Nintendo‘s pre-PlayStation dealings with Sony are a core thread in the story of the medium. The tale of how Sony engineer Ken Kutaragi designed the Super Famicom/SNES sound-chip is common knowledge. How Nintendo and Sony partnered up and fell out is a famous chapter in the story of the best-selling console brand of all-time. But there is a lesser known paragraph in the saga of Sony’s entrance into the home gaming space; a final snub from Sega before Sony decided to go it alone.
Context, Please
The idea that a company like Sega would refuse Sony’s advances in the gaming sector may seem absurd these days. Beyond their success in gaming and consumer electronics, Sony hold a sizeable catalogue of film, TV and music interests. In an era of cross-media devices and all-you-can-eat entertainment, such access would be nearly impossible to resist.
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In the late-1980s, when this story begins, Sony were almost entirely a consumer electronics company. They had seen massive success with their patented Trinitron televisions. They had revolutionised music consumption with their ‘Walkman’ line of personal stereos. But they had also hit a few bumps and a few roadblocks.
Betamax had tanked with consumers, being kept afloat by the professional and emerging prosumer camcorder market. Digital Audio Tape (DAT) had been frozen out by the American recording industry. Both suffered from the same issue, though on vastly different scales. It was a matter of a lack of pre-recorded content. Beta’s library was healthy but miniscule next to VHS. DAT had no music at all from major labels.
Sony began snapping up movie, TV and music studios and distributors as a result of this core failure. When they went to bat with a new format in future, they would have content to sell. Something that, thankfully, followed through into their gaming days.
But back to 1991
After Nintendo’s famous slap in the face at the 1991 Consumer Electronics Show (CES), Sony were faced with three options. Give up on the work they had done on CD-ROM console hardware and software, find a new partner or go it alone.
According to Tom Kalinske, former head of Sega of America, it was Sony who approached Sega. Sony brass Olaf Olafsson and Tom Schulhof discussed their mutual business-like hatred of Nintendo with Sega and suggested the two companies collaborate. Or conspire, take your pick.
For a couple of years, Sony Imagesoft produced games for Sega’s machines. Sony would show particular support for Sega’s 16-bit CD add-on with their twenty-one Mega-CD/Sega CD titles being the largest contribution from a third party on the system. Some of these Mega-CD games are said to be based on ill-fated non-releases for Nintendo’s CD-ROM platform.
That same US Gamer article cites Sony and Sega’s belief that the fifth generation system of hardware should use CD-ROM as their primary medium. Sega and Sony had a burgeoning partnership and a common goal that both parties had tandem and individual experience in. Sega of America (SoA) and Sony’s engineers made some preliminary technical plans which were approved by Ken Kutaragi.
A Hard ‘No’
When Tom Kalinske brought the hardware plan to Sega of Japan, he met with firm rejection. Sega of Japan’s board cited Sony’s lack of experience in the console hardware realm. Despite the work Sony had done on CD-ROM with Nintendo and Sega, SoJ did not see any value in the partnership.
The reasoning behind this pivotal decision has debated over the years. Some suggest a spitefulness from SoJ over Sega of America’s massive success in North America. There are accusations that Sega of Japan believed that Tom Kalinske had forgotten who was in charge after a period of being let loose by Hayao Nakayama. And that SoJ were putting the foot down to put Kalinske back in his place.
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However, the context mentioned above makes Sega of Japan’s rejection a little more understandable. Sony’s presence in the gaming market at the time was growing but still tiny. While they were growing as a media presence at large, they were still mostly a consumer electronics company. Their expertise in gaming hardware was mostly in CD-ROM as a storage medium.
In addition, by losing money together on hardware, they would need to make money together on software. Sega was happier to take all of the loss if it meant taking all of the gain as it had done in the past.
Immediate Consequence
Kalinske took the decision hard. His foresight had been rejected in what he later described as ‘stupidest decision in the history of business‘. He felt that SoJ no longer trusted him and, worse, that they were incapable of making the right choices. A rift between the Sega of America and Sega of Japan opened and with it, Sega’s long, painful decline began.
Sega stumbled, almost non-stop, for the next few years. Tom Kalinske found himself undermined time and time again. For example, mid-way through the fourth generation, he had stated that launching a console above $300 would make selling it very difficult. SoJ essentially hid their fifth-gen. monstrosity Saturn from Kalinske until it was almost on Japanese shelves at an astronomical price.
SoA would have to release Saturn in the US at $399; underpriced considering the exchange rate of Yen to US dollars in May 1995. Just as Kalinske predicted, it proved extremely tough to sell.
A Later, Terminal Consequence
Another debate centres around another realm of business-like spite. Sony had been burned twice and some say they were so mad, they made PlayStation and lived happily ever after. However, it’s far more nuanced than that.
Sony had seen success after success in their media empire, including within their growing gaming business. Ken Kutaragi himself had seen his star rise inside of Sony. His personal belief in the potential of the gaming industry as well as his interest in the medium were being taken more seriously. While his 1988 work on Super Famicom’s sound-chip had been (allegedly) under the radar, by 1992 Sony were actively moving towards gaming.
It’s likely that Sony would have continued on the path to systemhood regardless of how upset they were about Sega’s rejection. The hard ‘no’ from Sega of Japan just meant Sony had to go it alone.
But it is fair to say that Sega had unknowingly crafted their destroyer. Their partnership had fostered Sony’s gaming media plans and helped them build a little more experience in the sector. Spite or no, Sony had a shot and were willing to take it on their own.
Annihilation
Sony PlayStation outsold Sega Saturn by a ratio of 10:1. Sega’s malaise began with the schism and its decline only accelerated with the two Segas’ continued refusal to cooperate. Kalinske left Sega in 1996, his successor killed Saturn with loose talk and Dreamcast experienced a chilling effect never seen before or since.
A decade hadn’t passed since SoJ said ‘no’ and Sega exited the console hardware market.
We hope you enjoyed this depressing entry in our Pivotal Decisions series. Was this pivotal decision made for purely business reasons? Or do you entertain theories of jealousy from Sega of Japan? Were they putting the foot down? How motivated were Sony by spite or is it a slightly xenophobic stereotype that Japanese businessmen will risk a multibillion-dollar company because they felt dishonoured?
