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Sega Corporation (株式会社セガ Kabushiki-kaisha Sega^?) is a multinational Japanese (originally American) video game software and hardware development company, and a former home computer and console manufacturer. The company had success with both arcades and home consoles, but on January 24, 2001, formally left the consumer console business and began concentrating on software development for multiple platforms.

Sega's main offices, as well as the main offices of its domestic division, Sega Corporation (Japan), are located in Ōta, Tokyo, Japan. Sega's European division, Sega Europe Ltd., is headquartered in the Chiswick area of London. Sega's North American division, Sega of America Inc., is headquartered in San Francisco, California; having moved there from Redwood City, California in 1999. Until 2000, Sega's official corporate name was Sega Enterprises Ltd..

History

Origins and entry into the video game market (1945–1989)

Sega was founded in 1940 as Standard Games (later Service Games) in Honolulu, Hawaii, by Martin Bromely, Irving Bromberg, and James Humpert to provide coin-operated amusements for American servicemen on military bases. Bromely suggested that the company move to Tokyo, Japan in 1951 and in May 1952 "SErvice GAmes of Japan" was registered.

In 1954, another American businessman, David Rosen, fell in love with Tokyo and established his own company, Rosen Enterprises, Inc., in Japan to export art. When the company imported coin-operated instant photo booths, it stumbled on a surprise hit: The booths were very popular in Japan. Business was booming, and Rosen Enterprises expanded by importing coin-operated electro-mechanical games.

Rosen Enterprises and Service Games merged in 1965 to make Sega Enterprises. Within a year, the new company released a submarine-simulator game called Periscope that became a smash-hit worldwide.

In 1969, Gulf+Western purchased Sega, and Rosen was allowed to remain CEO of the Sega division. Under Rosen's leadership, Sega continued to grow and prosper.

Sega's revenues would hit $214 million by 1982 and in 1983, Sega would release its first video game console, the SG-1000, the first 3D arcade video game, SubRoc-3D, which used a special periscope viewer to deliver individual images to each eye, and the first action-based laserdisc arcade game, Astron Belt.

In the same year, Sega was hit hard by the American video game crash. Hemorrhaging money, Gulf+Western sold the U.S. assets of Sega to famous pinball manufacturer Bally Manufacturing Corporation. The Japanese assets of Sega were purchased for $38 million by a group of investors led by Rosen and Hayao Nakayama, a Japanese businessman who owned a distribution company that had been acquired by Rosen in 1979. Nakayama became the new CEO of Sega, and Rosen became head of its subsidiary in the United States.

In 1984, the multibillion dollar Japanese conglomerate CSK bought Sega, renamed it to Sega Enterprises Ltd., headquartered it in Japan, and two years later, shares of its stock were being traded on the Tokyo Stock Exchange. David Rosen's friend, Isao Okawa, the chairman of CSK, became chairman of Sega.

In 1986, Sega of America was established to take advantage of the resurgent video game market in the United States.

Sega would also release the Sega Master System and the first Alex Kidd game, who would be SEGA's mascot until 1991 when Sonic the Hedgehog took over. While the Master System was technically superior to the NES, it failed to capture market share in North America due to highly aggressive strategies by Nintendo and ineffective marketing by Tonka. However, it did dominate the European and Brazilian markets until Sega discontinued the system in Europe in 1996, and in Brazil in 2000.

Sega as a Major Console Manufacturer (1990-2001)

Sega Mega Drive/Genesis

With the introduction of the Sega Mega Drive (known as Sega Genesis in North America), and to carry the momentum to the 2nd generation of games, Sega of America, led by Tom Kalinske, launched an anti-Nintendo campaign with slogans such as "Genesis does what Nintendon't." When Nintendo launched its Super Nintendo Entertainment System, in 1991, Sega changed its slogan to "Welcome to the next level".

In 1991, in order to rival Nintendo to the punch of the upcoming Super Nintendo, Sega re-branded itself with a new game and mascot, Sonic the Hedgehog. With his hip attitude and style, he was marketed to seem "cooler" than Mario, Nintendo's mascot. This shift led to a wider success for the Genesis and would eventually propel Sega to 65% of the market in North America for a brief time. Simultaneously, after much previous delay, Sega released the moderately successful Sega CD as an add-on feature, allowing for extra storage in games due to their CD-ROM format, giving developers the ability to make longer, more sophisticated games, the most popular of which was Sega’s own Sonic CD.

