Sega Mega Drive

The Sega Genesis, known as the outside North America, is a 16-bit fourth generation home video game console developed and sold by Sega. It was Sega's third console and the successor to the Master System. Sega released it in 1988 in Japan as the Mega Drive, and in 1989 in North America as the Genesis. In 1990, it was distributed as the Mega Drive by Virgin Mastertronic in Europe, Ozisoft in Australasia, and Tec Toy in Brazil. In South Korea, it was distributed by Samsung as the Super Gam*Boy and later the Super Aladdin Boy.

Designed by an R&D team supervised by Hideki Sato and Masami Ishikawa, the Genesis was adapted from Sega's System 16 arcade board, centered on a Motorola 68000 processor as the CPU, a Zilog Z80 as a sound controller, and a video system supporting hardware sprites, tiles, and scrolling. It plays a library of more than 900 games on ROM-based cartridges. Several add-ons were released, including a Power Base Converter to play Master System games. It was released in several different versions, some created by third parties. Sega created two network services to support the Genesis: Sega Meganet and Sega Channel.

In Japan, the Mega Drive fared poorly against its two main competitors, Nintendo's Super Famicom and NEC's PC Engine, but it achieved considerable success in North America, Brazil, and Europe. Contributing to its success was its library of arcade game ports, the popularity of Sega's ''Sonic the Hedgehog'' series, several popular sports franchises, and aggressive youth marketing that positioned it as the cool console for adolescents. The 1991 North American release of the Super Nintendo Entertainment System triggered a fierce battle for market share in the United States and Europe known as the "console war". This drew attention to the video game industry, and the Genesis and several of its games attracted legal scrutiny on matters involving reverse engineering and video game violence. Controversy surrounding violent games such as ''Night Trap'' and ''Mortal Kombat'' led Sega to create the Videogame Rating Council, a predecessor to the Entertainment Software Rating Board.

30.75 million first-party Genesis units were sold worldwide. In addition, Tec Toy sold an estimated three million licensed variants in Brazil, Majesco projected it would sell 1.5 million licensed variants of the system in the United States and smaller numbers were sold by Samsung in South Korea. By the mid-2010s, licensed third-party Genesis rereleases were still being sold by AtGames in North America and Europe. Many games have been re-released in compilations or on online services such as the Nintendo Virtual Console, Xbox Live Arcade, PlayStation Network, and Steam. The Genesis was succeeded in 1994 by the Sega Saturn.

History

Development

In the early 1980s, Sega Enterprises, Inc. – then a subsidiary of Gulf+Western – was one of the top five arcade game manufacturers active in the United States, as company revenues surpassed $200 million between July 1981 and June 1982. A downturn in the arcade business starting in 1982 seriously hurt the company, leading Gulf+Western to sell its North American arcade manufacturing organization and the licensing rights for its arcade games to Bally Manufacturing. The company retained Sega's North American R&D operation, as well as its Japanese subsidiary, Sega Enterprises, Ltd. With its arcade business in decline, Sega Enterprises, Ltd. president Hayao Nakayama advocated that the company leverage its hardware expertise to move into the home console market in Japan, which was in its infancy at the time.

Nakayama received permission to proceed with this project, leading to the release of Sega's first home video game system, the SG-1000, in July 1983. While it had sold 160,000 units in Japan, far exceeding Sega's expectations, sales at stores were dominated by Nintendo's Famicom which had been released the same day. Sega estimated that the Famicom outsold the SG-1000 by a 10-to-1 margin. The SG-1000 was replaced by the Sega Mark III within two years. In the meantime, Gulf+Western began to divest itself of its non-core businesses after the death of company founder Charles Bluhdorn, so Nakayama and former Sega CEO David Rosen arranged a management buyout of the Japanese subsidiary in 1984 with financial backing from CSK Corporation, a prominent Japanese software company. Nakayama was then installed as CEO of Sega Enterprises, Ltd.

In 1986, Sega redesigned the Mark III for release in North America as the Master System. This was followed by a European release the next year. Although the Master System was a success in Europe, and later in Brazil, it failed to ignite significant interest in the Japanese or North American markets, which, by the mid-to-late 1980s, were both dominated by Nintendo. With Sega continuing to have difficulty penetrating the home market, Sega's console R&D team, led by Masami Ishikawa and supervised by Hideki Sato, began work on a successor to the Master System almost immediately after that console launched.

In 1987, Sega faced another threat to its console business when Japanese computer giant NEC released the PC Engine amid great publicity. To remain competitive against the two more established consumer electronics companies, Ishikawa and his team decided they needed to incorporate a 16-bit microprocessor into their new system to make an impact in the marketplace and once again turned to Sega's strengths in the arcade industry to adapt the successful Sega System 16 arcade board into architecture for a home console. The decision to use a Motorola 68000 as the system's main CPU was made late in development, while a Zilog Z80 was used as a secondary CPU to handle the sound due to fears that the load to the main CPU would be too great if it handled both the visuals and the audio. The 68000 chip was expensive and would have driven the retail price of the console up greatly, but Sega was able to negotiate with a distributor for a tenth of its price on an up-front volume order with the promise of more orders pending the console's future success.

