The SEGA Amusements International team.
“Creativity Is Life”
The 60-Year SEGA Adventure
Six decades and the creation of over 500 coin-op video games is quite a legacy. But, as Paul Williams, CEO of SEGA Amusements International, is quick to point out, a “legacy” usually refers to something that is left once an individual or company is gone.
SEGA Amusements International CEO Paul Williams
“SEGA is still here, creating its legacy every day, and will continue to do so,” he says. “Sixty years is just the beginning, the tip of the iceberg.”
The company was founded on June 3, 1960, and its first coin-op hit, Periscope, followed in 1966. Since that time, the company’s history has been brimming with games that were significant in this industry’s history, whether by popularity, advances in technology or for bringing forth a new game style or genre. (See the sidebar on SEGA’s top 75 video games.)
When Williams joined the company in 1998, the man at the helm was Hayao Nakayama, former president and CEO of SEGA Enterprises. In fact, it was Mr. Nakayama who interviewed Williams when he was joining the company.
“He led the company through the glory years of coin-op video games,” Williams said. “His mantra at that time was ‘creativity is life.’ I think that really is true of SEGA today –– it’s all about the R&D and what we create. ‘Creativity is life’ is something that’s really been at the epicenter of SEGA for many, many years, from way back in the beginning. SEGA has always strived to be the most innovative company in the amusement industry. It’s had its failures, but the successes have outweighed the failures. And what’s perhaps most important is that at the end of the day, it’s not been afraid to make those failures and learn from them.”
The SEGA “legacy” is replete with successes that ignited play at the industry’s locations from its early years to today. The company’s game technology has evolved as has SEGA itself, moving into consumer games and systems and beyond. The creation of the iconic Sonic the Hedgehog character has only enhanced the company’s popularity around the world. More recently, Sonic even graced the silver screen in its own motion picture, which had one of the best opening weekends ever for a video game-themed film. For those in coin-op, however, it’s the company’s innovations and how those have resonated with players and brought earnings to the cash box – that are the hallmarks of this 60-year milestone.
“The Sonic movie released in February broke so many box office records,” he said. “It is a blockbuster literally all over the world. And it just really showed how all generations loved Sonic and SEGA … The kids knew about it, parents knew about it and they could all enjoy it together. It’s the kind of brand that gives everyone a warm feeling. And it’s all across the world. There isn’t a single country where it’s not recognized.”
Game Innovation
When it comes to SEGA’s coin-op equipment, Williams pointed to a long line of developments that have upped the game design game.
R&D Guru Shinichi Ogasawara
“Feats of technology and engineering like the original R360 cabinet –– 20-plus years ago –– have amazed players with previously impossible experiences,” Williams said. “Haptic feedback and motion have always been a driving force for arcade games, delivering immersion not possible in the home. Games like SEGA Rally have innovated through each incarnation, bringing more detail to the simulation not only in graphics and audio but also in ‘touch & feel.’”
Other landmark games include Derby Owners Club, another title that came out about two decades ago. Williams said the piece, in which players trained virtual horses, was the first group social training game. About 15 years ago, SEGA pioneered video game-based card collecting/trading games for kids when it introduced Mushiking and Dinosaur King. These had an educational component as well: Mushiking cards had information on different beetles; Dinosaur King on dinosaurs.) SEGA was also the first company to bring out really large, motion-based simulators like Daytona and Indy 500, Williams said.
“At the time, these games were groundbreaking, falling somewhere in between a video game and a theme park attraction,” he said. “And SEGA invented the environmental cabinet about 20 years ago with Jurassic Park and Ocean Hunter. This was the first time people sat inside the cabinet and had that full theater surround system. Those types of cabinets are still here today.”
SEGA’s R&D topper Patrick Michael
And the innovation continued with other videos in larger, imposing multiplayer cabinets like WCCF (World Club Championship Football), a soccer game popular in Japan and Europe that encouraged more social, card-based play. The unique WCCF cabinet allowed players to lay out their entire team of licensed Panini footballer cards and move them in real-time to change their strategies during play.
“Social, multi-player games like this led to online linked titles like Virtua Fighter and Initial D, challenging players to beat not only their friends locally but also gamers across the country or even the world. Environmental/theater-style cabinets with games like Let’s Go Island 3D enclosed players, allowing the game’s designers to fully envelop their senses with glasses-free 3D video.”
All of these illustrate Williams’ point: “SEGA has always been at the forefront of technology to develop new concepts.” Sure, they’ve made their share of sequels and games that followed along with other emerging trends, but at the end of the day, the R&D team has been deliberate in not only growing their technical know-how but growing the amusement industry at large.
And, of course, SEGA’s game design prowess extends beyond “just” video games.
“We look at the different industry sectors such as street locations, theaters, FECs, arcades, bowling, etc. and ask, ‘Okay, what can we develop for this part of the industry? What type of product do we need to target the differing demographics of those businesses?’ And then, R&D has gone off and tried to develop it,” Williams said. “Thus, we not only produce video games in super deluxe, deluxe and upright formats, but also cranes, merchandisers, redemption –– both mechanical and video-based –– and novelties.
