The 16-bit Revolution

The year 1987 found Sega in a most curious position. On the one hand, it had utterly failed to shake Nintendo's grip on the videogame industry with its 8-bit Sega Master System (SMS). On the other hand, that same industry's base technology was fast becoming obsolete. New and more powerful personal computer systems, predominantly of the 16-bit variety, had made and were continuing to make significant inroads into the market. New and revolutionary systems such as the Commodore Amiga and Atari ST were causing home consumers to re-evaluate how videogames should look and play. This new generation of personal computers were finally powerful enough to deliver a videogame experience every bit as good as that found in the arcades of the day. Why not the same for home videogame consoles?

The answer was simple. The home console market was still trapped inside its 8-bit prison, with a certain Italian plumber of Japanese extraction as its erstwhile jailer. Nintendo had a virtual iron grip on the industry and was not about to let go for any reason. It held a 95% share of the Japanese market and a 92% share of the U.S. market, and those two illegal monopolies gave Nintendo all the profits it could ever want and more. Other vendors in the field didn't stand a chance on the fertile ground that Nintendo had exploited for years. Even Sega, which arguably had the superior 8-bit console with the SMS, fared no better against Nintendo's venerable NES than had its predecessors. Sega was not going to get anywhere playing by Nintendo's rules on Nintendo's turf. The answer was to join the fight on a new battlefield, with new rules and standards of play, in a venue over which Nintendo had no control. That venue was the nextgen wave of its day - the arrival of the 16-bit generation of home consoles.

By this time Sega had already enjoyed considerable success in the arcades with 16-bit hardware. Sega games such as Afterburner 2, OutRun, Shinobi, Space Harrier, and Super HangOn had become extremely popular with gamers. Sega had a reputation for producing arcade games like nobody else on the scene, due largely to its use of the high-end 16-bit Motorola MC68000 central processing unit (CPU) - or in some cases twin Motorola CPUs - in conjunction with the best 16-bit video display processors (VDPs) and sound systems that the company could devise. The major iteration of this design scheme at the time was called System 16, and many a Sega game based directly on or derived from it could be found with a crowd of eager gamers clustered around in most arcades. The considerable success of System 16 in the arcades coupled with its console woes on the home market caused Sega CEO Hayao Nakayama to start thinking. The time seemed ripe, he reasoned, to literally "bring the arcades home." If Sega could come up with an all-new console, one that was radically different from Nintendo's, one that would appeal to an all-new user base, then Sega might find the niche market upon which it could build. Producing a 16-bit videogame console, as opposed to yet another system based on tried-and-true 8-bit technology, would put Sega on a technological cutting edge that no competitor could match for some time. This would be the new system's main selling point. By the time the competition - meaning Nintendo, of course - did catch up, Sega's box would already be the established leader with a healthy software base and the tables would be turned. For once, the plumber would be the one trying to catch up. Furthermore, the time was now to bring this new system to market. The new customer base was already there, and Sega did not want Nintendo to snag them first.

It was a good thing for Sega that they chose to act when they did. Nintendo already had its own 16-bit console in the design pipeline. This was the system that would later become known as the Super Famicom in Japan and the Super NES (SNES) in the rest of the world. Nintendo CEO Hiroshi Yamauchi had warned his company that they needed to be poised to seize the 16-bit console market by 1990; however, his statement did not have the binding edge of command that his pronouncements usually carried. Nintendo was still reaping huge profits from the NES, so there was no hurry to come up with a successor system. There was also another reason for the delay - Nintendo was having development problems with this newest box. It was little more than a design concept and a few barely working prototypes at this point, but already certain issues had surfaced that demanded attention. The system as originally designed was way too expensive to be produced in a version affordable for the average consumer, let alone cost-effective for Nintendo. On top of that, project leader Masayuki Uemura was unable to meet Yamauchi's demand that the new box be back-compatible with the NES. The back-compatibility feature was eventually abandoned; however, that only saved about US$75 on the anticipated end-user price tag. The chief culprit of the cost was, of course, the all-new graphics and sound processing suite upon which Yamauchi insisted. Designed in anticipation of the coming multimedia boom, it drove up the cost of the system so much that Nintendo was again forced to cut costs elsewhere or scrap it and risk being left behind. The problem was eventually solved by installing a slower CPU - a Motorola-based WDC65816 CPU - instead of the faster 10 MHz MC68000 that Uemura originally intended. This meant that the new box would not be that much faster than the NES itself, so a math coprocessor (as cheap as Nintendo could cobble together) was thrown in to ease the processing strain a bit.

Meanwhile, over in Sega R&D, a team of engineers under the direction of Hideki Sato proceeded at a rapid pace on development of Sega's new 16-bitter. This new system was little more than a redesigned System 16 arcade board that had been scaled down and shoehorned inside a sleek-looking black case. An RF adapter and SMS-style audiovisual port replaced the custom monitor connections for an arcade cabinet, and a cartridge slot for interchangeable games replaced the on-board EPROMs. In fact, the resulting design worked so well that Sega would turn right around and use it as the basis for three more arcade boards (MegaTech, MegaPlay, and System C). The similarity between existing arcade hardware and Sega's new 16-bit home console meant that it would not be terribly difficult to convert existing System 16 games for the new console. The resultant ports would be almost letter-perfect versions of the arcade originals, allowing Sega to build up a large library of games fairly quickly until its console programmers had found time to develop all-new titles specifically for the new system. Of course, all of those games - both old and new - would be running on 16-bit hardware as opposed to 8-bit, so gamers would be able to tell the difference between Sega's and Nintendo's consoles right away.

There was also another advantage to Sega's new system that was exploited right away. Sega typically built its arcade games using a layered approach - adding a layer or two of new technology to older designs for the interim until the new stuff proved itself, then designing a successor system using the new technology throughout. This was the case with System 16, as it still retained vestiges of its 8-bit ancestor boards. The components in question were practically identical to those found the existing 8-bit SMS console save in layout and the absence of the SMS boot ROM. In finalizing the design for its new 16-bit console, Sega R&D made sure that the system had a mode that would make it back-compatible with existing 8-bit SMS games. The only thing lacking would be the SMS boot ROM and the appropriate adapter for the cartridge port, so an external accessory was designed just for this purpose. This automatically added the entire 8-bit SMS library to that of the new console, comprising some 80 games or so as far as the U.S. was concerned and a somewhat greater number of releases in Japan and Europe. The back-compatibility feature made another good selling point - Sega gamers could play their old 8-bit favorites on the new system while saving up money to buy new and better 16-bit games.

As with Sega's earlier home consoles, a number of peripherals were planned for use with the new system. The half-moon shaped controllers that are taken for granted nowadays were the first to be done. Next came the SMS cartridge adapter, which by now had gained the unwieldy but workable title of Power Base Converter. Third was the Mega Modem (aka Telegames Modem), designed expressly for a series of modem-playable games that Sega planned to market in Japan in cooperation with Sunsoft. Three other accessories were also planned at this point - a keyboard, disc drive, and SG-1000 style drawing tablet . Their eventual market materialization depended largely on how well the Mega Modem sold. If it failed, then there was no point in wasting money on the additional peripherals. Besides, Nintendo was already experimenting with modem-based technology for the NES, so it seemed a logical choice.

The last issue to solve was giving the new system a name. The official in-house designation of MK-1601 was not about to sell anything. After a great deal of debate, Sega's Japanese executives finally settled on MegaDrive. It would be one that their small but loyal customer base would understand. Most Japanese have a basic training in the English language, and English loanwords are quite common and frequently used in the various multimedia industries for the purpose of emphasis. The English loanword mega was already in use as part of Sega's SMS advertising campaign to promote games that were supposed to be more powerful than their ancestors. Tack on another English loanword, drive, and the resultant name conjured up a mental image of some massively powerful engine churning away. Unfortunately, Sega of America would not be permitted to use the name in its respective market. Another American firm had already registered the term megadrive as a trademark, so Sega's new console was to be renamed Genesis for its U.S. launch. It was a fortuitous choice in retrospect. The name's Biblical connotations would not be lost on conservative-minded American parents, many of whose kids would want to buy the new system. There was also a hidden meaning within the console's new name. Genesis in Hebrew means "in the beginning," and that is exactly what Sega was doing - beginning the nextgen wave of consoles with a Sega system. Up to this point Sega had been playing catch-up to Nintendo. Now it would be leading the way.

Here are the final specifications for Sega's new 16-bit home console as they stood prior to the official system launch. It is not surprising that they are almost identical to a stock Sega System 16 arcade board save for the obvious cabinet issues.

Sega MK-1601 (aka Genesis/MegaDrive)

Component Description Processors Motorola MC68000 CPU running at 7.61 MHz (main system functions) (1) Zilog Z80 CPU running at 3.51 MHz (sound suite control) Graphics 16-bit VDP for playfield and sprite control 3 graphics planes, 1 sprite plane, and 2 scrolling playfields 64K VRAM 64x9kbit CRAM (dedicated color RAM) 64 simultaneous colors on-screen from a 512-color palette 320x224 native graphics display mode 40x28 text display mode Sound 8 KB sound RAM Texas Instruments TI-76489 PSG (programmable sound generator) Yamaha YM-2612 FM synthesizer (2) 14db signal-to-noise ratio Memory 1 MB system ROM 64 K system RAM Connection 1 sidecar expansion slot 1 cartridge port 2 joystick ports Commodore-style A/V port Internal RF adapter Storage Videogame cartridges (3) Other Back-compatible with all Sega Master System (SMS) games through use of the Power Base Converter accessory (1) The original System 16 arcade hardware used a 10 MHz MC68000 CPU. Certain variants used twin MC68000s. (2) The original System 16 arcade hardware used a YM-2151 FM synthesizer (3) System 16 boards had their games burned into ROM on the board itself.

In short, Sega planned to deliver nothing less than a full-fledged arcade-quality gaming console to the homes of average consumers. It was a bold move for a bold company and would cost a lot of money up front, but Hayao Nakayama was confident that the new system would succeed in creating its own market. After all, given Nintendo's continuing dominance of the old market, Sega had nothing to lose.