The appearance of the Mega Drive was designed by a team led by Mitsushige Shiraiwa that drew inspiration from audiophile equipment and automobiles. Shiraiwa said this more mature look helped to target the Mega Drive to all ages, unlike the Famicom, which was aimed primarily at children. According to Sato, the Japanese design for the Mega Drive was based on the appearance of an audio player, with "16-bit" embossed in a golden metallic veneer to create an impression of power.
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The console was announced in the June 1988 issue of Japanese gaming magazine ''Beep!'' as the Mark V, but Sega management wanted a stronger name. After reviewing more than 300 proposals, the company settled on "Mega Drive". In North America, the name was changed to "Genesis". Rosen said he insisted on the name as he disliked "Mega Drive" and wanted to represent "a new beginning" for Sega. Sato said some design elements changed, such as the gold-colored "16-bit" wording, because it was believed that the color would be mistaken for yellow. He believes that the changes in design are representative of the differences in values between Japanese and American culture.

Launch

Sega released the Mega Drive in Japan on October 29, 1988, though the launch was overshadowed by Nintendo's release of '' Super Mario Bros. 3'' a week earlier. Positive coverage from magazines ''Famitsu'' and ''Beep!'' helped to establish a following. Within two days of release, the console's initial production run sold out. However, Sega only managed to ship 400,000 units in the first year. In order to increase sales, Sega released various peripherals and games, including an online banking system and answering machine called the Sega Mega Anser. Nevertheless, the Mega Drive was unable to overtake the venerable Famicom and remained a distant third in Japan behind Nintendo's Super Famicom and NEC's PC Engine throughout the 16-bit era.

Sega announced a North American release date for the system on January 9, 1989. At the time, Sega did not possess a North American sales and marketing organization and was distributing its Master System through Tonka. Dissatisfied with Tonka's performance, Sega looked for a new partner to market the Genesis in North America and offered the rights to Atari Corporation, which did not yet have a 16-bit system. David Rosen made the proposal to Atari CEO Jack Tramiel and the president of Atari's Entertainment Electronics Division, Michael Katz. Tramiel declined to acquire the new console, deeming it too expensive, and instead opted to focus on the Atari ST. Sega decided to launch the console through its own Sega of America subsidiary, which executed a limited launch on August 14, 1989, in New York City and Los Angeles. The Genesis was released in the rest of North America later that year.

The European version of the Mega Drive was released in September 1990, at a price of , i.e. . The release was handled by Virgin Mastertronic, which was later purchased by Sega in 1991 and became Sega of Europe. Games like ''Space Harrier II'', ''Ghouls 'n Ghosts'', ''Golden Axe'', ''Super Thunder Blade'', and '' The Revenge of Shinobi'' were available in stores at launch. The console was also bundled with ''Altered Beast''. The Mega Drive and its first batch of games were shown at the 1990 European Computer Entertainment Show (ECES) in Earl's Court. Between July and August 1990, Virgin initially placed their order for 20,000 Mega Drive units. However, the company increased the order by 10,000 units when advanced orders had exceeded expectations, and another 10,000 units was later added following the console's success at the ECES event. The projected number of units to be sold between September and December 1990 had eventually increased to 40,000 units in the United Kingdom alone.

Other companies assisted in distributing the console to various countries worldwide. Ozisoft handled the Mega Drive's launch and marketing in Australia, as it had done before with the Master System. In Brazil, the Mega Drive was released by Tectoy in 1990, only a year after the Brazilian release of the Master System. Tectoy produced games exclusively for the Brazilian market and brought the Sega Meganet online service there in 1995. Samsung handled sales and distribution in Korea, where it was named Super Gam*Boy and retained the Mega Drive logo alongside the Samsung name. It was later renamed Super Aladdin Boy. In India, Sega entered a distribution deal with Shaw Wallace in April 1994 in order to circumvent an 80% import tariff, with each unit selling for INR₹18,000.

In Russia, Sega officially licensed the console to local distributor Forrus in 1994, replaced in 1996 by Bitman. That year, the video game console market generated between and in Russia, with Sega accounting for half of all console sales in the country. However, only about 15% of the sales were official Sega units distributed by Bitman, while the rest were unofficial counterfeit clones.

