Sega and Sony: New Insight into the Partnership That Never Came to Be

[gamevet]

Speaking of back stabbing. Sony purged several of SEGA of America’s executives to manage SOA.

[Team Andromeda]

Speaking of back stabbing. Sony purged several of SEGA of America’s executives to manage SOA.

They did the same with SEGA Europe PR staff too . Mind you I would imagine SEGA done the same over the years, I remember SEGA purging some of Namco's staff, I'm sure SEGA looked to take on some of Atari staff too
and were all remember the days when SEGA wouldn't allow staff to use their real names in the end credits for fear of being headhunted lol and of course SEGA did backstab 3DFX

[gamevet]

SEGA did hire Atari executives.

[Gryson]

Speaking of back stabbing. Sony purged several of SEGA of America’s executives to manage SOA.

Pretty much business as usual, although it didn't work out for them! Steve Race (of $299 fame), the main guy who Sony poached, didn't last beyond mid-1995.

The stories of conflict between Kutaragi / Japanese management and Sony of America are incredible. They really show company internal conflict (nothing like what we see with Sega):

American management came to raise objections and reject everything that was decided in Japan and eventually insisted that they would handle all matters concerning the market in the United States. As Kutaragi put it, "Our intentions and their judgments were at cross purposes every time."

The reason things had come to such a juncture is that authority over the U.S. market did not reside in Japan at the time. From the beginning, the Sony of America subsidiary included SEPC (Sony Electronic Publishing Company, New York), which... was given responsibility for licensing activities and marketing, as well as sales, for the PlayStation in the U.S. market. The problem was that the president of SEPC raised objections time and again to the actions taken in Japan.

First he objected to the color of the console. [He] insisted that gray was unacceptable in the U.S. market, and that the console must be white. Neither did he like the design or the logo mark. Their approach was to object to everything on grounds such as the results of market research: "We can't accept such an unusual controller. The design is too small for American hands." What is more, they insisted that they would set the U.S. list price themselves and they disapproved of the name PlayStation. The "Play" in PlayStation, they said, was reminiscent of "Playboy" and might be misconstrued. With one issue after another, the criticism was relentless.

Regardless of how many problems arose, there could be no resolution, because SCEI in Japan and the Sony of America subsidiary SEPC were under different chains of management authority. As Kutaragi relates, "Moreover, the adversary was the president of Sony of America. I was just another employee." Kutaragi and the president of SEPC held completely different perceptions of the game business... People in the United States were making comments like "You people don't have the ability. There's no place for Sony in the game market. It's Sega that will survive in the U.S." The president of SEPC continually counseled even Ohga that Sony should cooperate with Sega. In fact, newspapers in the U.S. on May 20, 1993, gave extensive coverage to an SEPC announcement that it would offer software for the Sega platform.

The two sides were in particular disagreement concerning policy on software pricing. The Japanese wanted to lower software prices. But the American side insisted that prices must be raised. Why were opinions so divided? U.S. executive management were all veterans of the game industry, and they decided everything based on existing models and past knowledge and experience. But the PlayStation represented the repudiation and overthrow of the status quo in the game industry.

Kutaragi appealed to Ohga himself time and again that unless responsibility for the U.S. market were consolidated in Japan, the business couldn't possibly be successful.

As quickly as possible, SCEI must bring responsibility for the U.S. market under the SCEI management umbrella so it could create a structure in which it could decide on the marketing and licensing of its own products. To forge ahead in the U.S. market, they must completely wrest control of the PlayStation away from Sony of America.

...Maruyama carefully assessed the likelihood that U.S. management would respect the intentions of management in Japan. He concluded that it would be impossible for managers steeped in the conventions of the game industry, and he decided to replace the lot except for a select few. In January of 1997 [book says 1997, but was actually Jan 1996], Sony established subsidiary SCEI America in San Francisco, simultaneously replacing most of the managers and launching a new management team. Maruyama comments: "We swept the organization clean of all the old obstacles. We realized that we had to manage our own business."