The only real wild card in the deck at this point was NEC. The Japanese computer giant, sensing potential profits in a new field, had decided to join the resurgent videogame market. Not only did this prospect disturb Sega, but it also worried Nintendo as well. NEC had everything going for it - plants, resources, personnel, and a hefty bank account that dwarfed anything that even mighty Nintendo could muster. Nintendo's total net profits were roughly about the same as what NEC budgeted its R&D division ... all by itself. They had the best hardware they could make or money could buy, they could afford the best developers in the business, and work was already underway on a home console that they called the PC Engine (PCE). Not a lot was known about NEC's new box, but one thing was certain - it would be one of the best-designed consoles to ever hit the market. As long as it had the games to match, it might prove a worthy competitor to Nintendo and derail Sega's carefully laid plans. The threat of the PC Engine was an ever-present shadow over Sega as they labored long hours across many nights in order to bring their newest home console to market.

It is now the third quarter of 1988 - that part of the year in which new products are generally released to the public.
The first of the great console wars is about to commence.

The Initial Campaign

There are those who would say that the first of the console wars took place from 1982 to 1983 among Atari, Mattel, and Coleco. Be that as it may, any real battle among them was prematurely terminated when the bottom fell out of the U.S. videogame market at the end of 1983. What most videogame historians define as the first of the great console wars did not come about until almost a decade later, by which time the playing field had been cleared of its American pioneers and a new breed of Japanese contenders had entered the fray. Say what you will about the early days of console videogames, but it was not until Sega decided to challenge Nintendo's illegal videogame market monopoly with the Genesis that the real fighting began. There had never been a battle for dominance like this in the entire history of the videogame industry up to this time, and the titanic struggle between Nintendo and Sega for control of the U.S. market would set the stage for all others that followed. The Japanese and European markets were mere side players in the ensuing fracas. They simply could not generate the large revenues that could be reaped from millions of cash-toting, materialistic American buyers. The videogame industry's lesser two main markets will receive mention from time to time, but it was in the U.S. starting in 1989 where the first great console war began to unfold before everybody's eyes.

The staging area for the first great console war (and subsequent ones) was the island nation of Japan. It was home to all three of the major players in the fight - Nintendo, the veritable 900-pound gorilla of the industry and long time dominator; Sega, the presumptive rival with a reputation for talent (and a hidden ace up its sleeve); and newcomer NEC, the resource-rich dark horse who was fully capable of outspending both. In the words of a common American cliché, it promised to be "a real knock-down, drag-out fight."

NEC got the jump on everybody by releasing the PC Engine on 30 October 1987, approximately one full year before the Sega MegaDrive would enter the fray. It was an impressive bit of hardware - for an 8-bit system, that is. In truth, the PC Engine was actually driven by an 8-bit CPU, same as the NES, but NEC had used its technical prowess to develop a console with enough graphical processing oomph that it could make a justifiable claim to belong in the 16-bit generation. The resultant games looked and sounded better than anything Nintendo had done or was going to do for the NES ... and therein lay the problem. They didn't play any better than NES games; in fact, many of the early PCE games played decidedly worse. There were two reasons for NEC's tragic blunder in this regard. First, Nintendo had the best among the third-party software community in Japan eating out of the palm of its hand with its restrictive yet lucrative development contracts. Second, NEC's own stable of programmers were not yet up to speed on the full capabilities of their own system. It was an awesome box for its day and many great games would eventually be written for it a few years later, yet by that time NEC would no longer be a contender. However, we digress. We are getting a bit ahead of ourselves. First-year PC Engine sales were decent, but did not so much as put a dent in Nintendo's market share.

What would prove to be the true contender in the first great console war joined the fight on 29 October 1988. On that day, Sega launched its 16-bit MegaDrive home videogame console in Japan. The initial asking price was ¥21000, and the first two games available for the system were Space Harrier 2 and Super Thunder Blade. Both were ports of the Sega arcade games of the same name. The new console was respectfully acknowledged, and then everybody went right back to buying and playing Nintendo's products. Nevertheless, Sega went ahead with its schedule of planned direct arcade ports and detailed some of its in-house programming teams to develop new games for its system. It was early, and Japan would the hardest market in which the new box would seek a foothold. It was going to take time.

Sega got its first big break the following year when Namco, the number one third-party developer in Japan and creator of the classic arcade game Pac-Man, abruptly joined the MegaDrive fold. Up to that time, Namco was one of the few companies to enjoy a sweetheart deal with Nintendo, made during the early days of the Famicom (NES) when Nintendo was trying to sign anybody and everybody they could to code for the new system. Namco's lucrative contract ended in 1989, at which time Nintendo's Yamauchi bluntly informed Namco representatives that they would have to sign the same standard development contract as everybody else. This would cut Namco's profit margins and severely restrict the number of Famicom titles it could develop, as well as making said titles exclusive to the Famicom. In other words, no more side benefits. Namco CEO Masaya Nakamura is said to have exploded into a fit of rage when given the bad news, and he promptly decided to do what no other Nintendo licensee in Japan had yet dared. In a carefully worded interview with Japan's top-selling newspaper, the Nihon Keizai Shinbun, Nakamura accused Nintendo of holding an illegal monopoly on the Japanese videogame market, quick to silence any company that dared question its judgement. To question Nintendo would be the same as committing virtual suicide, claimed Nakamura - and some in the industry wondered if Namco was about to do just that.

The resulting war of words was quite predictable. Yamauchi promptly gave his own interview, in which he publicly chided Namco for not being gracious about the profits it had earned as the Famicom's very first licensee. As a result, Namco's "privileges" would be withheld in any future contract. Namco quickly responded that they would support the console market's newcomer, the Sega MegaDrive, instead of Nintendo's aging warhorse. Nintendo said that Namco's threat was hollow and again accused it of welshing on its exclusive privileges. Namco then responded with a federal lawsuit filed with the Kyoto District Judiciary, charging Nintendo with anti-competitive behavior and monopolistic practices. Yamauchi laughed it off. "Frankly, Namco is envious of us," he said in a published interview with Zakai magazine. "If they are not satisfied with Nintendo and the way we do business, they should create their own market. That is the advantage of the free market." The comment was not entirely truthful - the market was not free no matter what Yamauchi claimed - and Namco was forced to face that sad reality soon enough.

It did not take long for Namco to go crawling back to Nintendo. They had a half-dozen or so arcade ports already under development for the MegaDrive (Phelios, Klax, Burning Force, MegaPanel, and Dangerous Seed), but none of them would be ready for market until the middle of 1990. In the meantime, Namco's bottom line took a royal pounding from the loss of its Nintendo license. Several months after the fireworks had first commenced, Namco quietly withdrew its lawsuit against Nintendo. Masaya Nakamura sullenly instructed his staff to make arrangements to secure a standard Nintendo development contract. There would be no argument - he had Namco's latest financial returns before him in all their dismal splendor. Namco's new contract would include Nintendo's standard restriction clauses, severely limiting Namco's ability to develop for the Sega MegaDrive and other competing platforms. The behemoth of the industry had flexed its muscles. Even so venerated an outfit as Namco, one of the founders of the arcade videogame industry, had been forced to toe the Nintendo company line. Nakamura would never forgive his humiliation at the hands of Yamauchi, nor did the latter particularly care how Namco perceived his company's behavior. The affair would come back to haunt Nintendo in later years, however. As soon as it was able, Namco dropped out of the Nintendo fold and openly developed software for the systems of its competitors. It is a grudge that has separated the two companies to this day, and it is a rare and notable event whenever a Namco title makes an appearance on a Nintendo console.

Over at Sega, Hayao Nakayama got the message loud and clear. Despite fielding a superior console for the second time in a row, Nintendo was not about to let Sega make any serious inroads into its home turf. Sega would have to take its new console abroad if it had any chance of surviving and growing.

That is exactly what Sega did.

Hyakumandai!

Once again, NEC tried to get the jump on Sega. Having met with unimpressive results in Japan, NEC executives felt that the system might stand a better chance in North America. Rechristened the Turbo GraphX 16 (TG16), NEC's powerful 8-bitter hit U.S. store shelves approximately six months prior to the scheduled launch date of the Genesis. Unfortunately for NEC, its initial U.S. lineup was even less impressive than it had been for the system back in Japan. The best title it could field for the TG16 launch was the rather bland side-scroller Keith Courage in Alpha Zones. Being a neophyte on the console market, NEC had yet to grasp a lesson that Nintendo had learned early - good software drives console sales. Nintendo is reported to have been delighted with the subsequently poor market performance of the TG16 during its early troubled years. It really didn't have to do anything about combating the NEC threat - the befuddled computer giant was doing their job for them. In time, the TG16/PCE would see some excellent titles that truly showcased the system's power, but by then it was too late - it had been effectively eliminated from the console wars. It would survive as the most notable of the lesser niche systems, acquiring a small yet doggedly loyal following in all markets, and over the years would gradually gain the reputation of being the system that should have won the first great console war. It did not, because thanks to NEC's initial fumbling of its software library, it never had the chance.

In the meantime, Sega of America remained unruffled by NEC's early launch of the TG16. Their response was to issue an official press release describing the impending arrival of the 16-bit Genesis to North America. Here is how that document opened:

Only Sega, the master of arcade entertainment, could introduce a whole now dimension in home video entertainment - the Genesis System. The first and only system with true 16-bit technology to bring you the ultimate in game play fun and excitement. Your world will never be the same again once you've experienced Genesis' high-definition arcade quality graphics, stereo music and sound effects, realistic voices and unsurpassed gameplay.

The rest of the press release went on to describe the features of the new system, stressed Sega's experience in creating top-notch arcade games and how that resulted in the Genesis, gave an initial release date (09/01/1989), and some initial pricing information ("under $200" for a complete system). Other data was made available in subsequent announcements. There were about a dozen titles scheduled for release at launch time, most of them being ports of popular Sega arcade games that were already on the MegaDrive market in Japan. Sega's own Altered Beast, the third game released for the system, was to be a pack-in title with every console sold. Michael Katz, the man hired by none other than company founder David Rosen as the new president of Sega of America, was taking no chances on the system launch and was putting all of his ducks in a row. He was still betting that the Genesis and not the TG16 would be the only worthy competitor that could take on mighty Nintendo.

