From Bedrooms to Billions: The PlayStation Revolution

In many American homes, there is a reasonable chance

that the video game Nintendo is hooked up to the television set you're watching.

There were more Nintendos bought for children last Christmas

than any other gift.

Die, please die. Please die.

And one in every three Japanese homes has Nintendo as well.

In some ways, Nintendo's history is modern Japanese history.

For most of its 99-year history,

Nintendo made board games and playing cards.

Traditional products for a traditional way of life.

In Japan and America, tradition has given way to craze.

Game preparation exercise! One! Two!

Three! Four! Five!

Six! Wow!

Nintendo was very smart about it.

They dipped their toe in the market in 1984, in New York,

just 10% of the country,

and established that there was a market for quality gaming.

They started with a very high-end little robot,

and they sold 100,000 in New York in the first year.

Up. Down.

Right. Left.

And Nintendo, I think, were the first company to appreciate

that they need to treat their consumers as if they're selling them a toy,

that needs to bring people pleasure and joy.

They worked very hard with the retailers

to get the products stocked and distributed in breadth and depth.

And the second thing is, they put a huge amount of money behind Mario.

Super Mario Brothers.

It was a Nintendo-dominated business.

And I was working at Sega at the time,

and our market share with the Master System was 4%.

Nintendo had 94%

and there was some Atari system lingering on that had 2%.

And 4%, that's crazy.

That's Mom going to the store

and buying a Master System rather than an NES

because she just doesn't know that there are two types of systems out there.

Sega really took time to self-reflect,

and they wanted to understand how they could better tackle the market.

They looked at where they succeeded, where they failed,

and they kind of reinvented themselves a little bit.

The reason, I think,

Sega had any kind of chance at all against Nintendo

was because they had amazing software development divisions.

But their focus was arcade.

I think Sega probably thought that with the skills they have,

there was another market they could take their games to.

We were going to try to leave Nintendo with the younger kids

and position ourself as the teen and college-age machine.

The Nintendo system's brain is an 8-bit computer chip,

a technology rapidly becoming outmoded.

Nintendo has a more powerful 16-bit system already hot in Japan,

but it won't arrive in the States till late next year.

The 16-bit Genesis system by Sega. Genesis does it all.

"Sega does what Nintendon't."

And so that was the famous phrase that we had,

and we would show different visuals

of something that we could do with Sega Genesis

that Nintendo didn't do with their 8-bit system.

And so, we were very much going after Nintendo right from the beginning.

Sega's Genesis is Nintendo's nemesis.

It's one of two 16-bit systems that are already in the US.

Sega clearly hopes to leapfrog Nintendo

by touting 16-bit's advantages.

There was an element in all their marketing, all their promotion,

their TV ads, their print ads,

where they went for style over substance,

and it almost made Nintendo look a little bit dated.

Sega!

Sega's marketing campaign absolutely resonated with me,

because being somebody who was fairly tech-oriented

and interested in the advancement of graphics, I wanted the best.

I wanted experiences that were going to surprise me, were going to take me

beyond what I had been playing for the last four or five years.

So they promised that you could get the arcade experience,

not in the arcade, but in your home, through the Sega machines.

So when the market moved from 8-bit to 16-bit,

with the introduction of the Mega Drive/Genesis,

Super Nintendo/Super Famicom devices in the late '80s,

then we had a market that was really taking off.

The graphics were becoming more realistic,

the games were becoming deeper and more sophisticated,

and you had two companies that were well financed,

that were taking each other on in the marketplace.

So, when you have two fighting head-to-head, the whole market grows.

And suddenly, games became a big mass market entertainment proposition.

Although the games themselves were still relatively simple

and appealed to a relatively narrow demographic,

everybody knew what Sega and Nintendo was about.

At Sega, we knew at some point

that cartridges with a limited amount of memory,

or very expensive memory,

was going to have to give way to optical media,

where you had much larger memory.

Interesting.

The encoded information on this disc

is read by a laser beam.

Hmm.

