees Richard Stewart and Ray LeMaire to Tokyo to establish Service Games of Japan to provide coin-operated slot machines to US bases in Japan. A year later, all five men established Service Games Panama to control the entities of Service Games worldwide. The company expanded over the next seven years to include distribution in South Korea, the Philippines, and South Vietnam. The name Sega, an abbreviation of Service Games, was first used in 1954 on a slot machine, the Diamond Star.
Due to notoriety arising from investigations by the US government into criminal business practices, Service Games of Japan was dissolved on May 31, 1960. On June 3, Bromley established two companies to take over its business activities, Nihon Goraku Bussan and The two new companies purchased all of Service Games of Japan's assets. Kikai Seizō, doing business as Sega, Inc., focused on manufacturing slot machines. Goraku Bussan, doing business under Stewart as Utamatic, Inc., served as a distributor and operator of coin-operated machines, particularly jukeboxes. The companies merged in 1964, retaining the Nihon Goraku Bussan name.
Around the same time, David Rosen, an American officer in the United States Air Force stationed in Japan, launched a photo booth business in Tokyo in 1954. This company became Rosen Enterprises, and in 1957 began importing coin-operated games into Japan. In 1965, Nihon Goraku Bussan acquired Rosen Enterprises to form Rosen was installed as the CEO and managing director, while Stewart was named president and LeMaire was the director of planning. Shortly afterward, Sega stopped leasing to military bases and moved its focus from slot machines to coin-operated amusement machines.Horowitz 2018, p. 7 Its imports included Rock-Ola jukeboxes, pinball games by Williams, and gun games by Midway Manufacturing.
Because Sega imported second-hand machines, which required frequent maintenance, it began constructing replacement guns and flippers for its imported games. According to former Sega director Akira Nagai, this led to the company developing its own games. The first arcade electro-mechanical game (EM game) Sega manufactured was the submarine simulator Periscope, released worldwide in the late 1960s. It featured light and sound effects considered innovative and was successful in Japan. It was then exported to malls and department stores in Europe and the United States and helped standardize the 25-cent-per-play cost for arcade games in the US. Sega was surprised by the success, and for the next two years, the company produced and exported between eight and ten games per year.Horowitz 2018, pp. 10–11 The worldwide success of Periscope led to a "technological renaissance" in the arcade industry, which was reinvigorated by a wave of "audio-visual" EM novelty games that followed in the wake of Periscope during the late 1960s to early 1970s. However, rampant piracy led Sega to cease exporting its games around 1970.
In 1969, Sega was sold to the American conglomerate Gulf and Western Industries, although Rosen remained CEO. In 1974, Gulf and Western made Sega Enterprises, Ltd., a subsidiary of an American company renamed Sega Enterprises, Inc. Sega released Pong-Tron, its first video-based game, in 1973.Horowitz 2018, pp. 14–16 Despite late competition from Taito's hit arcade game Space Invaders in 1978, Sega prospered from the arcade video game boom of the late 1970s, with revenues climbing to over million by 1979. During this period, Sega acquired Gremlin Industries, which manufactured microprocessor-based arcade games,Horowitz 2018, pp. 21–23 and Esco Boueki, a coin-op distributor founded and owned by Hayao Nakayama. Nakayama was placed in a management role of Sega's Japanese operations. In the early 1980s, Sega was one of the top five arcade game manufacturers active in the United States, as company revenues rose to $214 million. 1979 saw the release of Head On, which introduced the "eat-the-dots" gameplay Namco later used in Pac-Man.Horowitz 2018, pp. 24–26 In 1981, Sega licensed Konami's Frogger, its most successful game until then.Horowitz 2018, p. 36 In 1982, Sega introduced the first game with isometric graphics, Zaxxon.Horowitz 2018, p. 48
1982–1989: Entry into the game console market, management buyout and arcade resurgence
Following a downturn in the arcade business starting in 1982, Gulf and Western sold its North American arcade game manufacturing organization and the licensing rights for its arcade games to Bally Manufacturing in September 1983.Horowitz 2018, p. 64 Gulf and Western retained Sega's North American R&D operation and its Japanese subsidiary, Sega Enterprises, Ltd. With its arcade business in decline, Sega Enterprises, Ltd. president Nakayama advocated for the company to use its hardware expertise to move into the home consumer market in Japan. This led to Sega's development of a computer, the SC-3000. Learning that Nintendo was developing a games-only console, the Famicom, Sega developed its first home video game system, the SG-1000, alongside the SC-3000. Rebranded versions of the SG-1000 were released in several other markets worldwide. The SG-1000 sold 160,000 units in 1983, which far exceeded Sega's projection of 50,000 in the first year but was outpaced by the Famicom. This was in part because Nintendo expanded its game library by courting third-party developers, whereas Sega was hesitant to collaborate with companies with which it was competing in the arcades.
In November 1983, Rosen announced his intention to step down as president of Sega Enterprises, Inc. on January 1, 1984. Jeffrey Rochlis was announced as the new president and CEO of Sega. Shortly after the launch of the SG-1000, and the death of company founder Charles Bluhdorn, Gulf and Western began to sell off its secondary businesses. Nakayama and Rosen arranged a management buyout of the Japanese subsidiary in 1984 with financial backing from Computer Service, a prominent Japanese software company. Sega's Japanese assets were purchased for $38 million by a group of investors led by Rosen and Nakayama. Isao Okawa, head of CSK, became chairman, while Nakayama was installed as CEO of Sega Enterprises, Ltd.
In 1985, Sega began working on the Mark III, a redesigned SG-1000. For North America, Sega rebranded the Mark III as the Master System, with a futuristic design intended to appeal to Western tastes. The Mark III was released in Japan in October 1985. Despite featuring more powerful hardware than the Famicom in some ways, it was unsuccessful at launch. As Nintendo required third-party developers not to publish their Famicom games on other consoles, Sega developed its own games and obtained the rights to port games from other developers. To help market the console in North America, Sega planned to sell the Master System as a toy, similar to how Nintendo had done with the Nintendo Entertainment System. Sega partnered with Tonka, an American toy company, to make use of Tonka's expertise in the toy industry. Ineffective marketing by Tonka handicapped sales of the Master System. By early 1992, production had ceased in North America. The Master System sold between 1.5 million and 2 million units in the region. This was less market share in North America than both Nintendo and Atari, which controlled 80 percent and 12 percent of the market. The Master System was eventually a success in Europe, where its sales were comparable to the NES. As late as 1993, the Master System's active installed user base in Europe was 6.25 million units. The Master System has had continued success in Brazil. New versions continue to be released by Sega's partner in the region, Tectoy. By 2016, the Master System had sold 8 million units in Brazil.