North American sales and marketing

For the North American market, former Atari Corporation Entertainment Electronics Division president and new Sega of America CEO Michael Katz instituted a two-part approach to build sales. The first part involved a marketing campaign to challenge Nintendo head-on and emphasize the more arcade-like experience available on the Genesis, with slogans including "Genesis does what Nintendon't". Since Nintendo owned the console rights to most arcade games of the time, the second part involved creating a library of recognizable games which used the names and likenesses of celebrities and athletes, such as ''Pat Riley Basketball'', '' Arnold Palmer Tournament Golf'', ''James 'Buster' Douglas Knockout Boxing'', ''Joe Montana Football'', ''Tommy Lasorda Baseball'', ''Mario Lemieux Hockey'', and ''Michael Jackson's Moonwalker''. Nonetheless, Sega struggled to overcome Nintendo's presence in consumers' homes. Tasked by Nakayama to sell one million units within the first year, Katz and Sega of America sold only 500,000. At the Winter Consumer Electronics Show (Winter CES) in January 1990, the Sega Genesis demonstrated a strong line-up of games which received a positive reception for approaching arcade-quality graphics and gameplay as well as for providing non-arcade experiences such as ''Phantasy Star II''.

In mid-1990, Nakayama hired Tom Kalinske to replace Katz as CEO of Sega of America. Although Kalinske knew little about the video game market, he surrounded himself with industry-savvy advisors. A believer in the razor and blades model, he developed a four-point plan: cut the price of the console, create an American team to develop games targeted at the American market, expand the aggressive advertising campaigns, and replace the bundled game ''Altered Beast'' with a new game, ''Sonic the Hedgehog''. The Japanese board of directors initially disapproved of the plan, but all four points were approved by Nakayama, who told Kalinske, "I hired you to make the decisions for Europe and the Americas, so go ahead and do it." Critics praised ''Sonic'' as one of the greatest games yet made, and Genesis sales increased as customers who had been waiting for the release of the international version of Nintendo's Super Famicom, the Super Nintendo Entertainment System (SNES), decided to purchase a Genesis instead. The SNES debuted against an established competitor, while NEC's TurboGrafx-16 failed to gain traction, and NEC soon pulled out of the market. In large part due to the popularity of ''Sonic the Hedgehog'', the Genesis outsold the SNES in the United States nearly two to one during the 1991 holiday season. Sega controlled 65% of the 16-bit console market in January 1992, the first time Nintendo had not been the console leader since 1985.

The Genesis outsold the SNES for four consecutive Christmas seasons due to its two-year lead, lower price point, and larger game library compared to the SNES at its release. Sega had ten games for every game on SNES, and while the SNES had an exclusive version of ''Final Fight'', one of Sega's internal development teams created ''Streets of Rage'', which had bigger levels, tougher enemies, and a well-regarded soundtrack. ASCII Entertainment reported in early 1993 that Genesis had 250 games versus 75 for the SNES, but limited shelf space meant that stores typically offered 100 Genesis and 50 SNES games. The NES was still the leader, with 300 games and 100 on shelves.

Sega's advertising positioned the Genesis as the cooler console, and coined the term ''blast processing'', an obscure and unused graphics programming method, to suggest that its processing capabilities were far greater than those of the SNES. A Sony focus group found that teenage boys would not admit to owning an SNES rather than a Genesis. With the Genesis often outselling the SNES at a ratio of 2:1, Nintendo and Sega focused heavily on impression management of the market, even going to the point of deception; Nintendo claimed it had sold more consoles in 1991 than it actually had, and forecasted it would sell 6 million consoles by the end of 1992, while its actual U.S. install base at the end of 1992 was only just more than 4 million units. Due to these tactics, it was difficult to ascertain a clear leader in market share for several years at a time, with Nintendo's dollar share of the U.S. 16-bit market dipping down from 60% at the end of 1992 to 37% at the end of 1993, Sega claiming 55% of all 16-bit hardware sales during 1994, and ''Donkey Kong Country'' helping the SNES to outsell the Genesis from 1995 through 1997. According to a 2004 study of NPD sales data, the Genesis maintained its lead over the Super NES in the American 16-bit console market. However, according to a 2014 Wedbush Securities report based on revised NPD sales data, the SNES outsold the Sega Genesis in the U.S. market by units.

Electronic Arts

To compete with Nintendo, Sega was more open to new types of games, but still tightly controlled the approval process for third-party games and charged high prices for cartridge manufacturing. American third-party publisher Electronic Arts (EA) sought a better deal, but had met resistance from Sega. They decided to reverse-engineer the Genesis, using a clean-room method similar to the method Phoenix Technologies had used to reverse-engineer the IBM Personal Computer BIOS around 1984.