"Success overseas became possible only because these changes were made," declares Kutaragi.

[Team Andromeda]

The stories of conflict between Kutaragi / Japanese management and Sony of America are incredible. They really show company internal conflict (nothing like what we see with Sega):

All corp will have some infighting. I remember EDGE reporting on various bust-up's between SCEE,SCEI and SCEA with the likes of SCEE not happy with having to wait for their Performance Analyser on the PS2 and meant to have been peed off with Konami getting one (to help with MGS 2) before SCEE.
And let's all remember why Olaf Olafsson left SONY in 1995. He had enough of fighting SONY Japan over pricing and didn't just leave SONY, but the industry altogether . NEC America and Japan were meant to have busts ups and SNK Japan and America bust-ups with the think of legend

[Gryson]

Olafsson resigned in Feb 1996. He was probably forced out.

Published Feb 5, 1996:

Foster City, Cal.--Olaf Olafsson has resigned as chairman of Sony's Technology Strategy Group after four months. No successor has been named.

At the same time, Martin Homlish, president of Sony Computer Entertainment America, is changing jobs. He will return to Sony Electronics, in Park Ridge, N.J., the consumer electronics unit, where he will oversee a pair of new business ventures yet to be named, the company said. According to a spokesman, he chose not to move his family to northern California, where the computer entertainment unit is based.

His duties have been assigned to Shigeo Maruyama, who was named chairman of Sony Computer Entertainment America, a new post.*

This is exactly what Maruyama is referring to when he says "We swept the organization clean."

Referring to Martin Homlish, "...he chose not to move his family to northern California" is code language for "We fired him from his post but let him hang on doing something else."

Olafsson probably didn't want to take a demotion, since he was young and promising and could easily land a better job.

Edit: Here's an interesting article on how to tell if a CEO was actually fired: https://corpgov.law.harvard.edu/2017...t-voluntarily/


*https://www.thefreelibrary.com/Olafs...ny.-a017930817

[Team Andromeda]

Olafsson resigned in Feb 1996. He was probably forced out.

Published Feb 5, 1996:



This is exactly what Maruyama is referring to when he says "We swept the organization clean."

Referring to Martin Homlish, "...he chose not to move his family to northern California" is code language for "We fired him from his post but let him hang on doing something else."

Olafsson probably didn't want to take a demotion, since he was young and promising and could easily land a better job.

He had enough of the fighting with SONY Japan over the price . And you are right SONY did clean out a lot of staff. They closed down SONY Canada and fired SONY America's mouth piece Jim Whims and also got rid of SONY Europe then-President Steve Race along with Clyde Grossman with SONY Japan having enough of the high spending on PR and selling console at a huge loss by both Sony America and Europe. It was also reported that SONY Japan was enraged with the E6 1996 price cut, that they knew nothing about or approved.

But I would imagine that happens with most subsidiaries or local outlets; All will think they know best and all will be under huge cost pressures from HQ

[Team Andromeda]

For a bit of fun, Here's the last Interview Tom gave EDGE in the same month he left SEGA. I like how he contradicts himself over the N64 Hardware (when remember TOM you were offered it 1st) and over Cartridges (when remember Tom the 32X used carts) Listen to Tom in Retrogamer he also left SEGA because the Saturn didn't offer the internet (when remember Tom it did and you're prasing it here) on btw Atari did have wide spead 3rd party support and also was hugely successful untill the Crash. Tom doesn't even know his video game industry

[gamevet]

Atari didn't have licensed 3rd party support, it had companies that managed to make cartridges that didn't provide profit for Atari. Nintendo used a lockout chip to prevent outside publishers from releasing garbage games, and 3rd party publishers were forced to pay Nintendo for the rights to publish games on their console. That's a huge difference from what you are implying.

https://motherboard.vice.com/en_us/a...ndo-sega-atari

[Leynos]