The Sega Genesis saw its official U.S. launch on 14 August 1989 in two cities, Los Angeles and New York. The rest of the country got the system on 15 September 1989, along with a launch lineup of six games. The 15 September 1989 date is generally regarded as the official launch date of the Genesis due to the limited nature of the earlier event. The original retail price for a complete system was US$190, some US$10 less than had been originally planned. Altered Beast was the system pack-in game, as promised, but new Genesis gamers could also purchase Last Battle, Space Harrier 2, Super Thunder Blade, Thunder Force II, and Tommy Lasorda Baseball. The advertising tag line for the new system was coined by Sega of America CEO Michael Katz: "Sega Genesis does what Nintendon't." Right away, U.S. gamers could tell that the Genesis was quite a different animal than the aging NES. It was blazingly fast. It had eye-popping graphics. It had stereo sound. It had accurate ports of some of the best-known arcade games of its day. There were other, less obvious features that they noticed as well. It was black, and black was cool. It had a straightforward top-down cartridge port design - no damn door and spring-mounted loading bay like a certain other console. This meant that the Genesis Game Genie, once it arrived (and everybody knew it was coming) would not be the convoluted affair that Nintendo had forced for its NES after much legal wrangling. Initial launch sales of the Genesis were respectable enough, although they were not about to break Nintendo's 92% market share, but more importantly a lot of gamers and game magazines began talking about Sega's newcomer. To them, the Genesis was a speedy black Porsche in comparison to Nintendo's lumbering two-tone Volkswagen. Now, if it could only get some really great games to go with it - can you imagine that?!

Europe would not get Sega's 16-bitter until November of 1990. The island nation of Great Britain, Sega's predominant European stronghold ever since the early days of the SMS, was the first to receive its MegaDrives. Originally retailing for £190 per system, the initial shipment of some 30,000 consoles first went on sale in such major British department stores as Dixon's and Rumbelow's. Its arrival in the Old World was welcome news to gamers across the continent, who had long enjoyed the fruit from the Sega vine. It was not good news for Nintendo, whose still-struggling European division was then in the process of opening a major distribution center in Grossheim, Germany. Nintendo may have dominated the Japanese and U.S. videogame markets, but it was Sega who ruled the roost in Europe. Nintendo's measly 10% market share stood in stark contrast to its utter dominance outside of Europe, and that inescapable fact pretty much dictated its European strategy. They let Sega of Europe's new MegaDrive go largely unchallenged while they worked on increasing their market share to a modest 25% and concentrated on more profitable products, such as their GameBoy handheld system. Thus it was that the Sega MegaDrive took Europe by storm and would remain the dominant home videogame console until the mid-1990s. In fact, it would outsell all other Sega systems, even the 32-bit Saturn, until it was officially discontinued by Sega of Europe in 1998. Nintendo of Europe had no choice but to let it happen. It simply did not have the resources and market share to compete.

Let us take a moment to focus on a common observation made by most gamers about the Genesis in those early days. The biggest complaint by far was about the games. It wasn't that they lacked in ear and eye candy - that much was obvious. What they lacked was good gameplay. Sega knew full well that good games would push system sales, so they had made sure that top-notch ports of many of their hit arcade titles were available as soon as the system was launched. Unfortunately for Sega, what worked well as an arcade game did not necessarily work well as a home console game. Players did not have to worry anymore about having a pocketful of quarters to learn how to beat the bad guys and move on to the next level. They could take as much time as they wanted, and many of them did. Soon, complaints such as "short," "shallow," and "repetitive" became all too common on the Genesis scene. The expected success of Sega's near-perfect arcade ports never materialized. For example, the pack-in arcade conversion of Altered Beast was soundly criticized by all hands as being far too short for a home console game. Michael Jackson's Moonwalker, a game upon which Sega had reportedly spent millions in securing the rights, was derided for endlessly repetitive gameplay. A common theme was beginning to emerge regarding Sega's first-generation Genesis games - great-looking but no gameplay. Even Sega's early dedicated Genesis efforts suffered from this affliction. Castle of Illusion and Fantasia, both Mickey Mouse games produced under license from Disney, set new standards for sprite animation in a videogame yet played little better than their ported arcade predecessors. Sega's games may have looked better than Nintendo's, but they didn't seem to play any better. It was evident that better-playing games would have to be produced before the Genesis suffered the same fate as NEC's new system. Genesis as yet had no "killer app" to push console sales, because Sega didn't have its own Shigeru Miyamoto ( Super Mario Brothers) or Alexey Pajitnov (Tetris) as did Nintendo. Actually it did, as we shall soon see, but it had yet to appreciate this fact.

In the meantime, an American cavalry rode to Sega's rescue in the form of noted software powerhouse Electronic Arts (EA). The company was already a legend in its own time: it was well known in the personal computer industry for such groundbreaking fare as M.U.L.E. and Seven Cities of Gold, and now it wanted a share of the highly profitable console market. EA had originally passed on an NES license during that system's early days in 1984, when it could have gotten one on favorable terms, and was a mistake that the company had rued ever since. Now, EA president Trip Hawkins was eyeing the emergence of the 16-bit consoles and came to the conclusion that the Sega Genesis would be the next big system. His R&D teams had already examined the hardware and come up with good proposals for porting and developing EA games on Sega's new system. In early 1990, Hawkins directed his staff to enter into formal negotiations for a licensing deal with Sega on terms favorable to EA. The gist of it was that EA would get to make as many games as it wanted - something Nintendo had not offered them - and a reduction in licensing fees. Sega said no. It planned to impose a restrictive contract on EA just as it had done its other licensees, one that echoed similar Nintendo arrangements. Hawkins had anticipated this, however, and pulled a one-two sucker punch on Sega. Acting on his direction, EA's negotiators brusquely informed Sega of America that it didn't have that kind of clout to throw around; furthermore, EA had already reverse engineered the console and knew how to manufacture its own unlicensed Sega cartridges. It was at this point that Sega caved - after all, EA was right about Sega's market presence and both wanted to advance Genesis sales. The two eventually settled on a licensing agreement that, while it was not everything Hawkins has originally wanted, came close enough for his purposes. In exchange, Sega got one of the best third-party software houses in America on its side and their best programming teams to boot. EA games began to appear for the Genesis as fast as the company could churn them out, and this sudden influx of new and more sophisticated titles helped push console sales. Three of these early hits were Will Harvey's The Immortal (an isometric-view RPG), Budokan: The Martial Spirit (a fighting game), and the first instalment in the now-legendary John Madden Football (aka Madden NFL) franchise. Madden competed directly with Sega's own Joe Montana Football, and a friendly rivalry grew between the two company's sports game divisions that would eventually result in some of the best 16-bit sports videogames ever created.

By now, it had become evident who was going to make up the nextgen console market - the niche in which Sega was struggling to establish its beachhead. These were the older kids, mostly teenage boys, that had comprised the original Nintendo masses of the mid-1980s. In the case of certain sages among them, they were the forgotten gamers of the Atari generation almost a decade before. You must remember that this generation had grown up on a steady diet of computers and videogame systems, and was the first such one in America to do so. Their tastes in videogames had grown more sophisticated as they aged, and they had for the most part moved beyond the simple and safe family-oriented fare that Nintendo was still force-feeding upon them. They envisioned themselves as anti-establishment, living on the edge (as a popular Aerosmith music video put it), and desirous of the most that they could get out of whatever experience they had. They were already attracted to the looks and power of the Genesis, and the arrival of EA on the console along with its reputation for excellence impressed them. In their minds, if you wanted to play baby games, you played Nintendo. If you wanted a real game, especially a real sports game, you played Sega. Their respect for Sega's new system got a big boost with the arrival of Capcom's Strider later that year. A perfect port of an arcade game that had largely been ignored when it first arrived in the U.S., it was the title that finally offered these gamers something of the mind-torturing, thumb-callusing, hell-on-wheels lengthy quality gameplay that they so desired from the new box. Strider would win Capcom the prestigious Console Game of the Year Award for 1990, but more importantly, it helped build Sega's reputation with its growing fans. It also marked the beginning of a long-standing relationship between Capcom and Sega that has continued over the years to the present day.

Genesis was beginning to become the embodiment of all that was cool in a videogame console. The only thing still lacking was a killer app to put the final seal on that oft-whispered opinion.

By the summer of 1990, sales of the Sega Genesis had surpassed the 1 million mark in the North American marketplace. This figure had been Nakayama's original first-year sales target for the console, and he had even gone so far as to have Sega employees chant "Hyakumandai!" (Japanese for one million) at the end of each day's morning briefing sessions. By the end of the year, Sega's new console had raked in over US$100 million in sales. It was a modest profit, to be sure, but it was a definite profit. It was not enough to satisfy Nakayama, however, who was still irked by the fact that Nintendo had stubbornly clung to its 92% market share despite Sega's best efforts. He therefore sacked Katz in January of 1991 and replaced him with long time friend Tom Kalinske. Despite this, latter-day videogame historians credit Katz with the successful launch of the Genesis in the U.S. market. It was upon the solid foundation that Katz built during his turn at the helm from which all else sprang forth.

1 million Genesis consoles sounds like an impressive number today, until you do a little digging and discover that Nintendo had an installed user base of 31.7 million NES consoles. Thirty-to-one against - those were odds that no Las Vegas bookie in his right mind would take. It was a good thing that this was not Vegas, because Hayao Nakayama probably would not have listened anyway. He was used to getting his way, and he wasn't going to let a trivial thing like long odds stop him. Besides, he had more immediate concerns. Nintendo was beginning to stir.

The sleeping giant had at last awakened to the fact that its next intended market was being stolen right out from under its very nose by an upstart - one that it thought it had buried back in Japan years before. With this shocking realization in mind, Nintendo promptly swung into action. Work on the company's nextgen console was wrapped up and the system was hurriedly rushed to market. Shigeru Miyamoto and his team of developers hurriedly put together a new Mario game for it. Nintendo of Japan officially announced the Super Famicom in October of 1990; by early November pre-orders had reached 1.5 million units and the company was forced to stop taking them. All night long on 20 November 1990, a large assortment of panel trucks drove up to the main Nintendo warehouse in Kyoto, were quickly filled with cases of boxed consoles and cartridges, then departed to select retail locations all across Japan in an event known as "Operation Midnight Shipping." It was a mess - there were simply not enough consoles to meet customer demand despite Nintendo's best production efforts. Over 300,000 Super Famicoms were sold the next day, along with copies of the system's two launch titles ( Super Mario World and F-Zero), but Nintendo could have sold considerably more had it not been caught napping. Things had settled out by year's end, though. By the first quarter of 1991, Nintendo had sold some 2 million Super Famicoms in Japan, and knew beyond a shadow of a doubt that the system would be as big a success as had been the NES.