The problem was that cartridges as a format

went up in increments of about eight meg,

and there's only so much visual data you can get on those

without the cartridge getting more and more expensive for the consumer.

So, consequently, people felt

that if you're going to improve the graphics or add the movies

that they felt everyone wanted,

you had to do it via streaming from a CD.

So, Sega came in with this bolt-on called the Mega-CD.

And it basically allowed you to play CD games

with your Mega Drive controller

and using the processing power of the Mega Drive.

We were convinced that the audience was going to want to enjoy

music, animation, full-motion video,

and now we had to develop games.

Sony had approached us.

They had a studio down in Santa Monica.

They wanted to work with us,

and they understood that the future was going to be

with some kind of optical disc medium.

Sony had ventured into distribution of game software

to line up with its distribution of

movie software and music software.

That was called Sony Electronic Publishing.

It was set up under Sony of North America,

who reported at the time to Mickey Schulhof

and the management of that, Sony Electronic Publishing,

was assigned to Olaf Olafsson.

They not only built a distribution network,

but they also built some in-house game development capability.

Sony Imagesoft made mostly horrific,

but sometimes really good, but mostly terrible games

for other platforms based on Sony properties.

More often than not, Sony Pictures.

So, we did, like, Dracula Sega CD, which was horrible,

and Last Action Hero, and, like, Cliffhanger.

And if you want to see one of the ugliest games of all time,

look at Cliffhanger for Game Boy.

It is just abysmally horrific to look at and play.

Every now and then we would pump out an amazing game

or publish an amazing game, like...

I thought Hook was great, from the movie.

We did a game called Skyblazer, Equinox, Solstice.

But more often than not, they were terrible.

And so, we formed an alliance where we would each fund six games,

and they would fund three and we would fund three.

Or it might've been eight, and we funded four and they funded four.

But it was something like that.

And so, that was the deal we struck with Sony.

Don't you love the smell of the sewers in the morning?

They smell like victory!

The trouble is that the games that came with it

were largely just FMV exercises,

so you ended up with Kriss Kross: Mix Your Own Video,

which was where you used the controller to edit together Kriss Kross videos.

And there was Night Trap,

where you flicked between a number of security cameras

to save girls from these bizarre kidnappers.

But the quality of the movies was so grainy,

it immediately took you out.

So, on the one hand, you've got the relatively pristine graphics

of something like Road Rash,

but in order to get to Road Rash,

you then have to go to some dreadful movie, which is,

you know, smeary and blurred, and looks like an eighth-generation VHS.

Ken Kutaragi had had an incredible career

inside of Sony up to this point.

He was very interested in sound processing and signal processing,

and inventing new sound formats

that were powerful and possible with new silicon technologies.

And that led to the collaboration with Nintendo,

where Sony made the sound chip

that went into the Super Famicom and the Super Nintendo.

Through the partnership

on the sound chip for the Super Nintendo,

Sony and Nintendo entered into a contract to develop some new technology.

The first was going to be a disc drive that Nintendo would sell,

which would be an add-on to the Super Famicom/Super Nintendo device.

And Sony would sell a combined console and drive, all in the same machine,

that was called the Sony PlayStation.

So he was getting more and more into console design,

and Ken could see that

putting console games on CDs was the way forward.

When they came to write up the actual joint venture,

Sony said, "Well, we'll make the disc"

"and we'll charge the $8 royalty and collect it,"

"and, you know, we'll figure out how to split that."

"And you can make the cartridges"

"and you can charge the publisher the $8 royalty,"

"and then we can talk about how we share the profits on that."

And Nintendo said, "Wait a minute. Stop the music."

"We make the tollbooths."

"You can make the discs, but you're not making a tollbooth."

"We make the tollbooths."

"We'll sell the discs, just like we sell the cartridges."

"We'll charge the $8, whether they buy a disc or a cartridge."

Sony and Nintendo were uneasy bedfellows,

and I think that Nintendo's view

of what Sony's position was in developing this thing for them

differed from what Sony probably hoped was going to be a foot in the door.

Sony and Nintendo were working together