Sega's out for revenge

First, some history. Sega is a company with an interesting record. Founded in the '50s by David Rosen, a veteran returning to the United States after the Korean War, Sega has a long and successful arcade history. Sega is a leading pinball table manufacturer, one of the top two names in coin-operated video games and one of Steven Spielberg's partners in the GameWorks super-arcades venture.

Sega is also a company with a mostly long and dismal history in home console games. After allowing Coleco (short for Connecticut Leather Co.) to make tabletop and cartridge versions of such arcade hits as "Turbo," "Frogger" and "Zaxxon," Sega entered the home console business in 1986 with the eight-bit Master System.

Nintendo beat Sega into the U.S. market by a few months but used that time mostly to run a New York-based test of its product. Side-by-side, the Master System had more memory and was slightly more powerful, but Nintendo had two big advantages. First, Nintendo had a partnership with Worlds of Wonder, the company that owned Teddy Ruxpin and Laser Tag, two of the biggest toys of the day. Having a partner like Worlds of Wonder virtually assured Nintendo's distribution.

Nintendo's second advantage was "Super Mario Brothers," the cartridge that came packed in with the Nintendo Entertainment System (NES). The Master System came with "Hang On," a motorcycle racing game that was not nearly as popular with consumers.

After limping along for three years with less than one-tenth of the consumer base that Nintendo had accrued, Sega released the 16-bit Sega Genesis at the end of 1989. Despite its powerful processor and better-looking games, Genesis languished during its first year while the NES flourished. Nintendo released the most popular game in NES history that year -- "Super Mario Brothers 3." Over the next three years, Nintendo sold 16 million copies of "Super Mario Brothers 3."

In 1991, Sega hired ex-Mattel president Tom Kalinske, adopted a new mascot and lowered the price of the Genesis in preparation for Nintendo's releasing its 16-bit Super NES. Under Kalinske's guidance, Sega of America began pumping out games rather than relying on Japan, and Genesis took off. By 1993, Sega owned the lion's share of the American video game market. Interestingly, in Japan, where the company did not adopt Kalinske's programs, the Mega System (the Japanese name for Genesis) never caught on.

After Genesis, however, Sega's fortunes turned sour. The company released an expensive CD-ROM peripheral for Genesis. It never caught on. Neither did 32X the 32-bit adapter created to enhance the performance of the Genesis. Sega released a handheld game system called Game Gear in an effort to compete with Nintendo's Game Boy. It was a weak competitor at best.

In 1995, Sega suffered a humiliating defeat when it released the 32-bit Saturn game console. Sega released the system four months before Sony released PlayStation, but Sony overtook Sega in sheer numbers within one week of PlayStation's release. One year later, Nintendo leap-frogged Sega with the launch of Nintendo 64. Whether it was superior engineering or better marketing, Nintendo 64 and PlayStation continued to outsell Saturn by huge margins. Sega discontinued its system early this year.

At present, Americans have purchased approximately 2.5 million Saturns. By comparison, Sony had sold over 12.5 million PlayStations, and Nintendo has sold more than 8.5 million Nintendo 64s in North America.

In 1996, Stolar replaced Kalinske as the top American executive at Sega of America under Sega Enterprises chairman Shoichiro Irimajiri. When he arrived, rumors were already floating around the industry that Sega was developing two next-generation systems. One of the systems, which was code-named Katana (after a Japanese sword), was under development in Japan. The other, code-named Dural (the name of the robotic fighter in "Virtua Fighter"), was being developed in the United States. The Japanese system won. Officially named Dreamcast, the new system will be released in Japan on Nov. 27. The U.S. launch is scheduled for fall 1999. According to Stolar, Dreamcast is going to be big.

Q&A WITH BERNIE STOLAR:
MSNBC: Sega was still trying to break into the market with Saturn when you came over from Sony. Did you plan to discontinue Saturn as soon as you arrived?