“The amount of money SEGA’s invested in R&D is very, very significant,” he continued. “I would say it’s probably the leading investor into R&D within the industry.”
Shifting Gears
In addition to an R&D focus on what appeals to the various types of out-of-home locations, SEGA has also been mindful of a divergence within the tastes of the global player community. In about 2006, they noticed a divergence in what players in Japan were looking for versus what those in the western hemisphere preferred. In the West, game play was becoming more casual with an emphasis on family fun and FECs.
“I was tasked by SEGA Japan to set up an R&D team based in the West to develop games for that market, using some of the knowledge and technical know-how from SEGA Japan,” Williams recalled. Initially, that development team was headquartered in the U.K., subsequently in the U.S., “pulling excellence, resources and know-how from the Japanese side to tailor product specifically for the western market.”
A key to the success of that initiative was bringing a legendary designer from SEGA Japan, Shinichi Ogasawara, to the U.K. to lead the way and work alongside the local R&D team. Since then, the U.K./USA development teams have developed hits such as Ford Racing SEGA Rally 3, Grid, Showdown, Monkey Ball, Transformers Human Alliance and Shadows Rising, Daytona USA, Prize Locker/Key Master, Power Roll, Target Bravo, ATV Slam, Mission: Impossible Arcade, Shoot It Win It and Hoopla. “There are other games we still sell that are developed by Japan, like the House of the Dead series or Mario and Sonic at the Olympics, but pretty much all those games were developed by the SEGA Japan R&D with help and assistance from some key individuals on the Western team,” Williams explained.
For the Long Haul
In diving deep into what about the SEGA culture has helped it be successful through six decades, Williams points to its knowledge of all facets of the industry because of its position as an operator, distributor and manufacturer. “It’s a symbiotic relationship. We all rely on each other and if one is failing, we all fail. SEGA really does understand that, so it listens to the business needs of the supply chain, working for a win-win for everybody by developing and selling good games. We have to make sure our suppliers make a profit and the operators get a good return on investment. We’re all dependent upon each other,” Williams explained.
“SEGA recognizes it takes years and years and years to build a reputation but it can take minutes, hours or days to ruin that reputation. Therefore, every decision we make revolves around maintaining and building our reputation as the best. We’re in it for the long haul, not the short term. The SEGA slogan is ‘It takes AGES to be this good,” he said, noting that “AGES” is “SEGA” spelled backwards.
They’re also in it to be a “one-stop-shop” for the industry. Certainly, in Europe where their distributing arm also represents such products as ICE, Komuse, Wahlap and Triotech, SEGA can offer just about any type of product a location might need. Even when it comes to games for the U.S., the breadth of game offerings makes it possible for an operator to “pretty much buy about 50 percent of what they’d need for an FEC from SEGA,” Williams said, whether it’s a super-deluxe video, an upright, a crane, merchandiser, mechanical or video redemption game or novelty We even create game room designs and business models for new operators.
Sixty years is a long time for any business, particularly a technology-led business, noted Williams, who said, “SEGA is constantly reinventing itself. Recently, it received a Nevada gaming license so it’s manufacturing gaming machines for Nevada. About three years ago, it purchased majority shares in a casino in Seoul, Korea, and it operates that as a resort-style casino with hotels and retail shops and all the rest of it. They’re currently waiting for a change in the legislation in Japan which may allow the construction of three resort-style casinos with plans to bid for one of those licenses.
Weathering the COVID-19 Storm
Williams is realistic about what the new game market is likely to be once locations are able to reopen and feels other manufacturers will be as well. “We don’t feel the market will necessarily need a lot of brand new products in the immediate future,” he said, explaining that some locations sadly won’t reopen which will result in used equipment entering the marketplace. This might include more-recent titles, coming from some of the FECs that have newly opened in the past three to five years that might have been unable to make it through the shutdown, he explained.
To allow time for that used equipment inventory to be absorbed, Williams said SEGA will push back the development and release of new games until next year, in the meantime marketing the new pieces operators saw at last fall’s IAAPA and this spring’s Amusement Expo.
“As a manufacturer, we’re going to see game sales from new locations opening. That is still going to happen. But sales for existing locations will be only for the must-have games, like our Power Roll, Daytona USA, ATV Slam and other games that have been launched in the last year to 18 months that operators maybe haven’t bought yet.”
He added, “Of course, no one really knows what’s going to happen…there are no experts in this. A lot depends on what the local government and states dictate about social distancing and potential release date of a vaccine. My personal belief is that business for locations and operators will initially return fairly slowly in the first few weeks and months. Because there will be a bit of uncertainty, and one state will be slightly different than another. The feel-good factor will take time to return. Our business revolves around socializing –– and not social distancing –– so it will take time for our industry and the public to adapt.
