by Steven Kent
They pulled me aside and said, “We want to let you know that we think you’re making an enormous strategic mistake by getting involved in the video game business again.” Now these are three Atari reps who made millions of dollars in the video game business already. They said, “Listen. WOW is the hottest company in the world right now. You’ve got the hottest toy company in the world right now. The video game business is a black smear and it’s just gonna drag you down into the abyss.”
And I’ll always remember that discussion.
The obvious answer was, “Well, listen, I’m glad you feel that way, but I have to tell you, if you want to sell Teddy Ruxpin and you want to sell Laser Tag, you’re gonna sell Nintendo as well. And if you feel that strongly about it, then you ought to just resign the line now.”
—Jim Whims
As Arakawa expected, the association brought new clout to Nintendo. Worlds of Wonder representatives had access to all of the top buyers. Suddenly, demonstrations of Teddy Ruxpin and Laser Tag expanded to include the NES as well. By that time, however, a new competitor had arrived on the scene.
An Old Competitor
Yes, the Master System was a better piece of hardware than the NES. Remember, they had two extra years to develop it.
—Peter Main, vice president of marketing, Nintendo of America
The NES was not the only Japanese game console introduced in the United States at that time. In October 1986, Sega introduced a console called the Master System that featured the Zilog Z-80 processing chip and 128K (“K” in this case stands for kilobits which are one-eighth the size of the kilobytes normally referred to as “K”.) nearly twice the memory of the NES. The Master System’s additional memory and microprocessor made it more powerful than the NES.
Though it was a more powerful unit, Sega’s Master System, marketed as the Mark III in Japan, had not fared well in that country, where Nintendo controlled more than 90 percent of the market.
Unfortunately, it was probably launched about a year and a half to two and a half years, maybe two years after Nintendo. By that time, it was a Nintendo culture in Japan, and it was very, very difficult to launch a similar technology in Japan.
—David Rosen, chairman, Sega Enterprises, Ltd.
The controllers that came with the Master System appeared to be patterned after NES controllers—rectangular, with a directional pad rather than a joystick. In what appears to have been a small concession to the previous generation of game systems, Sega also manufactured tiny joysticks that could be screwed into the center of the directional pads.
Sega planned to market two forms of game media for the Master System. The first was standard cartridges. The other was a plastic card that looked like a credit card with little metal connections on one end. The cards could not store as much data as cartridges, but they sold for less. In the end, however, Sega published very few games on cards.
Like Nintendo, Sega was a company with a strong arcade presence. Sega’s long line of hits included early favorites such as Astro Blaster, Monster Bash, and Turbo, as well as classics such as Pengo. Sega distributed Frogger in the United States, though the game was created by Konami. One difference between the two companies is that while Nintendo slowly pulled away from its coin-operated games business, Sega remained very committed to making arcade games. Within the next few years, Nintendo focused all of its development efforts into making cartridges for the NES. Sega, on the other hand, had never launched a consumer product in the United States. Instead, it had licensed games to companies such as Coleco, while continuing to create games for arcades that could then be translated into home games.
To attract consumers, Sega packed a home version of Hang On, the number-one game in arcades, with the Master System. Hang On was a motorcycle racing game that did not translate well to the constraints of a home system. The arcade game had handlebars for controllers. A deluxe version even had a model of a motorcycle upon which people sat as they played. The home version seemed slow and plain in comparison.
The Battle
Now you are playing with power!
—Nintendo’s advertising slogan
Now there are no limits!
—Sega’s advertising slogan
The marketing arm behind Sega’s American release was considerably smaller than Nintendo’s. Formed in April 1986, Sega’s consumer products division consisted of two men, Bruce Lowry and Bob Harris, working with a couple of administrators out of a small room in the back of the company’s coin-operated games offices.
Lowry and Harris arranged for advertising and set up demonstrations for retailers. Harris, who had come from the J. Walter Thompson advertising agency, helped create the packaging for the Master System. Within two months of joining Sega, Harris and Lowry had to set up and man an 1,800-square-foot booth at the Summer CES in Chicago. Some show attendees had never heard of Sega, and a few mistook the company for Saga Foods, commenting that it was strange that a food distributor would enter the video game business.
Although the Master System was not as widely distributed as the NES, it could be found in most major cities across the country in time for the holidays. Many electronics stores displayed the NES, the Master System, and the recently re-launched Atari 7800 side by side. Of the three game consoles, the Atari 7800 was the least expensive. Since it played both 2600 and 7800 games, it also had the largest library. The problem was that all of the games for the 7800 looked obsolete when compared to the top games for the two newer systems, and the 7800 eventually disappeared from store shelves.
The Master System was the most expensive of the trio, selling for about $10 more than a similarly equipped NES. The NES Control Deck, which included the console, two controllers, and a Super Mario Bros. cartridge, sold for $129.95; the basic Master System package sold for $139. The Nintendo Action Set, which included everything in the Control Deck packaging plus the “Zapper” light gun and the game Duck Hunt, sold for $149, as did the Master System and gun set, which included the “Light Phaser” and the game Safari Hunt.