With the Japanese launch of the Super Famicom now under its belt, Nintendo made ready to launch the SNES (the export version of the Super Famicom, remember) in the U.S. market on 9 September 1991. The company had every reason to believe that the U.S. launch would be even more successful than the Japanese launch. Besides, its American division would have a full year to iron out the kinks and ramp up the system with the usual full-court press advertising campaign. It even had a tag line for the new system, throwing Sega's own right back into its face - "Nintendo is what Genesis isn't." Nintendo was now poised to do something that no other player in the videogame industry had yet pulled off - dominate the market two generations in a row with two successive systems. It was guaranteed to succeed, because Nintendo still owned the U.S. market lock, stock, and barrel. Nothing would stand in its way. Nothing could go wrong.

Nakayama was not about to let Sega get caught again under Nintendo's thumb. He planned to unravel his rival's stranglehold on the U.S. videogame market long before the SNES arrived. When that time finally came, Sega would break Nintendo's monopoly with a market-shattering sonic boom that would be heard around the world and still echoes to this very day.

Move Over, Mario

It was now a full-blown war - the first of the great console wars. According to Nintendo of America's Minoru Arakawa, Sega had fired the first shot by challenging its right to "cultivate" the U.S. market. According to Sega of America's Tom Kalinske, Nintendo had started the whole thing just by dominating the market in true yakuza fashion. Whatever the reason, whatever the cause, both were now locked in a wrestler's embrace and both were determined to pin the other guy to the mat. Nintendo had the obvious advantages - size, reach, strength. Sega enjoyed the adrenaline rush of someone who had nothing to lose and was willing to try anything. It had everything it needed to beat the 900-pound videogame gorilla save two items - a corporate mascot and a marketing campaign. Like the plumber, Sega's mascot would have to be instantly recognizable, easily associated with the company, and star in one really bad-ass game. Like the marketing machine, Sega would have to come up with a new advertising campaign that would let the average consumer know within the space of a few seconds exactly who Sega was and what the company was all about. The issue of the mascot was addressed first, for it allowed Sega to kill two birds with one stone and develop what it hoped would be the system's first true killer app. The ensuing marketing campaign could then use the new game as a starting point and build from there.

It was time to take on Mario.

Hayao Nakayama was, if anything, a meticulous planner. When it came time to take on Nintendo's corporate mascot, he had his staff analyze everything about the plumber and try to determine just exactly what made him tick. Once that was established, then it would be time to develop a character that was as much the opposite of Nintendo's rotund spokesman as possible. Nintendo considered the arrival of the Sega Genesis on the U.S. market to be nothing less than the coming of the Antichrist. Fine, then. Sega would take the antithesis one step further. It would come up with its own corporate mascot that was everything Mario was not. Even as 1990 continued to roll along and the early U.S. sales figures began to come in, Nakayama put out the word to Sega's R&D teams worldwide. He wanted them to come up with a corporate mascot and videogame to match that could compete against Nintendo's Mario. His instructions were quite specific. The new mascot would have to be as easily recognizable as Mario, yet as unlike him as possible. The new mascot would have to be a rather unorthodox character, and the game developed for him would have to reflect this. Above all else, the new mascot could not and would not be cute.

A number of proposals were submitted and rejected. The one that came the closest to acceptance was by American programmer Mark Voorsanger. His submission was a pair of "funkadelic" aliens named Toejam and Earl, who were both very hip and very cool. Nakayama liked the idea and liked the game, but he had two problems with it. First, Toejam and Earl were too laid back for his sensibilities. Second, they were too American in nature. It was a noble effort, but Nakayama wanted a mascot that would have worldwide appeal. Toejam and Earl were subsequently rejected as the new Sega mascots, although they were deemed good enough to go ahead with the creation of their game. If anything, it would be yet another completely original offering in the growing Genesis library. The answer to Nakayama's problem was still out there somewhere, waiting to be discovered. "Ah, if only we had the likes of Shigeru Miyamoto on our staff!" Nakayama would often reflect to himself.

It was about this time that Nakayama heard from someone in his own back yard. One of Sega of Japan's programming teams - Sega Consumer Department #3, aka AM8 - had come up with an idea for a mascot and a game to go with it. Intrigued, Nakayama contacted the team leader, Shinobu Toyoda, and asked to see it and the man who would be responsible for the game. Toyoda complied, and together with project director Naoto Oshima and lead programmer Yuji Naka took their work up to Nakayama's office for his review. When all was said and done, Nakayama nodded his approval. The presentation had been most impressive, and it was obvious to him that AM8's lead programmer was a very talented young man.

Nakayama had found what he sought. Sega had found its Miyamoto.

Yuji Naka was born on 17 September 1965 in the old provincial city of Osaka. A bright, energetic young lad, he found himself as a teenager attracted to the music of Riyuchi Sakamoto and his Yellow Magic Orchestra. His love for Sakamoto's synthesized strains were what led him into his lifelong attraction to computers, especially the new phenomena known as videogames. Naka not only played every one on which he could get his hands on, but he also analyzed them and tried to figure out how they worked. Shortly thereafter, he began coding his own. The gifted young student could have had his choice of any of the top colleges in Japan, but he passed on enrolment. This was a daring move given Japan's cultural stresses on a good education, but Naka did not feel like wasting four years or so at university when the personal computer revolution was unfolding about him. Four more years of academics did not offer much in the way of opportunities in this rapidly growing field.

In 1983 the newly graduated Naka moved to Tokyo and applied for employment with Namco, the world's leading arcade videogame company at the time. His lack of a college degree hampered any chance he had, and it turned out to be the main reason why Namco did not offer him a job. Undaunted, he shopped his talents around and by 1984 found himself working as an entry-level coder for Sega. The mid-1980s were not good years for Sega, as they were struggling against Nintendo like everybody else, but Naka made the most of it. After all, it was a steady job, and creating videogames was one of the things he truly liked to do. He quickly gained a reputation as a micro-managing perfectionist, and it was not unusual for him to be heard arguing with his co-workers over some seemingly insignificant coding detail. "Not just programming," Naka would comment many years later, "everything ... the graphics, the pictures. I'm really careful about everything." It was a personality profile that fit well with Nakayama's autocratic management style, although Naka was hardly known to Sega's boss until his programming efforts bore fruit.

Naka's very first effort for Sega was Girl's Garden for the SG-1000, its original home console system. Over the next seven years, Naka's programming excellence demonstrated itself in a number of impressive original videogames and console conversions for Sega. His credits during this period include such legendary titles as Space Harrier, OutRun, and the groundbreaking RPG Phantasy Star - widely regarded as the best game ever released for the SMS. In 1988 his team was detailed to begin developing software for the MegaDrive, Sega's new console, and again Naka made his programming presence felt. He was the one responsible for Super Thunder Blade, a port of the arcade original and one of the system's two launch titles, and no one but he could have been called upon to develop the system's first hit RPG, Phantasy Star 2 - the sequel to his earlier 8-bit effort. After that monumental effort, he assisted in the port of Capcom's Daimakaimura (aka Ghouls 'n' Ghosts) and spent part of his spare time trying to figure out how to make Nintendo cartridges work with the MegaDrive. His efforts would eventually result in the world's first videogame system emulator, although he knew it could never be released. All this and more gained him the respect of his fellow AM8 team members. They were willing to put up with his idiosyncrasies because he was obviously one helluva good coder.

It was in the opening months of 1990 that AM8 got the directive from Hayao Nakayama to come up with a new company mascot and a game to go with it. Team leader Shinobu Toyoda and his staff bounced around ideas. The first character they came up with was a rabbit-like being with long ears that could extend and pick up objects and then throw them at his enemies, but it proved difficult to execute and the concept eventually went nowhere. Looking at the rough sketches one bright April day, Naka remarked to fellow team member Naoto Oshima that what was needed was something fast. Oshima was intrigued, so Naka continued. Years ago, Naka had conceived of a videogame featuring a character that could roll himself into a ball and then slam into his enemies, knocking them over.

"You're talking about a hedgehog," Oshima replied.
"Yeah," said Naka, "you're right." Both grinned as the realization dawned upon them.

The concept for the new character quickly evolved over the next few days. He would be blue because that was the color of Sega's corporate logo. Since a round ball did not offer a lot in the way of graphics and quills could not be easily depicted on screen, the blue hedgehog was given spiked hair. Since he would be a fast character and hedgehogs are not known for speed, he was also given a pair of running shoes. The sneakers might also serve as a good power-up in the game that Naka was by now beginning to code. One day, Naka gave his fellow AM8 team members a demonstration of his earliest efforts on the new game. They watched in amazement as the speedy blue hedgehog zipped around the screen.

"You know, that fellow's supersonic," one of the team members remarked. "Super-sonic."
Naka never forgot the comment. Sonic would be the hedgehog's name from now on.

Sonic's very look defined his attitude, so Naka built his new game to showcase as much of AM8's new star as he could. He was a fast, impudent little fellow who blazed his way through the game's intricately designed levels. Originally conceived as a power-up, what would become Sonic's trademark red sneakers soon became an essential part of the character. He needed them, because he would be on the move almost constantly. Sonic was not limited to simple running. He could put on extra bursts of speed when needed, and could go even faster when he rolled up into a blue, spike-haired ball. Since Sonic seemed to always want to be in motion, Naka added an extra programming touch to emphasize this. If he stood still in one place for too long due to player inaction, he would give the gamer a cross look and begin tapping his foot, impatiently waiting to start running again. Naka did not stop there. Each and every move that Sonic made was exquisitely animated - running, jumping, leaping, falling, spinning, and so on. Sonic had a unique pose and facial expression for every single move in his repertoire. The levels were large, colorful, highly detailed, and were best played with Sonic running at full tilt all the way. The game that Naka wound up creating for Sonic has more than once been compared to a 2D side-scrolling roller coaster ride, and it is an apt assessment. It also helped emphasize the differences between Sonic and Mario. In comparison to the speedy little blue hedgehog, with the spiked hair of a punk rocker and the rebellious attitude to match, Mario took on the appearance of a slow, fat, lackadaisical old fart. The rest of the game was built around Sonic's colorful and stylized world, and he was given a suitable archnemesis that could kick King Koopa's ass any day of the week. Dr. Ivo Robotnik, aka "the Eggman" (as he is known in Japan), didn't have to recruit his underlings - he created them. Naka tapped into a common Japanese storytelling theme of encroaching mechanization and made the Eggman into a mad scientist bent on mechanizing the entire world. His goons were actually Sonic's fellow animals trapped inside mechanical shells, which Sonic could rescue by cracking them open with his trademark rolling "spin attack."