“But I generally think as more countries and more states open, the confidence will go back into the market and they will become stronger,” he said. “I think by the end of this year and into 2021, locations will be around about 80-90 percent of their usual revenue. The problem is that the profit for most companies is found within this other 10-20 percent. Every business is different, but operators who need to be getting up to 90, 95, 100 percent of their turnover to make a profit will be just barely breaking even or operating at a slight loss if they’re only reaching 80 percent. Those companies that have been highly leveraged or have don’t have good cashflow will find it difficult.”
Well Positioned
While a diminished new-game market isn’t good news for any manufacturer, SEGA’s financial outlook is strong, Williams said. “One of SEGA’s strengths is that it’s a very diverse, global company. We’ve got the casino business, we’ve got arcade operations, we’ve got manufacturing and distribution of machines, and then we’ve got home games. So, while the amusement sector for operating and manufacturing has been hit hard by this current crisis, the home gaming side of our business has had a boom.
“Overall as a company, our financial year will probably be on par with previous years. We have good cash flow and good liquidity, so we can ride this crisis out and give support to distributors and operators as they try and ride this out as well. There are other companies that unfortunately aren’t in our position,” he furthered.
Overall, Williams is very positive for the industry as it emerges from lockdown and works through the damage left in COVID-19’s wake. Summing it up, he quoted Muhammad Ali: “If you think you’ve beaten me, roll over, wake up, apologize, and think again.”
One constant that’s going to help recovery, he said, is that fundamentally, human beings are social animals. “We want to go out…we want to meet people. We’re in the entertainment business, that’s what we do: We provide people a reason to go out-of-home. I think as soon as there are a lot of states allowing it, people will bounce back fairly quickly,” he said. He envisions the teenagers, 20-somethings and 30-somethings coming back sooner while parents with children will venture out more cautiously.
“At the end of the day, the fundamentals of our business will still be here. We have to provide a good, clean, safe environment, and give people a reason to leave their homes. We will have to be better at it and also market ourselves better. The companies that survive will likely be leaner, but they’ll actually be stronger from being able to ride out this crisis. Then, they’ll have to learn to adapt to the new reality, whatever that new reality is.
Business aside, Williams concluded, “The hearts and thoughts of everyone at SEGA go out to all those who have lost loved ones recently and are going through these difficult times. We wish everyone in this great industry of ours all the very best of health over the coming months. We look forward to supporting you and seeing you all very soon.”
Sidebar:
SEGA Comes to America – by Ed Adlum
For many legitimate reasons, most people consider SEGA to be a Japanese company. But it was really formed by a broad collection of expatriates back in Tokyo in the 1950s whose combined activities in operating, importing, distributing and finally manufacturing went into a mix officially molded together and called “SEGA” by 1960.
SEGA’s pioneers included Marty Bromley, Dick Stewart, Ray Lemaire, Scott Dodderer and a guy from Brooklyn named David Rosen. Since the U.S. industry already had a Dave Rosen in Philadelphia back then, we called this new chap Sega Dave Rosen. He would become the American face of the company beginning in the late ’60s when he brought to America a huge submarine shooting attraction called Periscope.
I worked at Cash Box magazine back then, from an office on Broadway in New York, right up the Great White Way from an arcade that distributor Al Simon ran. I checked Periscope out and my first thought was how the heck do you get something this big crated and shipped all the way over from Japan? I had no idea at the time how many SEGA games would be imported over the decades to come.
One of Rosen’s many talents was marketing, and he not only sold a surprising number of this made-in-Japan gun game but put it on 2-for-a-quarter play when most American games were set on dime play, 3-plays for 2-bits. When the first video games came out in 1973, single-quarter play began to arrive and a few years later, so did SEGA’s Monaco GP driver…another hit for this upstart “Japanese” gamesmith.
SEGA planted its manufacturing flag in the U.S.A. around the beginning of 1980 by buying a San Diego wall game manufacturer called Gremlin Games. (Gremlin was also famous for designing and building a maze video game called Blockade.) In June, SEGA called its U.S. distributors to a meeting at their San Diego plant to greet a respectable new Gremlin upright called Carnival (video shooter). At a press briefing, Rosen was asked if the video “gold rush” was a staple situation in coin-op or just a flash in the pan. His response was typical long-range Japanese business thinking:
“I don’t think there’s a man here who won’t agree that business for good video games has never been better. But, it’s also necessary to remember that this industry is cyclical and before long, pinballs will be coming back strong. Right now, our eyes are on the state of the video game throughout 1980, 1981 and the things we intend to do to keep that favor among operators.”
The coin-op world had become dominated by video games by then, and SEGA shelved Gremlin’s wall games and put video uprights like Xaxxon and other fine titles on the production line instead. The Gremlin brand name was discarded after a period and eventually, so was the San Diego factory when video’s boom days ended in the mid-80s, though SEGA had its share of video hits during the boom.
Eventually, the company turned to more deluxe items like the Daytona 500 driver, along with motorcycle games like Hang On. Such large attractions, along with merchandising machines, dominate their menu today.