Nintendo had several advantages right from the start. The marketing clout Nintendo received from its association with Worlds of Wonder opened doors to retailers, which remained closed to Sega. Anyone who wanted to sell Teddy Ruxpin and Laser Tag, including Sears and Toys “R” Us, was going to hear about the Nintendo Entertainment System.
Nintendo also had a stronger identity. In 1981, the biggest year of arcades, Donkey Kong was second only to Pac-Man in popularity. A Donkey Kong cartoon show had aired on television, and Nintendo made succeeding games that featured Donkey Kong and Mario as heroes. Also, Nintendo arcade games all looked very similar. They had similar cabinet designs, the same style of art, and often the same themes. When Nintendo broke from its traditional Mario-style game with Punch Out in 1983, Donkey Kong could still be seen sitting in the audience. By doing this, Nintendo established an identity and created mascots that would remain valuable through the next decade. Though Sega broke into the U.S. arcade market before Nintendo did and had more games in its library, no theme ran throughout these games. They included everything from race cars to jet fighters.
Nintendo’s biggest advantage was its library of games, and the advantage was apparent right from the start. Super Mario Bros. was more popular in arcades than Hang On, and Nintendo did a much better job of capturing its game in the home version. People went to stores asking for the “new video game system that plays that Mario game.” Very few people ever seemed aware of the Hang On cartridge.
There were seventeen games—all Nintendo games or games that Nintendo had licensed—that we were marketing as Nintendo games. The hardware had some software, along with the robot, packed in. But there were seventeen cartridges created, including Super Mario Brothers, Baseball, Tennis, and Golf. There was a karate game, Kung Fu, and Donkey Kong Math. It was our educational series.
—Howard Lincoln
Nintendo’s software advantage ran deeper than just the packed-in game. With Donkey Kong, Donkey
Kong Junior, Golf, and Popeye, Nintendo had a substantial list of its own arcade games. Internally developed products, later referred to as “first-party” games, would eventually become a defining component in the operation of a video game company.
Hiroshi Yamauchi recognized the importance of setting up strong relationships with successful game publishers and arranged exclusive partnerships with Bandai, Capcom, Hudson, Konami, Namco, and Taito. (Although Bandai [a leading Japanese toy manufacturer], Taito [publisher of Space Invaders], and Namco [publisher of Pac-Man] were the most respected names at the start, Capcom and Konami eventually emerged as Nintendo’s most influential partners during the 1980s.)
Shortly after the NES’s national launch, Capcom released home versions of such arcade games as Trojan, Ghosts ’N Goblins, and 1942. The text in many of these games was hastily translated and often contained grammatical errors.
The Hunt for American Software
I think there may have been three or four licensees in the marketplace at that point, but no more than that. We were the seventh licensee that Nintendo had in the U.S. and the first U.S. company that Nintendo did business with.
—Greg Fischbach
Although several top Japanese game companies signed licensing agreements with Nintendo, the American companies showed little interest. Game publishers such as Sierra On-Line, Broderbund, and Electronic Arts were more interested in making games for computers than for consoles, and toy companies like Milton Bradley and Mattel had left the industry entirely.
And the entertainment companies like 20th Century, Paramount, and some of the other companies that had been involved in the video game business in 1982, 1983, and 1984 had been burned badly and therefore weren’t too interested in coming back into the business again. So they wanted to shy away from it.
—Greg Fischbach
We spent a lot of time in the spring of 1986 trying to convince American software publishers, Electronic Arts, Broderbund, and Activision as an example, [to make games for the NES]. We were trying to say, “Hey, we got this great licensing program, and we want you to be part of it. This is the deal.” And none of them took it.
We ended up with four companies, all of whom were actually subsidiaries of Japanese companies. They were all coin-op companies—Data East, Konami, Capcom, and Bandai—and all of them were licensees of Nintendo Company Ltd. in Japan.
—Howard Lincoln
One interesting twist from the early days of Nintendo occurred when Lincoln and Arakawa visited Activision. They demonstrated the NES and discussed their business model and how they planned to avoid the traps that destroyed Atari. One of the executives at the meeting was Greg Fischbach, vice president of Activision’s international group. Fischbach approached Arakawa after the meeting, and the two men discussed Nintendo’s licensing deal. Not long after the meeting, Arakawa received a call letting him know that Activision was not interested in making games for the NES.
Greg Fischbach was president of the international department, and he attended the meeting. Then after the meeting we tried to sell Fischbach on why we wanted them to become a licensee. Later we found out that Greg Fischbach reported to the president of the company or chairman that he shouldn’t do it.