It all seems so obvious now that gamers today tend to take Sonic's success for granted. What most of them fail to understand are the circumstances that brought about both the game and Sonic himself. Sonic was Sega's answer to Mario. If Sonic was anything less than a total success, then it would have been quite easy for Nintendo to bury the Genesis under tons of SNES hype. The fate of the company was now resting in the hands of Yuji Naka and his fellow team members at Sega AM8. Nobody, not even Naka himself, was sure that the gamble would succeed.

Nakayama was betting the company's future on Naka's efforts, but he was not about to bet the bank. Under his direction, Sega quietly built up a US$400 million dollar contingency fund. It would see the company through the hard times to come should Sonic fail to deliver the goods, paying the necessary bills until some fresh ideas could be developed.

Years later, former Sega of America president Michael Katz would have this to say about Sonic: "We thought it was silly, but to the credit of [Naka's] game, which was so good, the character [of Sonic] became established .... The character could have been anything, but it was a hedgehog which would have died a dismal death had it not been for a very good game."

The very first inkling that the gaming public got of Sega's new mascot was on 7 November 1990. Dreams Come True, a new J-pop band that had just hit the Japanese music scene the year before, went on their second nationwide tour. It was to promote their second album, Love Goes On, which had produced the hit single "Warai Gao no Yukue" (The Whereabouts of a Shining Face). Dedicated otaku will instantly recognize it as the theme song to the hit anime TV series Graduation. Splashed across their tour bus and equipment trailers that made the long journeys from town to town was the image of a blue, spike-haired hedgehog. What was unknown to the public at that time was that the band's composer, Masato Nakamura (no relation to Namco's CEO), had contributed the music for Yuji Naka's new videogame. The image caused quite a stir, because nobody knew what it meant. As for the game itself, it would not be released until the summer of the following year.

Nakayama had decided to entrust the game's debut to newly installed Sega of America president Tom Kalinske. His was the market where the game would debut, because it was in the U.S. where the stakes were the most critical for Sega. Kalinske immediately realized what Sonic could do for Sega and designed his ad campaigns accordingly. More about Kalinske's marketing efforts will be said later, but his tag line for Sonic the Hedgehog was that this was "the fastest videogame in history."

Yuji Naka's latest Sega videogame, Sonic the Hedgehog, rushed its way into videogame history on 23 June 1991, when it made its worldwide debut in the United States. It found its way back to its native Japan approximately one month later on 26 July 1991. Naka used the extra month to put in a few additional graphics enhancements that had been left out of the U.S. version, such as scrolling clouds and improved water effects. Sonic did not make it to Europe until June of 1991, but by that time it needed no introduction.

To say that Sonic the Hedgehog was a success would be an understatement. Players had never seen anything like it before. Sonic's cocky attitude coupled with the sheer speed, great music, and brilliant graphics of the game became legend and struck a chord with many a rebellious-minded American youth. No other videogame at the time, not even Nintendo's much-lauded Super Mario World for the SNES could compare with Sonic. Not only did Nakayama finally get the corporate mascot he so desperately wanted, Sega finally got its "killer app" for the Genesis. Sonic sold out wherever it was on sale. Sales of the console skyrocketed as news about Sonic spread among U.S. gamers. The same thing happened for the MegaDrive in the overseas markets, although not quite to the same extent as it did in the U.S. To commemorate its newfound success, Sega launched a massive US$10 million, two-day nationwide media blitz on 15-16 September 1991, the week after the SNES launch, touting the proven capabilities of Genesis and Sonic against Nintendo's new arrival and its own platformer, Super Mario World. "This is war!" Sega of America's Al Nilsen declared, and Sega's new ad campaign touted the "Sega advantage" - over 100 titles available or in development for Genesis, including Sonic, in comparison to the limited, lame, and rather weak offerings being fielded by Nintendo for the SNES. It was now easy going for Sega, for by this time Sonic had become almost as well-known as Nintendo's acerbic plumber.

While most critics insisted that Super Mario World was actually the better game, the general public wasn't paying any attention to them. Independent market research conducted at the time showed that 7 out of 10 young gamers, Nintendo's traditional audience, preferred Sonic to Super Mario World. Nintendo's first reaction was to belittle Naka's achievement. "It was not a great game," comments unofficial Nintendo historian David Sheff in his book Game Over. Richard Brudvick-Linder, who was one of Nintendo's top accountants at the time but later left to work for Sega, has his own opinion as to what happened. "[People were saying,] 'Look, they're trying to copy us with Super Mario Brothers and it's the same kind of game. They can't do anything really as good as we do it.' Over time, there was this kind of dawning realization that this was ... not such a bad product." Even so noted a figure as Nintendo of America president Minoru Arakawa admitted, "They [Sega] came up with a darn good game." Arakawa's statement was made in sworn testimony during the hearings conducted that year as part of the ongoing Nintendo v. Atari lawsuit. He more than anybody else recognized the fact that Sonic the Hedgehog had hit Nintendo like a hard body blow to the stomach, and it was a blow from which the aging NES would never recover.

Thanks to the instant and steadfast popularity of Sonic, over 2.3 million Genesis consoles were sitting in the homes of proud U.S. owners by the end of 1991 in comparison to just under 2 million of the newly arrived SNES consoles. The figure was way off the mark from the 4 million units that Nintendo had originally predicted. "[Nintendo's] failure to blow Sega away with the SNES was a sobering cold shower," notes David Sheff in Game Over. Sonic had turned back the Nintendo tide. In fact, Sonic became so popular among U.S. gamers that Kalinske convinced Nakayama to let Sonic become the new pack-in for the next batch of consoles. The Sonic pack-in versions of the Genesis base system would sell for only US$150 - a substantial drop in retail price. It was a great bargain for a great console, and best of all, you were going to get Sega's best game free with it! That was the public perception, anyway, and Kalinske's plan worked. Genesis sales continued their rapid climb, and Sega's overseas branches subsequently followed suit.

It would not be long before Sega would become king of the hill in the U.S. videogame industry, and it all started with this one silly little game.

The Sega Scream

One of the most popular shows on MTV from 1991 to 1996 was Mike Judge's first full-length animated TV series. Beavis and Butt-head dealt with the hilarious misadventures of two moronic juvenile delinquents, along with their Mystery Science Theatre 3000 style commentary on a number of selected music videos that regularly ran on the popular cable TV service. Beavis and Butt-head could do just about everything most American males had wanted to do in their misguided youth. The pair terrorized their home town of Highland, Texas - often at the expense of their high school, local businesses, or nearby neighbor Tom Anderson. The show was an instant success and considered to be very cool by its audience - this author included. I was a zealous fan of the show, videotaping it every night while I was away at work and then dubbing off archival copies on the weekends, editing out the commercials in the process. Starting in 1992 and continuing well into 1993, I began noticing a series of commercials for a well-known videogame company that were so off-kilter and fit so well with the anti-establishment theme propounded by the show that I left them in place. The passage of time and two moves have long ago claimed my Beavis and Butt-head videotape archive, but one of those crazy videogame commercials has forever stuck in my mind. I am told that it is probably from the back half of 1993, when this particular ad campaign had already been in full swing for almost a year, but it will suffice to illustrate my point.

The setting is a dark and somber parlor. Bookshelves and hunting trophies are in ample evidence. An elderly yet vigorous and imposing gentleman seated in an easy chair sharply raps his cane on the wood panel floor and bellows at the young man in front of him, "What TIME will my DAUGHTER be HOME?!!!" The expectant girl looks to her erstwhile suitors but comes away disappointed. Two are dispatched in short order - a nerd and a dweeb, who are both thoroughly intimidated by the angry old man. Not so the third - a rather roguish looking young chap with long hair and a mischievous twinkle in his eye. As the pleased girl looks on, he sneers at her father and snarls in reply, "You want her BACK?!!!" Immediately the viewer is barraged with a cacophony of fast-moving and fast-playing videogame images, while a self-assured announcer plugs away in the background, accompanied by a blast of hard rock music, extolling the virtues of the games and that of their maker. At the end, the camera cuts to a close-up of one of the stuffed animals, who opens its mouth and screams just one word. "SEGA!"

That is my recollection of the original Sega scream - perhaps the most memorable videogame advertising campaign in U.S. history.

If you will recall, Nakayama's Genesis success strategy was two-pronged. First would be a corporate mascot and accompanying videogame worthy to take on Nintendo's plumber. Second would be a full-scale advertising campaign to promote both game and system, the likes of which would dwarf all such previous efforts in comparison. There was an edge of desperation in Nakayama's efforts. First-year Genesis sales, while moderately successful, had not been as well as had been hoped and had done little to erase Nintendo's lead. Nakayama felt that they might not be enough to boost sales of Sonic the Hedgehog and thereby offset the arrival of the SNES. The new ad campaign would be his ace in the hole - his insurance policy to guarantee Genesis sales. Desperate times called for desperate measures, so one of the very first things he did was fire Sega of America president Michael Katz and bring in a long time friend to manage Sega's American affairs.

Tom Kalinske had a proven track record for success. A long-time advertising executive with a reputation as a maverick, Kalinske had graduated from the University of Wisconsin with a degree in marketing. His first major job was with the Mattel toy company, where his boldness and self-assuredness caught management's eye. Moving quickly up the ranks, he was soon put in charge of Mattel's highly lucrative Barbie accounts. In the twelve years that followed under Kalinske's oversight, Barbie grew from a US$42 million to a US$1 billon dollar a year franchise for Mattel. Kalinske was also one of the Mattel executives that oversaw the swift rise and fall of the Intellivision videogame console. By this time he was a member of the corporation's board of directors, and he was prudent enough to spin off Mattel's new electronics division into its own separate company, Mattel Electronics. His action helped Mattel better absorb its losses once the videogame market crashed in 1983. Kalinske spent the last three years of his stay at Mattel as its president, during which time he helped create and market the He-Man and the Masters of the Universe animated TV series and product line. It was during this three-year period that he went toe-to-toe with the American television industry, learning firsthand the lessons of television marketing. Kalinske got his virtual baptism of fire in creating, promoting, and selling a successful product advertising campaign with the He-Man account, and it would prove him in good stead in the years to come.