By 1994, Sega had released the Sega 32X in an attempt to upgrade the Mega Drive to the standards of more advanced systems. It sold well initially, but had problems with lack of software and hype about the upcoming Sega Saturn and Sony's Playstation. Within a year, it was in the bargain bins of many stores.

Sega versus Accolade

In 1992, Sega lost the Sega v. Accolade case, which involved independently produced software for the Sega Mega Drive/Genesis console that copied a small amount of Sega's code. The verdict set a precedent that copyrights do not extend to non-expressive content in software that is required by another system to be present in order for that system to run the software . The case in question stems from the nature of the console video game market. Hardware companies often sell their systems at or below cost, and rely on other revenue streams such as in this case, game licensing. Sega was attempting to "lock out" game companies from making Mega Drive/Genesis games unless they paid Sega a fee (something its competition has done in the past). Their strategy was to make the hardware reject any cartridge that did not include a Sega trademark. If an unlicensed company included this trademark in their game, Sega could sue the company for trademark infringement. Though Sega lost this lawsuit, all later Sega systems seemed to incorporate a similar hardware requirement. Also worthy of note was the release of the successful Virtua Racing in the arcades and on the Genesis, among the first 3D games on the market, as well as the release of Sonic the Hedgehog 2, the most successful game Sega ever made, selling six million copies as of June 2006.

Arcade successes

The 1993 release of Virtua Fighter was widely hailed as one of the greatest achievements in Sega's history. By utilizing their newest arcade cabinet, the Sega Model 1, they managed to create graphics and gameplay that were, at the time, revolutionary, becoming a massive critical success. The game was a smash hit with consumers, spawning four direct sequels, several successful spinoffs, as well as the 3D Fighting genre. It is one of the video games on display at the Smithsonian.

Sega followed that success in 1994 with Daytona USA, an equally impressive game that was the first to connect arcade cabinets together for multiplayer use. The success of Daytona USA would be unparalleled in the history of the arcades, becoming the most profitable game ever released in that medium. Other notable hits of the year would be Yu Suzuki's Virtua Cop, Star Wars Arcade and Sonic the Hedgehog 3 & Knuckles.

Despite their massive advances in the arcades, Sega’s share of the home market plummeted by 1994 to 35% after Nintendo released key franchise titles for the Super Nintendo Entertainment System such as Donkey Kong Country, Star Fox, and Super Metroid, along with an internal shift in focus away from the Genesis to Sega's upcoming Saturn and the release of the Sega 32X, which never achieved commercial success in light of Sega's attention on the forthcoming Saturn. Also in 1994, Sega launched the Sega Channel, a subscription gaming service delivered by local cable companies affiliated with Time-Warner Cable or TCI through which subscribers received a special cartridge adapter that connected to the cable connection. At its peak, the Sega Channel had approximately 250,000 subscribers.

Sega Saturn

In 1995, Sega released the Sega Saturn (with Virtua Fighter) in the American market, which utilized a 32 bit processor and preceded both the PlayStation and the Nintendo 64. However, poor sales in the West (including the traditional stronghold markets in Europe) led to the console being abandoned within three years. Ironically, it was Sega's only success in its home country of Japan, where it managed to outsell the Playstation well into 1996, and defeated the Nintendo 64. The Saturn library was built heavily on arcade ports, such as two of the Saturn's top selling games; Virtua Fighter 2 and Sega Rally, and platformers, such as Sonic Team's Nights into Dreams... and Burning Rangers. Other notable titles include several titles exclusive to the Japanese market, like Radiant Silvergun and Sakura Taisen, involving fighting games like Last Bronx, rail shooters, such as Panzer Dragoon and The House of the Dead and a few well regarded RPGs; Panzer Dragoon Saga, Grandia, and Shining Force 3.

In 1997, Sega entered into a short-lived merger with Bandai. However it was later called off, citing "cultural differences" between the two companies. Around the same time, Sega announced that the Saturn was not Sega’s future and quickly began moving high profile titles (most notoriously Virtua Fighter 3) over to their upcoming next generation game console, the Dreamcast. Entertainment fun center GameWorks, was founded in 1997 as well as the now defunct Sega World theme parks.