The process began in 1989, led by Steve Hayes and Jim Nitchals. They created a controlled room in EA headquarters nicknamed "Chernobyl", to which only one person was allowed access, Mike Schwartz. Schwartz reviewed Sega's copyrighted development manuals and tools, studied the Genesis hardware and games, and wrote original documentation that summarized his findings. The process took him about a month. His work was reviewed by EA's lawyers before being disseminated to Hayes and Nitchals to verify its originality, and subsequently to the rest of the developers to let them build games. After a few months, EA began developing for the Genesis in earnest. EA founder Trip Hawkins confronted Nakayama the day before the 1990 Consumer Electronics Show (CES), informing him that EA had the ability to run its own licensing program if Sega refused to meet its demands. Sega relented, and the next day EA's upcoming Genesis games were showcased at CES.

EA signed what Hawkins described as "a very unusual and much more enlightened license agreement" with Sega in June 1990: "Among other things, we had the right to make as many titles as we wanted. We could approve our own titles ... the royalty rates were a lot more reasonable. We also had more direct control over manufacturing." After the deal was in place, EA chief creative officer Bing Gordon learned that "we hadn't figured out all the workarounds" and "Sega still had the ability to lock us out ... It just would have been a public relations fiasco." EA released its first Genesis games, '' Populous'' and '' Budokan: The Martial Spirit'', within the month. The first Genesis version of EA's ''John Madden Football'' arrived before the end of 1990, and became what Gordon called a "killer app". Taking advantage of the licensing agreement, Gordon and EA's vice president of marketing services Nancy Fong created a visual identifier for EA's Genesis cartridges: a yellow tab molded into the cartridge casing.

Sonic the Hedgehog

Sega held a company-wide contest to create a mascot character to compete with Nintendo's ''Mario'' series. The winning submission was a blue hedgehog with red shoes, Sonic, created by Naoto Ohshima, spawning one of the best-selling video game franchises in history. The gameplay of ''Sonic the Hedgehog'' originated with a tech demo created by Yuji Naka, who had developed a prototype platform game that involved a fast-moving character rolling in a ball through a long winding tube. This concept was developed with Ohshima's character design and levels conceived by designer Hirokazu Yasuhara.

Although Katz and Sega of America's marketing experts disliked ''Sonic'', certain that it would not catch on with American children, Kalinske's strategy to place ''Sonic the Hedgehog'' as the pack-in game paid off. ''Sonic the Hedgehog'' greatly increased the popularity of the Genesis in North America, and the bundle is credited with helping Sega gain 65% of the market share against Nintendo. Similarly, in Europe, Sega captured a 65% share of the European console market, where the Mega Drive maintained its lead over the SNES through 1994. ''Sonic the Hedgehog 2'' set records for the fastest-selling game, selling copies worldwide within two weeks, and ''Sonic the Hedgehog 3'' and ''Sonic & Knuckles'' selling a combined copies worldwide.

Trademark Security System and ''Sega v. Accolade''

After the release of the Genesis in 1989, video game publisher Accolade began exploring options to release some of their PC games on the console. At the time, Sega had a licensing deal in place for third-party developers that increased the costs to the developer. According to Accolade co-founder Alan Miller, "One pays them between $10 and $15 per cartridge on top of the real hardware manufacturing costs, so it about doubles the cost of goods to the independent publisher." To get around licensing, Accolade chose to seek an alternative way to bring their games to the Genesis. It did so by purchasing one in order to decompile the executable code of three Genesis games. Such information was used to program their new Genesis cartridges in a way that would allow them to disable the security lockouts on the Genesis that prevented unlicensed games from being played., 977 F.2d 1510 (9th Cir. 1992) This strategy was used successfully to bring '' Ishido: The Way of Stones'' to the Genesis in 1990. To do so, Accolade had copied Sega's copyrighted game code multiple times in order to reverse engineer the software of Sega's licensed Genesis games.

As a result of piracy in some countries and unlicensed development issues, Sega incorporated a technical protection mechanism into a new edition of the Genesis released in 1990, referred to as the Genesis III. This new variation of the Genesis included a code known as the Trademark Security System (TMSS), which, when a game cartridge was inserted, would check for the presence of the string "SEGA" at a particular point in the memory contained in the cartridge. If the string was present, the console would run the game, and would briefly display the message: "" This system had a twofold effect: it added extra protection against unlicensed developers and software piracy and forced the Sega trademark to display when the game was powered up, making a lawsuit for trademark infringement possible if unlicensed software were to be developed. Accolade learned of this development at the Winter Consumer Electronics Show in January 1991, where Sega showed the new Genesis III and demonstrated it screening and rejecting an ''Ishido'' game cartridge. With more games planned for the following year, Accolade successfully identified the TMSS file. It later added this file to the games ''HardBall!'', '' Star Control'', ''Mike Ditka Power Football'', and ''Turrican''.

In response to the creation of these unlicensed games, Sega filed suit against Accolade in the United States District Court for the Northern District of California, on charges of trademark infringement, unfair competition

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