The first thing that Kalinske did upon his arrival at Sega of America was to learn everything he could that his staff would teach him about the videogame industry. They did so with some reluctance, because many had been supporters of Katz and felt that he had been unjustly dismissed. They were not overly fond of Nakayama's "Ken doll," as some staff members sarcastically nick-named him due to his time with Mattel, yet they eventually complied and helped Kalinske find his way around. Once he had a grasp on his duties and the market he was supposed to conquer for Sega, Kalinske promptly swung into action. He surrounded himself with an executive team comprised of some of Sega's top people and some talents quietly spirited away from rival Atari. Together, he and his team analyzed the market performance of the Genesis from launch to present, noting what had succeeded and what had failed. He welcomed the services of the Goodby, Berlin, and Silverstein advertising agency, who had just won the US$45 million account to promote the Genesis by converting their board room into a Sega videogame arcade and inviting a team of Sega executives over to enjoy the spectacle. They had a number of good ideas on how Sega should change its advertising, and Kalinske incorporated these into his team's own internal analysis. It was during this phase in Kalinske's tenure that Sega of America began to gain confidence in its new boss. He might not know videogames very well, but he was a quick student and his management style was one of detached confidence. Kalinske was quite capable of making the big decisions, but he also made a point of listening to his subordinates and trusting to their judgement in lesser matters.

When all was said and done, Kalinske made the long trip to Japan and confronted Sega of Japan's board of directors in an executive meeting that is now the stuff of Sega legend. It opened with Sega CEO Hayao Nakayama questioning Kalinske's idea to attack Nintendo head-on. "I don't understand," Nakayama is reported to have said. "Why do you want to do it this way? I don't like it." Kalinske then proceeded to explain his plan, and its scope went beyond anything in Sega of Japan's worst nightmares. What was needed, Kalinske argued, was a radical change in the way Sega of America was doing its business. He then boldly spelled out his proposals to his shocked Japanese counterparts:

• Sega would have to aggressively market the Genesis in the U.S. Aggressive marketing was a concept that was completely unknown in Japan, where subtlety was a time-honored tradition. Americans were aggressive, Kalinske argued, and so was its market. Sega would have to be aggressive in order to take that market away from Nintendo. If Sega did not come out swinging, he warned, Nintendo would surely crush it yet again.

• Sega would have to pitch the speed of the hardware itself. Sega was at heart an arcade videogame company. They made the best-looking, best-sounding, best-playing arcade videogames in the business. That reputation would have to be transferred to the Genesis, and straightforward ports of old arcade games weren't going to cut it. Genesis was a fast console. A fast console needed fast games. Sonic was just a start. Genesis needed more games like Sonic - faster and with more flair than their Nintendo counterparts.

• Sega would have to grab and hold the attention of its newfound audience. It did the company no good, Kalinske argued, to know it had discovered a new audience yet did little to tailor its marketing to suit their tastes. Theirs was a very hip bunch, and to them the Genesis was the epitome of cool. Now that they had these kids' attention, Kalinske reasoned, Sega needed to grab it and hold onto it with both hands with a marketing campaign specifically geared to their attitudes. If Sega failed to do this, then they might lose interest and drift back towards Nintendo again.

• Sega would have to drop the price of key products. In keeping with his common theme of aggressive marketing, Kalinske proposed two specific changes to the Genesis product line. The first was to lower the price of the Genesis console itself from US$200 to US$150. Second was an announcement that caused the board of directors to sit bolt upright in their chairs. Kalinske coolly informed them that he planned to replace Altered Beast with Sonic the Hedgehog as the console's new pack-in title. Sonic was Sega's best-selling game, went his reasoning, so prospective buyers would be more inclined to buy the system with the Sonic pack-in than they would with Altered Beast. Kalinske was a keen student of the "razor and blades" school of marketing, having learned his lessons well during his tenure at Mattel, and reminded his Japanese audience that software was the true money train for any computer system. It meant losing money up front on standalone Sonic cartridge sales, but the popularity of Sonic would help sales of consoles and additional software, thereby offsetting any potential lost revenue.

Needless to say, Sega of Japan's board of directors was outraged. How dare this impudent American tell them how to run their own company! He had no experience in the videogame industry. Who the hell was he to tell them what to do?! "Are you out of your mind?" one of them yelled, and then others chimed in. "You want to lower the price until we don't have any profit at all? You want to take out our regular software and put in our best software? You want to take on a company that has 92% of the market in an advertising campaign?"

All eyes now turned to Hayao Nakayama, who sat quietly at the head of the table. The aging, autocratic ruler of all that was Sega seemed unperturbed by the ruckus that Kalinske had caused. He sat quietly as the others prepared to leave. When he began to speak, everybody froze in their seats.

"I hired him to make the decisions for the U.S. market," Nakayama slowly said. "If that is what he thinks needs to be done, then he should go ahead and do it." He now looked directly at Kalinske. "It's your call. This is why I hired you. Do whatever you think is right."

Nakayama's support was absolute in every sense of the word.

The Sega scream advertising campaign was based upon the research of Irina Heirakuji, associate planning director for Goodby, Berlin, and Silverstein. "We knew that we would have to make Sega a cultural phenomena if we were going to beat Nintendo," Heirakuji said in an interview with Wired magazine. The GBS staff spent many months during 1991 observing American youth in their own homes, "... filming what kids wanted, what kids said, and why kids thought Sega was cool." Their research not only mirrored Sega's own earlier analysis but also expanded upon it. Here is how Wired described their findings:

Heirakuji's research and the frenetic ads that sprang from it captured the post-MTV mores of a culture hooked on visual images, an impatient culture that absorbs and processes information literally in four-frame riffs. In schoolyards, living rooms, workplaces, even in bars and other "grown-up" venues, perfectly normal folk might look at each other, pause for a pregnant second, then exclaim with lunatic eyes: SEGA!

The first 35 commercials were produced in just four months and made their debut not during Saturday morning cartoons - traditional Nintendo stomping grounds - but at the 1992 MTV Music Video Awards, where Sega's core audience was more prone to be found on the TV dial. New sets of commercials were cycled every few months. Why so many? "Kids don't want to see the same commercial over and over again," commented Greg Stern, director of the Sega account. "We focused on new games and branding the Sega image." Shortly thereafter, Sega expanded its coverage to include many of MTV's top shows at the time, and that is how this author was able to stumble across the Sega scream in all of its original glory.

The Sega scream was not just limited to Genesis, either. Kalinske had the campaign expanded to cover the entire Sega product line. One of the most controversial Sega scream adverts ever produced was for Game Gear, Sega's color 8-bit handheld portable that had been developed in response to Nintendo's monochrome GameBoy. The scene, filmed at a Batman-esque cocked angle, is of a family of stereotypical Southern rednecks taking great delight in the power of their bug zapper. "Some people are content to be entertained by simple one-color electronics." ZAP!!! The rednecks snickered and chortled in delight. "Somehow these people have never heard of Game Gear, the multicolor portable from Sega with tons of new titles." ZAP!!! Snicker-snicker-snicker. "Yeah, some people are like that, but then --" and with this the family's fat patriarch reached into a greasy looking jar, "-- some people like to eat pickled pork lips, too." Chomp-chomp-slurp-slurp. ZAP!!! goes the bug zapper, and the newly fallen fly screams, "SEGA!" Nintendo executives were outraged. Company attorney Harold Lincoln promptly promised a lawsuit, accusing Sega of slandering its customers. Sega was eventually forced to pull that particular ad, but by then it had done its job. The rest of the Sega scream campaign continued unhindered.

Europe has its own fond memories of Sega's multimedia marketing from this time. Most remember a character called Jimmy, a rather irritating young man who helped promote the launch of the MegaDrive back in 1990. While Europe did not get the notorious Sega scream, they got an ad campaign that in their eyes was every bit as worthy. The new campaign opened with the infamous Apocalypse Now advert, inspired by the Francis Ford Coppola movie of the same name. It depicted a group of adventuresome gamers piloting their boat up the Mekong Delta to a lost temple. Once inside, they discovered Sega's newest console, the MegaDrive. It was without doubt one of the most controversial adverts to ever air in the United Kingdom. That one ad alone is rumored to have cost Sega of Europe some US$500,000, but it was apparently worth every penny spent. In its wake followed the Pirate TV ad campaign, created by Philip Ley, in which Sega of Europe played off the romanticism that the continent's hackers had for their nonconformist brethren for all it was worth. All of the adverts began the same way - a faux cat food or washing detergent commercial would start to air, only to be jammed and then knocked off the air by Pirate TV, an unlicensed television station presumably operating from inside a mobile studio somewhere in England. Pirate TV's punkish announcer, actor Steven O'Donnel ("Spud Gun" from the comedy TV series Bottom) would then extol the virtues of Sega and its MegaDrive games. The old commercial would then morph into something more cool and hip right before the viewer's eyes, and the announcer would rejoice in glee at the way Sega could change the world. The Pirate TV adverts shared several things in common with the Sega scream: they were radical and hip, there was a veritable multitude of them, they were designed to appeal to Sega's core audience, and all of them ended the same way. Each Pirate TV commercial closed with the image of a skull and crossbones and the tagline "To be this good takes ages." It was a deliberate wordplay on the Sega name, because ages spelled backward is Sega. Soon, Sega's big black Pirate TV truck would be as familiar to European Sega fans as was the Sega scream in the United States. Pirate TV would eventually prove to be so successful that it would result in another wild round of Sega advertising. The best of these was the award-winning Cyber Razor Cut commercial, one of the most famous videogame adverts ever made in the United Kingdom. It was produced by Geoff Boyle, who also did Sega's famous Howdedodat! advert.