Dreamcast

In 1998, Sega launched the Dreamcast game console. The Dreamcast was not only competitive price wise, partly due to the use of off-the-shelf components, but it also featured technology that allowed for more technically impressive games than its direct competitors, the Nintendo 64 and Sony PlayStation. An analog 56k modem was also included, allowing gamers to play multi-player games online on a home console for the first time, featuring titles such as the action-puzzle title Chu Chu Rocket, Phantasy Star Online, the first console-based MMORPG, and the innovative Alien Front Online, the first console game with online voice chat.

The Dreamcast had a fairly poor launch in Japan. Launching with a small library of generally uninteresting software and in the wake of the upcoming PS2, the system would not gain great success, despite several successful games in the region. The Western launch a year later was accompanied by a large amount of both 1st party and 3rd party software and an aggressive marketing campaign. It was extremely successful and earned the distinction of "most successful hardware launch in history," selling a then-unprecedented 500,000 consoles in its first week in North America. Sega was able to hold onto this momentum in the US almost until the launch of Sony's PlayStation 2. The Dreamcast is home to several innovative and critically acclaimed games of the time, including one of the first cel-shaded titles, Jet Set Radio; Seaman, a game involving communication with a fish-type creature via microphone; a rhythm game involving the use of maracas, Samba de Amigo; and Shenmue, an adventure game of vast scope with freeform gameplay and a striking attempt at creating a detailed in-game city. Despite receiving critical acclaim, these titles failed to garner much public attention in the face of the upcoming Playstation 2 launch.

Faced with debt and competition from Sony, Nintendo, and Microsoft, Sega officially discontinued the Dreamcast hardware in 2002. The final game released for it was NHL 2K2.

Shift to a software manufacturer (2002-2005)

2002 would see a major shift in focus for Sega as it moved out of the console manufacturing business.

The company has since evolved primarily into a platform-agnostic software company, known as a "third-party publisher", that creates games that will launch on a variety of game consoles produced by other companies, many of them former rivals, the first of which was a port of Chu Chu Rocket to Nintendo's Game Boy Advance.

Arcade units are still being produced, first under the Sega NAOMI name, and then with subsequent releases of the Sega NAOMI 2, Sega HIKARU, Sega Chihiro, Triforce (in collaboration with Nintendo and Namco) and the Sega Lindbergh. Sega is the major force in the arcade industry today, controlling a substantial portion of the market..

Despite several early hits as a third party vendor, including Virtua Fighter 4, Sonic Adventure 2 Battle and the new Super Monkey Ball series, Sega fell on hard times, and after the death of CSK founder Isao Okawa in 2001, who spent over US$40 million to help Sega, CSK put Sega on the auction block. The first potential buyer was Japan's Sammy who discussed a merger, but plans fell through. Discussions also took place with Namco, Bandai, Electronic Arts and Microsoft.

In August 2003, Sammy bought the outstanding 22% of shares that CSK had, and Sammy chairman Hajime Satomi became CEO of Sega. With the Sammy chairman at the helm of Sega, it has been stated that Sega's activity will focus on its profit-making arcade business rather than its loss-making home software development. In late December, Sega launched the highly successful Sonic Heroes, the first Sonic game to be on both the Xbox and the PlayStation 2. It is one of the most successful games in Sega's portfolio, selling slightly over 5 million units in its lifetime.

During the middle of 2004, Sammy bought a controlling share in Sega Corporation at a cost of $1.1 billion, creating the new company Sega Sammy Holdings, one of the biggest game manufacturing companies in the world. With the merger, Sega reabsorbed its second party studios and began to reorganize them. Many Sega employees, most notably Tetsuya Mizuguchi, father of Sega Rally and Space Channel 5, walked out in protest.

On January 25, 2005, Sega sold Visual Concepts, a studio Sega dubbed a "1.5" developer, to Take-Two Interactive for $24 million. Sega used the parlance "1.5" as a mid-point of sorts between first-party and second-party developer status: that is, a wholly owned studio that would otherwise be known as a first-party developer, but was outside of internal development teams. Visual Concepts was known for many Sega Sports games including the ESPN NFL Football series, formerly NFL2K. The sale also came with Visual Concept's wholly-owned subsidiary Kush Games. Take Two subsequently announced the start of the publishing label 2K Games because of this purchase.

Success again (2006-present)

By the end of 2005, Sega experienced strong earnings growth across multiple divisions. Contributing to the company's success were strong pachinko sales, and sales of software titles Ryu Ga Gotoku (known as Yakuza outside of Japan), Mushiking, and Sonic the Hedgehog.