Atari didn't have licensed 3rd party support, it had companies that managed to make cartridges that didn't provide profit for Atari. Nintendo used a lockout chip to prevent outside publishers from releasing garbage games, and 3rd party publishers were forced to pay Nintendo for the rights to publish games on their console. That's a huge difference from what you are implying.

https://motherboard.vice.com/en_us/a...ndo-sega-atari

doesn't even know his video game industry

lol

[Da_Shocker]

You can't just ban TA for being massively annoying. He hasn't violated the TOS. But back on topic this was indeed an interesting read. What I got from it was that SoJ had already had discussions with Sony in Japan before Tom. Tom didn't know anything about it so he made the suggestion to them and was shot down. Sony seemed to ultimately wanted to gobble up Nintendo or Sega eventually.

I don think Japan was incompetent but they didn't seem to interested in actually learning how the American and Europeans market work. The story about the Game Gear was very telling to me. Japan was hell bent on no selling the GG to a lower price to SoE. Prices are extremely important in these markets. I remember reading Next Generation Issue 03 (still got it) that said the Saturn sold out on launch day at 200K units at 44,800 yen which is an eye watering 469 usd with no game included. That is $808.15 in 2019 if anyone wants to know. Notice how the PSx was launched in the US at 299.99. Also look at how the Nintendo 64 was released at 199.99. They seemed to get it that other countries were particularly price sensitive.

[gamevet]

Pretty much what you said Da_Shocker is spot on.

Kalinske had to convince SOJ to pack-in Sonic the Hedgehog and lower the price of the Genesis, and they'd bent to his will. Then along comes the surprise 1994 launch of the Saturn in Japan, totally derailing SOA's plans for the 32X.

I have no doubts that Olaf and Tom had discussions about an alliance between Sony and Sega. Sony had invested money into Digital Pictures and did fund SOA's Multimedia Studio. There was already an American partnership between the 2 companies.

[Gryson]

I don think Japan was incompetent but they didn't seem to interested in actually learning how the American and Europeans market work. The story about the Game Gear was very telling to me. Japan was hell bent on no selling the GG to a lower price to SoE. Prices are extremely important in these markets. I remember reading Next Generation Issue 03 (still got it) that said the Saturn sold out on launch day at 200K units at 44,800 yen which is an eye watering 469 usd with no game included. That is $808.15 in 2019 if anyone wants to know. Notice how the PSx was launched in the US at 299.99. Also look at how the Nintendo 64 was released at 199.99. They seemed to get it that other countries were particularly price sensitive.

Japanese management always accepted that they didn't know the foreign markets - that's why they built up the foreign daughter companies and hired locals to run them (this was very exceptional for Japanese companies at the time - compare with Nintendo!). Japan did not "sell" their products to the foreign branches. It was all one company. Japan manufactured the consoles, so they had to consider the bottom line: if we sell this console for this price, will we be able to profit from it? It was a simple formula: they had a prediction for how many games would be sold per console, and if the profit from that didn't exceed the loss on the hardware, then it was a bad business move. Sega's weakness was always in manufacturing, and that is reflected in the high cost they were paying for the hardware. Read more here:

http://www.sega-16.com/forum/showthr...new-interview)

Then along comes the surprise 1994 launch of the Saturn in Japan, totally derailing SOA's plans for the 32X.

Not sure where you're getting your info, but there was no surprise launch of the Saturn in Japan. There's a very clear written record (newspapers, magazines, pretty much everywhere) dating back to September 1993 that stated the Saturn would launch by the end of 1994 for around 50,000 yen. It's kind of hard to hide a new console launch. Sega was coordinating with dozens of third party developers around the world. Trust me, everybody knew at least a year in advance when the Saturn was going to come out.