"It is clear that a rebellious image sells," noted professor Graham Barfield in an article about Sega for the UK's Living Marxism newsletter. He continued by saying, "No amount of hysteria will stop them coining it. If anything, the latest video nightmare scenarios were made in marketing heaven. After all, who needs to pretend to be a pirate station when every columnist and news broadcaster is already telling your target audience that you're the devil incarnate?" While you may not agree with Barfield's politics, he did score a telling point and one that was borne out by Sega's own market research. This attitude is best put by American actor Corey Haim, one of the stars of the Sega CD game Double Switch who at one time courted the possibility of becoming Sega of America's celebrity spokesman. "Sega is definitely where it's happening," he told a Wired reporter in an interview. "Like, have you seen their ads? Far fuckin' out. I want to be in them. I want to be, like, the Sega boy." A lot of other young men across North America and Europe felt the same way, too. Cory Ker, who is now the editor of the Internet site Gaming Target, put it this way. "While Nintendo appeared to barely squeak out its name in a pre-pubescent whisper, Sega went right for the balls. You couldn't help taking notice of this company when it was yelling "SEGA!"

A lot of attention has been given to the fact that Sonic the Hedgehog helped define Sega's corporate identity. What many people forget is that both the Sega scream and Pirate TV gave the company its reputation for rebelliousness. Together, they tapped a deep vein in the psyche of Western youth, who promptly responded to its call and made the company into the success that it became. When Sega of America finally abandoned the Sega scream in 1996 as part of the company's effort to reshape itself for the Saturn, many gamers quickly assumed that Sega was no longer hip. Instead of being anti-establishment, Sega had become the establishment. This impression would prove to be a major blow to the company's image and helped contribute to its rapid decline during that time. It would not be until the arrival of the Dreamcast's SegaNet online gameplay service in 2000 that the Sega scream would once again roar across America in all of its outspoken brashness, and its return would be triumphantly welcomed by the Sega fans of old.

The period of time from 1992 to 1993 were the salad days for the Genesis. Nakayama's gamble had paid off handsomely, and Sega's 16-bitter would now enjoy the fruits of his long labor. These were the best days that Genesis would ever see, and it had taken the likes of Yuji Naka, Tom Kalinske, Irina Heirakuji, and Philip Ley to bring his plans into reality. Right off the bat in the opening days of 1992, many of the third-party holdouts from the early days of the Genesis threw their support behind the console. Acclaim, Capcom, Micronet, Namco, Electronic Arts, and other early supporters were now joined by the likes of Activision, Core, Konami, Tecmo, Taito, and many more. Yuji Naka made the long trip to the U.S. in order to work with his fellows at the Sega Technical Institute, Sega of America's exclusive playground for its own stable of videogame programmers, and the end result was Sonic the Hedgehog 2 - the best-selling Genesis game of all time. While Nintendo may have kept Sega away from Capcom's lucrative Street Fighter II franchise for a few years by signing an exclusive contract, that didn't stop Sega's programmers from coming up with the now-legendary Streets of Rage in reply. Sonic 2, Streets of Rage, ToeJam & Earl, and other such irreverent fare spearheaded Sega's 1992 marketing assault on Nintendo. The low price of the console combined with a 10-to-1 ratio in software availability to the SNES library and Sega's radical philosophy on both advertising and games resulted in an assault that Nintendo was simply ill-equipped to handle. According to official U.S. market data compiled by the NPD Group, Sega passed Nintendo in 1992 to become the #1 vendor on the U.S. videogame market. Sega finished 1992 with a 55% market share, whereas Nintendo limped into second place with 45% - a far cry from the 92% that they had held a mere two years before. Sega had sold an additional 2.2 million Genesis systems in 1992 and now had over 10 million of the consoles in the homes of young American gamers, whereas Nintendo had only managed to sell just under 2 million SNES consoles - an official NPD TRST figure that Nintendo still disputes to this day. In fact, Sega was so popular by the end of 1992 that when Sony ran its initial U.S. videogame market surveys, they discovered that most gamers who owned an SNES refused to admit it to their friends. "They always claimed that there was a time after the [SNES] launch when they pulled ahead of us, but our research said there wasn't," Kalinske would later comment. In reward for the support of his customers and in response to new Nintendo measures, Kalinske had the price of the Genesis base system cut again from US$150 to US$130.

The great console war was not without its casualties, however, and 1992 saw it claim its most prominent victim. NEC had never been able to keep pace with its two older and more established rivals in the U.S. marketplace, and the best that its Turbo Grafx 16 could do was establish a small yet vocal niche market for itself. The console had a loyal cult following in Japan, where it was the #2 system on the market, but its dreadfully small North American market share was not large enough for it to successfully compete there. In 1992, NEC made the decision to cut its losses and quit vending its videogame console in the U.S. marketplace. It turned over responsibilities for the system to a smaller vendor, Turbo Technologies. The new company would fold up shop approximately two years later, and with it would go what some would say was the last and greatest of the 8-bit consoles.

By the end of 1993, Nintendo was still playing catch-up to Sega. Sega maintained its lead over its rival, for it now controlled 56% of the market and had over 12 million consoles in the homes of gamers all across North America. It also controlled a healthy two-thirds of Europe and showed no signs of giving ground anytime soon. Sega's net Western sales for 1993 came to some US$230 million dollars, which was a sizeable sum by any measure. This, of course, was music to Nakayama's ears. The company was now at the top of its form, with the Genesis established as the market's dominant console and its successor system, Sega CD, just emerging into its own. While it remained a distant third in the East, behind both Nintendo and NEC, Sega was the undisputed master of the West. It had been one helluva a ride for Nakayama, Kalinske, and company, but it had been worth it. Thanks to their tireless efforts and that of those who supported and worked with them, Sega had grown from a US$813 million company in 1989 - the year that the Genesis launched - to a US$3.6 billion dollar conglomerate by the end of 1993.

Within five years, Sega would throw it all away.

Setting A Legal Precedent

Before we continue with the story of the Genesis, we need to take a moment to examine an important lawsuit that involved Sega's revolutionary 16-bit console. It was a classic case of restrictive licensor versus creative licensee, in which a third party vendor sought and found a way out of the limitations of a development contract. Together with the Nintendo action against Atari that ended about the same time, the case of Sega v. Accolade would set a new precedent for computer videogame development. It would also have profound indications for a sub-genre of the computer industry that for the most part was still considered to be in the domain of the hobbyists and hackers.

If you will recall from our earlier discussion, it was none other than Electronic Arts who first determined how to bypass the proprietary Sega code in the Genesis and thereby produce its own videogame cartridges. In response to EA's actions, Sega developed a new security system for the Genesis and quietly incorporated it into the system boot ROM starting with the 1991 production batches. Sega called this proprietary code the TradeMark Security System (TMSS). In essence, it was a simplified version of the 10NES lockout chip that Nintendo had used in the NES. Sega had elected not to go to the 10NES route because they felt that a complete lockout solution was needless overkill. Their solution, the TMSS, was based on very simple principles of intellectual property law. A piece of code burned into the Genesis boot ROM would look for a header code that was supposed to be part of every Genesis program stored in cartridge format. If the header code contained certain unique characteristics, then it was a legitimately licensed Sega product. If the TMSS did not find what it sought, then it would refuse to boot up the system. If the system booted correctly, then the TMSS would display the phrase PRODUCED BY OR UNDER LICENSE FROM SEGA ENTERPRISES LTD. on the screen for a few seconds before running the program contained inside the cartridge. Both pieces of code, the one in the TMSS and the correct cartridge header code, were copyrighted Sega property. The TMSS also generated a trademark display every time it was activated, that being the Sega name itself. In essence, the TMSS was a double tripwire for anybody trying to produce unlicensed Genesis cartridges. If you made an unlicensed cartridge that activated the TMSS, then you were in violation of both copyright and trademark law. If you could figure out a way to get your game running without tripping the TMSS, then you were legally in the clear.

It is an established fact that some of EA's early cartridge releases cause problems with all except the earliest Genesis consoles - those that were produced between 1989 and 1990. These EA games are the same that would cause headaches for Genesis emulator developers at the end of the decade due to the non-standard way in which they interfaced with the system. The answer is simple - the earliest Genesis consoles do not contain the TMSS, so the older EA cartridges work just fine. EA apparently had the program code ready to burn into the cartridge ROMs during its dispute with Sega for negotiating leverage, and then used it anyway once the contract was secure. Since this code was made prior to the introduction of the TMSS, the resultant games do not work on the later consoles. EA eventually released new versions of some of these games with the offending code removed, but those that didn't sell well weren't reissued. As a result, EA's early workaround was out there waiting for anybody with the programming skills and a good ROM dumper to discover.

Accolade was founded in 1984 by Bob Whitehead and Al Miller, two of the original team of VCS programmers who revolted against Atari and started Activision. They started out by releasing high-quality games for personal computers, with the most notable being the original Test Drive. When the Genesis was released in the U.S. in 1989 and they were finally able to get their hands on the system, they knew that it would be dreadfully easy to convert a number of their Commodore Amiga games to work with the console. Both were based around the MC68000, so porting would only be a matter of reallocating program resources to match the rest of Sega's hardware. With this in mind, Accolade approached Sega about obtaining a Genesis license. Sega offered the standard contract under which 30 or so other third parties were working at the time. Accolade found the terms too strict to its liking and rejected the contract. That should have ended the matter then and there, but it didn't. Like EA before it, Accolade instead chose to find some means of releasing its own unlicensed Genesis cartridges. To that end, they bought a number of already available Genesis games, dumped the ROMs inside the cartridges, dumped the system ROMs inside the Genesis, and began to analyze the code. They also created a semi-independent subsidiary, Ballistix, to market their new console games.

Steven Kent, in his book The First Quarter: A 25-Year History of Video Games, gives an excellent description of how Accolade went about reverse-engineering Sega's products in order to come up with its first unlicensed Genesis game, Ishido: The Way Of The Stones.

Mark Lorenzen led a team of Accolade engineers who purchased a Genesis console and three game cartridges, then wired the console so that they could make printouts of the executable code of the games. They compared the code of each of the games to locate identical chains, believing that all of the games would use the same programming instructions to disable any security locks Sega placed in the Genesis. They used this information to create a "development manual" for making Genesis games.