In an effort to appeal to western tastes, they partnered with Obsidian Entertainment to develop a new RPG for the PlayStation 3 and Xbox 360. The partnership was the latest in a series of collaborations with western video game studios, including Monolith Productions (Condemned: Criminal Origins), Bizarre Creations (The Club) and Silicon Knights (who have yet to announce their project with Sega). Sega also acquired Sports Interactive and Secret Level. The deal with Sports Interactive was said to be worth GBP 30 million ($52 million); the terms of the Secret Level buyout were not disclosed.

That desire to have a more Western appeal for Sega was shortly followed up by Sega acquiring British developer Sports Interactive after a successful run of publishing Football Manager 2005 and 2006, in which they managed to sell 1.5 million copies, the deal was said to be worth in the region of £30 million ($52 million) by Miles Jacobson, Sports Interactive’s Managing Director. This was, however, not the only developer Sega had acquired, they also purchased American developer Secret Level although the terms of the deal was not disclosed, Secret Level had however begun work before being bought by Sega to “recreate a classic Sega franchise" for the PS3 and Xbox 360 July 2005, which was revealed to be Golden Axe later that year.

While Sega continued its expansion in the West, on May 8, 2006, it was announced Sega of Japan begun helping famed Sega developer and Sonic Team head Yuji Naka (known for being the main programmer for the original Sonic the Hedgehog games and Nights into Dreams...) to start up his own company titled "Prope" (Latin for "beside" and "near future") in which Sega helped provide 10% startup capital and have the option to publish games produced from the studio if they wished to.

Due to the continued success of Sega’s software sales, the company reported on May 17, 2006 a 31% rise in net profits from that of the previous year of the period ending March 31, 2006, being posted at ¥66.2 billion ($577 million), as well as an increase in operating profit growing by 13% from the previous year, being posted at ¥553.2 billion ($4.82 billion) notable titles to have helped Sega increase profits in the West being that of Shadow the Hedgehog (which sold over a million copies) and Sonic Riders, whilst in Japan, games such as Yakuza, Mushi King and Brain Trainer Portable continued to sell strong.

Although Sega seemed poised to continue increasing profits, the company reported a massive drop of 93% profits for the period ending June 30, 2006 compared to the same period last of year. Net income for the company dropped from $98.3 million (a year earlier) to $7.12 million for this period ending as well of total sells dropping from $926.5 million to $809.1 million , Sega reported that the decrease in profits was due to no significant big releases by its slot machine division. However, a total of 2.1 million games were sold between the period, 870,000 in the US, 680,000 in Europe and 580,000 in Asia. Despite this, Sega Sammy said that the results were in line with their expectations and did not amend their full year forecasts.

Despite this, Sega reported in November a massive 52% rise in profits for the periods between April and September 2006, compared to the same period last year. Software sales for the company had also increased with 5.75 million. Of those units, 1.76 million were sold in Japan, 1.59 million in Europe, 2.36 million in the US and 30,000 in other regions. a number of titles were said to have performed well, in particular Super Monkey Ball: Touch & Roll for the Nintendo DS and Football Manager 2006 for the Xbox 360 having sold well. While Sega performed better in 2006, they had slashed their forecasts for the year ending March 2007 by 20% with an anticipated profit of $536.7 million, down from the initial profits of $656.7 million.

Continuing to prepare more games for the Western market, Sega was able to bridge a partnership with New Line Cinema in September to develop a game for the movie tie-in game The Golden Compass and also partnered themselves with Fox to develop two new games based on the Alien franchise. Sega had then assigned critically acclaimed developers Gearbox software to develop a first person shooter and Obsidian Entertainment to develop an RPG based on the popular film franchise, while the platforms are still to be specified, Sega has both titles in pre-production and one of them is set to be released in 2009.

Recognized company personnel

In-house studios

Global Entertainment Software R&D, which was led by Yuji Naka until 2006. "GE" currently focuses on developing video games for home consoles.

Amusement Software R&D, which currently focus' on the development of games for arcade machines.

New Entertainment R&D, which is led by each department head. "NE" currently focus' on the development of new content for the arcade and home console markets.

Subsidiary studios

Sega began acquiring or founding subsidiary studios in 2005, and they have been the cornerstone of an internal shift within Sega to appeal to a more Western audience.

Former Structure Prior to Sammy Merger

Hardware

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Consoles

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