[gamevet]

Japanese management always accepted that they didn't know the foreign markets - that's why they built up the foreign daughter companies and hired locals to run them (this was very exceptional for Japanese companies at the time - compare with Nintendo!). Japan did not "sell" their products to the foreign branches. It was all one company. Japan manufactured the consoles, so they had to consider the bottom line: if we sell this console for this price, will we be able to profit from it? It was a simple formula: they had a prediction for how many games would be sold per console, and if the profit from that didn't exceed the loss on the hardware, then it was a bad business move. Sega's weakness was always in manufacturing, and that is reflected in the high cost they were paying for the hardware. Read more here:

http://www.sega-16.com/forum/showthr...new-interview)

Yeah, and what he's saying there supports why Bernie Stolar said that the Saturn wasn't the future of Sega. Sega was losing money on every console sold and didn't have software sales to overcome those losses. The Saturn didn't have a future, and some members here seemed to believe that Stolar sabotaged it, when in fact, he was cutting the albatross from around Sega's neck.

Not sure where you're getting your info, but there was no surprise launch of the Saturn in Japan. There's a very clear written record (newspapers, magazines, pretty much everywhere) dating back to September 1993 that stated the Saturn would launch by the end of 1994 for around 50,000 yen. It's kind of hard to hide a new console launch. Sega was coordinating with dozens of third party developers around the world. Trust me, everybody knew at least a year in advance when the Saturn was going to come out.

SOJ told SOA that they didn't think that the Saturn would be ready for a 1994 launch. SOJ launched the Saturn on November 22nd, one day after the launch of the 32X in North America. SOJ also delayed the launch of the 32X until December of that year.

https://en.wikipedia.org/wiki/Sega_Saturn

In January 1994, Sega began to develop an add-on for the Genesis, the Sega 32X, which would serve as a less expensive entry into the 32-bit era. The decision to create the add-on was made by Nakayama and widely supported by Sega of America employees.[6] According to former Sega of America producer Scot Bayless, Nakayama was worried that the Saturn would not be available until after 1994 and that the recently released Atari Jaguar would reduce Sega's hardware sales. As a result, Nakayama ordered his engineers to have the system ready for launch by the end of the year.[6] The 32X would not be compatible with the Saturn, but Sega executive Richard Brudvik-Lindner pointed out that the 32X would play Genesis games, and had the same system architecture as the Saturn.[31] This was justified by Sega's statement that both platforms would run at the same time, and that the 32X would be aimed at players who could not afford the more expensive Saturn.[6][32] According to Sega of America research and development head Joe Miller, the 32X served a role in assisting development teams to familiarize themselves with the dual SH-2 architecture also used in the Saturn.[33] Because both machines shared many of the same parts and were preparing to launch around the same time, tensions emerged between Sega of America and Sega of Japan when the Saturn was given priority.

McFerran, Damien (2010). "Retroinspection: Sega 32X". Retro Gamer. No. 77. pp. 44–49. Scot Bayless: The 32X call was made in early January [1994] ... There's a part of me that wishes the Saturn had adopted the 32X graphics strategy, but that ship had sailed long before the greenlight call from Nakayama.

It's a pretty well known story around here.

[Team Andromeda]

That is $808.15 in 2019 if anyone wants to know. Notice how the PSx was launched in the US at 299.99. Also look at how the Nintendo 64 was released at 199.99. They seemed to get it that other countries were particularly price sensitive.

Not always. Lets remember $599 for the PS3 and in Europe Nintendo had to slash the price of the N64 by £100 less than a month in (Microsoft also had to do the same for the OG Xbox too ) and I seem to remember Nintendo having to slash the price of the 3DS and selling it at a loss (a 1st for Nintendo) due to poor sales. The launch price of PS in the USA and Canada made SONY Japan utterly mad and made SONY Japan close down its HQ in Canda and replace a lot of the USA top Staff at the time.

Subsidiary or evenn Local branches will always be under cost pressures, not just Internationally either. My mate's father had to go on the sick and was in Hospital for over a month with stress, with the pressure of being a manager for the local branch of a huge Supermarket chain in the UK (UK owned too) and having to always handle the cost vs price issues of his local branch compared to others across the country and handling the pressure from HQ

Its not just in the video game industry either. I see the much the same played out on the car industry and also the high price of the Yen used too (when it suits a corp)