BS: I came here to turn a company around and redirect Sega of America to a winning, profitable mentality. It was my feeling at the time that anything that we had in our product cycle with hardware and software that was not going to be profitable was a mistake. I felt Saturn was hurting the company more than helping it. That was a battle that we weren't going to win.

MSNBC: What was the reaction in Sega of Japan when you suggested closing down Saturn?

BS: Well, I don't think I used the words "close down." I think what I said was that we should look at the direction we were taking with Saturn and see how we can best manage the winding down of Saturn.

MSNBC: No. What was the reaction when you first brought the subject up?

BS: It was positive... Somebody was taking a position and saying, "This direction now." I don't believe that there was direction before. It was a matter of "Let's see the plan. Show me how it looks financially to our business plans. Show me how it looks towards where the company is heading and how it transcends into that." And once I did that, they felt comfortable letting me do what I did.

MSNBC: The Japanese economy is in trouble. How much will that hurt Dreamcast's launch?

BS: It seems like the entertainment industry gets hit last by economic cycles because people still want an escape. I don't view what's going to happen in Japan as something that's going to hurt us here.

MSNBC: But when Dreamcast is released in Japan, a certain percentage of people who would have purchased it in other years will be unable to afford it at this time.

BS: When you launch a higher system, particularly this, your first buyers are usually your core gamer and your sort of secondary tier group. No matter when you launch, they're going to buy it no matter what they have.

MSNBC: They'll skip lunch for a few years?

BS: They'll skip lunch.

MSNBC: Any idea how many titles are coming out in Japan in the first year?

BS: They've announced five titles at launch, and I think by the end of the year they're looking at having 15 titles. (This number has been amended to between 12 and 15 titles.) So, I think they'll have a healthy product flow. I think the product flow will be better in the March/April time frame than it will be, let's say, initially.

MSNBC: Of the first 15, any idea of how many are going to be brought to the U.S.?

BS: We're still judging that. Let me say this. We'll have "Sonic" ("Sonic Adventure") at launch, and we'll have some very other strong titles that are being developed in Japan. But because they haven't announced those right now, I don't want to get into that.

MSNBC: When you and Whims and Race left Sony ...

BS: We didn't leave, we got fired.

MSNBC: Well, why'd you guys get fired?

BS: We did too good a job. Did you read the Forbes article? It said, "Do a great job, get fired."

MSNBC: So are you looking for revenge through Dreamcast?

BS: People say that I've been driven by vengeance in going after Sony, and I think they're probably right. I believe in winning, and I believe you have to have that kind of attitude to drive you. People have called me Darth Vader, throughout the company, but when it comes to how I view SOA [Sega of America], I think that throughout the company the attitude is now one of winning and not taking a second position to anybody.

MSNBC: Don't you get a little nervous about pulling a 3DO and coming out before people are bored enough with their PlayStations and N64's to move to another system?

BS: I think they're bored of the PlayStation already. I think for the most part, they all look alike. When you go to the store and you see eight first-person shooters, what the hell is the difference? You see driving games, and they all look alike. What is the difference? The one game that I think stands out more so than any other title is "Crash" ["Crash Bandicoot Warp" -- the third game in the "Crash Bandicoot" series]. "Crash" evolves each time and gets better, but no other title has done that.

MSNBC: Not even "Tekken"?

BS: "Tekken's" over.

MSNBC: "Tekken's" over? "Tekken 3" is one of the best-selling games of the year.

BS: It's over. There's no more "Tekken." How much difference will there be between "Tekken 4" and "Tekken 3"? I can guarantee you, theres not going to be much difference. And Namco is now developing for us. So you think they're going to take the best resource and leave it for PlayStation? It's going to come here. Namco announced the move at the Tokyo game show [held in October].

MSNBC: Any other big defections? How about Square Soft?

BS: Square is still evaluating what they want to do. I don't think Square is going to do anything until they figure out how to best negotiate their Sony contract.

Konami has announced that they're supporting Dreamcast. Capcom has announced. They also announced that they're doing the next "Resident Evil" exclusively for Dreamcast.