The current record does not indicate which three games Lorenzen and his associates purchased. If the batch had included one of the early EA efforts, then the situation would have been ironic indeed.

Like other unlicensed developers at the time, Accolade was caught flat-footed by the introduction of the TMSS. Sega demonstrated the console's new security system at the 1991 Winter Consumer Electronics show in a manner that must have been a nightmare for Accolade's staff. At the show, a Sega representative pulled out a copy of Accolade's Ishido and stuck it into the redesigned system. The cartridge failed to boot up. The meaning of the demonstration and to whom it was aimed was clear.

Once they learned about the ability of the TMSS to lock out their programs, Accolade accelerated its efforts. They got their hands on one of the new consoles and a new batch of games as soon as they could, wired them up to Lorenzen's Rube Goldberg apparatus, then collected and analyzed the results. There had been a significant change to the header portion of the game programs. A new string of code had been inserted into a previously unused location which corresponded to the "power-up function" portion of the program header. This new code also happened to include the word SEGA at a specific location. Lorenzen and his team had already noted this previously unused portion of the header in their earlier efforts, and had commented that "... it is possible that some future Sega peripheral might require it for proper initialization." With five new games already in development and nowhere else to go, Accolade executives decided to take a risk and incorporate the new header code into its programs. It was the only way that they could get the games to market on time.

As soon as Accolade's new games came out - Star Control, Hardball!, Turrican, Mike Ditka Power Football, and Onslaught - again without the proper license, Sega of America swung into action. It had its engineers disassemble them. Onslaught was the only one of them that would not work on anything but the older consoles. The rest worked just fine on the new consoles, including the activation of the TMSS display. Sega's engineers were not surprised to discover that Accolade had copied its new proprietary TMSS header code in order to get the games to work. The only reason Onslaught would not work with the TMSS was that the new TMSS header code had been copied incorrectly and the word SEGA was in the wrong place.

On 31 October 1991, Sega sued Accolade in the 9th Circuit Federal District Court on one charge of trademark infringement and one charge of unfair competition. On 29 November 1991, Sega added a copyright violation charge, claiming illegal reproduction and adaptation of a copyrighted work. Accolade counter-sued, claiming injury of its reputation and contending that its efforts were protected under the fair use doctrine of copyright law. Accolade had hoped that the judge for the case would be Robert Peckham, who was already familiar with similar cases and "was felt to be sympathetic." Unfortunately for Accolade, he suffered a heart attack and was replaced by Barbara Caulfield, a new appointee to the bench. Caulfield was a strict interpreter of federal law, and she ruled for Sega on all counts. She also issued an injunction barring Accolade from its reverse engineering efforts, forbade it from issuing any games it had not yet released, and ordered to recall all of its unlicensed Genesis games within ten business days. Accolade promptly appealed and got the last part of the injunction reversed on 23 April 1992, but the rest of Judge Caulfield's order remained in effect. They were now stuck with thousands of unsold Genesis cartridges which would be going nowhere until the legal battle was resolved, and that had already cost Accolade about US$500,000 in attorney and court fees. The costs were only going to get higher, but Accolade felt it had no choice in the matter. Reverse engineering was a common practice in the computer industry, even if it was not entirely sanctioned under federal law, and Judge Caulfield obviously did not understand that important factor. "This was a fundamental step backward," said Accolade's Alan Miller many years later, "from the way product development had always been done in [Silicon Valley] and in general throughout the world."

If Accolade did not win its case on appeal, then the affair would probably put them out of business for good.

The first inkling of how the case would be decided was going to go came on 28 August 1992. Both Sega and Accolade had spent days before the federal bench in both courts, arguing their respective positions and demonstrating their supporting evidence. Sega had every right to believe it would win - it had wowed Judge Caulfield with a demonstration by Sega engineer Takeshi Nagashima of how to make a Genesis game that would not trip the TMSS nor make use of its code. They had denied Accolade's demand to examine Nagashima's efforts, and Judge Caulfield had sided with them. She had also ruled in their favor on all counts, with the trademark and copyright issues being the most important. Those were the legal protections that the TMSS had been designed to trip, and it was looking like that the courts were going to do Sega's dirty work for it exactly as planned. For its part, Accolade stuck to its guns and insisted that it had done no wrong, clinging stubbornly to its fair use defense. Sega expected to win and Accolade expected to lose. Both were surprised when 9th Circuit Court of Appeals Judge Stephen Reinhardt reversed in full the original injunction by District Court Judge Barbara Caulfield and announced that a decision would soon follow. When it did, it was a decision brief that would rock the computer industry. In the following quotations, Judge Reinhardt is speaking on behalf of the full court. The complete decision brief is available at many locations on the Internet and can be located by use of your favorite search engine.

We conclude based on the policies underlying the Copyright Act that disassembly of copyrighted object code is, as a matter of law, a fair use of the copyrighted work if such disassembly provides the only means of access to those elements of the code that are not protected by copyright and the copier has a legitimate reason for seeking such access.

Where there is good reason for studying or examining the unprotected aspects of a copyrighted computer program, disassembly for purposes of such study or examination constitutes a fair use.

We conclude that Accolade copied Sega's code for a legitimate, essentially non-exploitative purpose, and that the commercial aspect of its use can best be described as of minimal significance.

An attempt to monopolize the market by making it impossible for others to compete runs counter to the statutory purpose of promoting creative expression and cannot constitute a strong equitable basis for resisting the invocation of the fair use doctrine.

Because Sega's video game programs contain unprotected aspects that cannot be examined without copying, we afford them a lower degree of protection than more traditional literary works.

The fact that an entire work was copied does not, however, preclude a finding a fair use .... In fact, where the ultimate (as opposed to direct) use is as limited as it was here, the factor is of very little weight.

The fact that computer programs are distributed for public use in object code form often precludes public access to the ideas and functional concepts contained in those programs, and thus confers on the copyright owner a de facto monopoly over those ideas and functional concepts. That result defeats the fundamental purpose of the Copyright Act - to encourage the production of original works by protecting the expressive elements of those works while leaving the ideas, facts, and functional concepts in the public domain for others to build on.

Under the Copyright Act, if a work is largely functional, it receives only weak protection .... Here, while the work may not be largely functional, it incorporates functional elements which do not merit protection. The equitable considerations involved weigh on the side of public access.

We conclude that where disassembly is the only way to gain access to the ideas and functional elements embodied in a copyrighted computer program and where there is a legitimate reason for seeking such access, disassembly is a fair use of the copyrighted work, as a matter of law.

Although Accolade was not completely absolved of wrongdoing, neither did Sega get the absolute victory it desired. Quite the contrary. The real winner here was the computer industry. The principle of reverse engineering was now legal under case law.

Sega v. Accolade is one of those few precedent-setting cases that made legal history, and it has been cited in almost every major court battle involving the computer industry ever since. It established once and for all the right of a software owner to make as many copies of a legitimately obtained program as was needed for a reverse engineering effort, so long as none of the copied code wound up in the final product. This would prove to be a key issue in the battle over the legality of videogame emulation almost a decade later. It would be another seven years before the notion of reverse engineering itself would eventually be made a part of federal copyright law.

So what did Accolade get for its trouble? It got about US$20 million in lost profits and legal fees, along with the realization that it was going to have to accept a Genesis contract on Sega's terms if it wanted to keep making games for the console. And Sega? Its TMSS was vindicated, but that was about it. Anything else Sega would gain would have to be from Accolade's hide, for it had decided to settle rather than continue the legal fight. Under the terms of the contract that Sega forced upon them, Accolade was required to produce five original Genesis games for every one that it made for "another system." It was a contract worthy of Nintendo's strong-arm tactics, but there was nothing Accolade could do about it. The new contract would ensure that Accolade would do its part to bring original efforts to the Genesis software library - and more importantly, practically guarantee that Sega would earn a hefty amount of royalties from a steady stream of Accolade products.

It is ironic that Accolade may have had the last laugh after all. In order to meet its contractual obligations, Accolade's programmers produced anything and everything that they could for the Genesis. A large part of it, such as the Accolade Sports series, was not particularly good software. Some of it, such as Super Off Road and WarpSpeed, was pure junk. Accolade's Genesis titles were never the top sellers that the company had originally intended. In fact, things got so bad at one point that industry observers complained that a situation had been created "... where Accolade felt obligated to [produce] titles for the Genesis whether they sucked or not."

Winds Of Fortune

As the fateful year of 1994 began to unfold, Sega was still the dominant force in the North American videogame market and was poised to remold the industry in its own image. By the end of the year, Sega was a troubled company. It was beset within by disputes between its Japanese and American branches. It was operating under a mountain of debt and practically nonexistent profits. It was having great difficulty supporting all of the various products it had on the market. It was having an image problem with both developers and gamers, who felt Sega had become fat, sassy, and directionless. Those were not its only problems. Sega was under assault from without by its rivals. It was already seeing the rise of the new nextgen wave, the 32-bit consoles, and could ill afford to be left behind. It would watch as a resurgent Nintendo would reassert itself and win the first great console war. It would also see the arrival of a new player on the console scene, a former third-party vendor for both Sega and Nintendo that would unveil its own nextgen videogame system before the year was out and thus initiate the second great console war.

The time had come for the Genesis to step aside.

It is a rule of thumb within the videogame industry that the average market cycle of any given console is five years. As the year 1994 opened, the Genesis was already six years old and showing its age rather badly. This was the time that another vendor would have had its nextgen system ready to unleash upon the public, taking over the market in place of its aging predecessor. Unfortunately, Sega was having problems doing just that. Sega CD had gone nowhere, and both Sega of Japan and Sega of America were fighting over the correct vision regarding the path to a 32-bit videogame system - the hallmark of the new nextgen wave that was already beginning to wash over the marketplace. This particular issue is best addressed elsewhere; suffice it to say that a definite successor to the Genesis was not certain in 1994. Sega's Japanese executives blamed Sega of America president Tom Kalinske for mishandling the American business and reasserted themselves. By 1995, Sega of Japan was in effect running Sega of America as it tried to deal with what it perceived to be Kalinske's bad judgement.

Actually, it was back in 1992 that the winds of fortune started to blow against Sega. Sega was the new master of the U.S. videogame market at that time; however, its continued rule in that coveted position was not completely assured. Having seized the throne from longtime rival Nintendo the year bef