The Ultimate History of Video Games: From Pong to Pokémon and Beyond—The Story Behind the Craze That Touched Our Lives and Changed the World

by Steven Kent

  —Don James

  Nintendo sent somebody to look at what we were doing, but he didn’t seem interested. It was like he came to see us even though he had already made up his mind that he wasn’t interested.

  —RJ Mical

  Needle and Mical learned a new phrase while working on Handy Game—“emag tresni.” For them, the phrase became a sort of Murphy’s Law. It meant that no matter how carefully you worked, and no matter how meticulously you checked every detail, something was bound to go wrong. In this particular case, the mistake occurred as Needle designed Handy Game’s screen with engineers from Sharp Electronics. Needle and a Japanese engineer discussed every point in the design, but at some juncture, they slipped up on one digit slot in the binary coding, and instead of listing a “1,” the engineer placed a “0.”

  If you didn’t have a game in the slot when you turned it on, the screen would display the message, “Insert Game.” Because of the error, the message came out inverted. It said, “emag tresni.”

  —RJ Mical

  Epyx’s financial problems increased throughout 1988, and the company ended up selling Handy Game to Atari Corporation. Many of the employees at Epyx resented the idea of working with Atari. Mical and Needle disliked the idea of working with Atari so much that they left Epyx. A few months later, Epyx collapsed.

  Atari changed the name of the system from Handy Game to Lynx to highlight the fact that up to eight Lynx consoles could be daisy-chained together using link cables. The system was launched in October 1989 to rave reviews. Lynx was designed to accommodate both left- and right-handed play, and it had one of the finest LCD screens of its time. The screens on Game Boy and later handheld systems tended to blur when showing fast movements. Lynx’s screen handled speed without blurring, though it scratched very easily. Color graphics and a crisper screen were not enough, however. While Toys “R” Us and most of the dedicated video game stores carried Lynx, Atari could not give it the marketing and retail support that Nintendo gave Game Boy. Atari’s poor reputation with retailers, and fear of Nintendo, caused many retailers to avoid the system. Originally retailing for $199, it cost twice as much as Game Boy and was never widely advertised. Many stores pulled Lynx from their shelves within a year. It was available mostly through mail order thereafter.

  * This story has been confirmed by people who worked for Nintendo at the time, though the details may be exaggerated.

  * Menace Beach was far tamer than Peek a Boo Poker, Bubble Bath Babes, and Hot Slots, three unlicensed games published by the Taiwanese software company Paneision, which featured anime-style drawings of naked women.

  ** Two of Wisdom Tree’s Game Boy cartridges were not really games. The company published cartridges containing the text of the King James and New International versions of the Bible.

  * This game was built into a special adapter that attached to any licensed Super NES cartridge. The chip in the licensed cartridge would disable the security chip, allowing the Super Nintendo to read the game.

  * The company was formerly known as Activision.

  * Actor Joe Pesci played Mr. Big in the music video. The character in the video game was an excellent likeness.

  ** Nilsen was the JC Penney buyer who handled video game orders during the late 1970s and early 1980s.

  * TurboGrafx could display 241 colors at a time. Technically, Genesis could display only 61 colors at one time, though a method for displaying 128 colors was developed in later years.

  * Mical’s biggest claim to fame at Williams was helping design the arcade game Sinistar.

  Run for the Money

  It was embarrassing to talk to retailers when I first joined the company. They hated us because we never did what we said we were going to do. Fortunately, they did not like Nintendo either. In those days, Nintendo was so arrogant.

  —Tom Kalinske, former president and CEO, Sega of America

  Indeed, when Apple president Michael Spindler was asked in March 1991, which computer company Apple feared most, he quickly answered, “Nintendo.”1

  [Laughs] They should have feared Apple more.2

  —Bill Gates, chief operating officer, Microsoft

  The NES Hits Its Apex

  Nintendo’s best year … The best year for the NES, the most lucrative year for the NES, was 1990, which was also the first full year that Sega Genesis was on the market.

  —Peter Main, executive vice president, Nintendo of America

  With the 1989 releases of Genesis and TurboGrafx, Nintendo found itself lagging in technology behind the competition; but amazingly, technology did not seem to matter. Nintendo sold more than 17 million copies of Super Mario Bros. 3 worldwide, setting a lasting sales record for a game cartridge that was not packed in with console hardware.* There were other hits, too. Sun Soft scored a major hit with Batman, a game that built off the popularity and storyline of the Tim Burton movie. Konami scored a major hit that year as well with Teenage Mutant Ninja Turtles, the first game to be published under the new Ultra label.