—Minoru Arakawa
One reason companies would not sign licensing agreements with Nintendo was that the terms of the agreement seemed entirely one-sided. Yamauchi had analyzed Atari’s downfall and decided that Atari had allowed it to happen by letting the market flood with mediocre games. To prevent this from happening to Nintendo, Yamauchi implemented strict controls. Atari was caught off guard when companies like Activision and Imagic began making games for the 2600. To prevent this from happening to his system, Yamauchi protected it with a security chip that locked out unauthorized cartridges. This meant that the only way to make games for the NES was to allow Nintendo to manufacture them, and Nintendo maintained final authority in deciding which games would be manufactured and in what quantities.
Most U.S. businesses weren’t too interested in Nintendo’s trading charges, which required that you purchase all of your inventory requirements from Nintendo, that you purchase them in Japan, and that you purchase them for a fixed price. In essence, Nintendo really controlled how much inventory was put into the marketplace. [The company] also made you open up a letter of credit guaranteeing payment for the goods at the time that you made the order.
If you came out of the toy business, like Hasbro and Mattel, that really wasn’t the way you did business … especially if you were the size of Hasbro or Mattel.
—Greg Fischbach
At the same time that he courted established companies, Arakawa was not entirely cooperative with the lesser-known companies that approached him. When approached by small design houses, he sometimes authorized companies to make games for the NES without giving them the design specifications they needed to understand the system.
The first American company to sign a licensing agreement with Nintendo was Acclaim Entertainment. The agreement was signed in 1988. Amazingly, Acclaim got the agreement before it ever published a game.
Three ex-Activision executives—Jim Scoroposki, Rob Holmes, and Greg Fischbach—founded Acclaim. Fischbach, the vice president who wrote the memo cautioning against involvement with Nintendo, left the company in 1986 and moved to New York to take a job with RCA Records as president of RCA International. When the company was bought out seven months later, Fischbach lost his job.
During his tenure with RCA, Fischbach kept in touch with Holmes and Scoroposki and met with Scoroposki socially. One day over lunch, Scoroposki mentioned Nintendo. He had visited the Nintendo booth while attending the Winter CES in Las Vegas, and had come to the conclusion that the company really might restart the video game business. He believed that Nintendo might sell two or three million NES decks and that retailers would be clamoring for software. They could meet that need by starting a company that would import popular titles from Japan.
I got on the phone that next week and called Arakawa. He wasn’t available. Then Howard [Lincoln] called me back, and I told him what I wanted to do. I said that we didn’t have a name for this company, but I was interested in setting up a company and we were interested in becoming a licensee.
—Greg Fischbach
Arakawa had not taken Fischbach’s telephone calls because he was attending the annual Toy Fair trade show in New York. Lincoln arranged a meeting with Fischbach in Arakawa’s hotel room. After a long discussion, Arakawa agreed to extend a license to Fischbach’s still-unnamed company, and Lincoln faxed the agreement the following day. Once he obtained the license, Fischbach flew to Japan to find some games.
As president of Activision’s international group, Fischbach had visited Japan several times and had several contacts in Tokyo. He began his search in Akihabara, Tokyo’s electronics district.
The Akihabara is like 42nd Street in Manhattan—big, wide boulevards, about six lanes across and with buildings on either side that are anywhere between eight and fourteen stories high that are just chock full of any kind of electronic gizmo or gadget that you could ever think of, from capacitors all the way up to television sets and washing machines and refrigerators. It’s kind of like this hub of electronic hardware and software, and it’s about three or four blocks long with big, wide sidewalks and streets that are just littered with people.
—Greg Fischbach
Fischbach went to Japan in March 1987 and returned with three games. In June, even before the games were ready for market, Fischbach, Scoroposki, and Holmes decided to make a big splash as they announced their new company at the Summer CES. They rented a huge booth at the show that they decorated with an enormous sign bearing their company’s new name—acclaim. They wanted to convince passing retailers that Acclaim would be a major force in the video game industry. The image Fischbach tried to create proved prophetic.
Scoroposki’s belief that licensing with Nintendo would be a lucrative move also proved true. Acclaim Entertainmen
t released its first game in August 1987—a space combat game called Star Voyager that Fischbach jokingly referred to as “the game that never ends.” Nintendo required licensees to make a minimum order of 1,000 cartridges; Acclaim ended up selling more than 100,000 copies of Star Voyager. Acclaim exceeded 200,000 in sales of its next game, 3D World Runner, and more than one million copies of Tiger Heli—a game that Taito released in Japan but decided against releasing in the United States.
Over the years, Acclaim became one of Nintendo’s most influential partners, and Fischbach never told Arakawa or Lincoln about the memo he had written after their visit to Activision. In 1989, however, the memo surfaced during a court battle between Atari Games (the coin-operated games division that Warner Communications did not sell to the Tramiels) and Nintendo.
In one of those litigation deals with Atari games, our attorneys discovered this document. It was a memorandum from Greg to the president of Activision, basically saying, “I’ve met with Arakawa and Lincoln and I don’t think that it makes any sense to get into this business.”
We had a lot of fun reminding Greg about that.
—Howard Lincoln
Partnership Lost
And eventually, the tail ended up wagging the dog, as Nintendo grew and that business flourished. And our toy business, you know, went away.