  In 1987, Nintendo of America president Minoru Arakawa met with executives of Konami—one of Nintendo’s three most successful third-party partners—to discuss a problem they saw in their licensing agreement. According to the agreement, third-party licensees were allowed to publish only five games per year. Konami had published a long line of bestselling games, including Castlevania, Blades of Steel, Double Dribble, and Life Force, and the five-games-per-year clause was holding the company back from realizing additional profits. Based on the games’ quality and torrid sales, they argued, Konami should not be limited to five games per year.

  Another third-party publisher had the same complaint. Acclaim, Greg Fischbach’s Long Island–based game company, also asked for permission to publish more games. Having created such games as Double Dragon II, Iron Sword, and several games based on WWF wrestling, Acclaim was another one of Nintendo’s top licensees.

  After considering their arguments, Arakawa found a way around the rule. He gave Konami and Acclaim second licenses so that they could publish an additional five games under different names. Acclaim adopted the name LJN for its second license and Konami published additional games under the name Ultra.

  I think Konami and Acclaim were doing so well that we thought we had a good reason to give them another license. The other licensees did not like it.

  Konami had a really good manager [Emil Highcamp] in the States. He was not only doing marketing and sales, he was also a good product manager. He sometimes went to Japan and asked the R&D people at Konami [headquarters] to come up with this type of game or that type of game. Once he was watching TV and saw Teenage Mutant Ninja Turtles and got an idea, so he licensed it and asked Japan to make it into a game.

  —Minoru Arakawa, president, Nintendo of America

  Under the Ultra label, Konami sold approximately 4 million copies of Teenage Mutant Ninja Turtles, giving Ultra a heady send-off. One of Ultra’s next titles, Metal Gear, also helped establish the product line. But Ultra’s days were numbered. The Ultra license was only for the Nintendo Entertainment System (NES), and that system was coming to an end.

  Even with earnings of $3.34 billion and 48 million Nintendo Entertainment Systems sold worldwide, Nintendo executives knew that they could not control the market with obsolete hardware. Work had already begun on the new 16-bit game console that they hoped would help them shut competitors out of the market.

  A Change at Sega

  I think Mike Katz was the guy who did a lot of the things that ultimately led to Sega’s success with Genesis.

  —Howard Lincoln

  Breaking Nintendo’s hold on the international video game market proved to be more than a matter of technology for Sega. Nintendo controlled more than 90 percent of the international market. But whether Sega’s 16-bit game console was sold as the Mega-Drive in Japan or the Genesis in the United States, the unit was simply not catching on. With memories of the failed Master System still vivid in his memory, Sega Enterprises CEO
Hayao Nakayama decided to shake up Sega of America, in the hope that new ideas might lead to new success.

  In mid-1990, Nakayama bumped into an old acquaintance named Tom Kalinske who was visiting Tokyo on business. As they spoke, Nakayama told Kalinske that he now worked at a company called Sega that had a new game console that he hoped could steal the market away from Nintendo. Kalinske, who was working for a struggling toy car manufacturer called Matchbox, almost laughed. “You’re competing with Nintendo! They’re huge!” he said.

  According to a 1995 article, Nakayama offered Kalinske the position of CEO of Sega of America on the spot.3

  Tom Kalinske

  And so Nakayama-san was not happy that we hadn’t sold a million units. In January, about fourteen months after I started there, I was replaced by Tom Kalinske who, of course, I’d known from Mattel, where we had worked together.

  —Mike Katz, former CEO, Sega of America

  Thomas J. Kalinske was a natural choice for president and CEO of Sega of America. An affable man with clean-cut all-American good looks, he graduated from the University of Wisconsin with a degree in marketing and spent years in advertising before joining Mattel as a product manager in the early 1970s. While at Mattel, Kalinske’s bold style caught the eye of top executives, and he moved up quickly.

  Mattel, the largest toy company in the world, had plenty of room for a tomcat like Kalinske to grow. He began with preschool toys, then was asked to oversee the Barbie line. At the time, Mattel marketed Barbie as a single line of dolls with accessories. Kalinske’s team changed the strategy, breaking the line into several segments such as Malibu Barbie. “When I started on the Barbie business, worldwide, it was $42 million; when I left the company, it was $550 million; today, it’s $1 billion.”4 As Kalinske rose through the ranks of Mattel, his responsibilities expanded and he oversaw several research and development teams. One of those teams formed the nucleus of Mattel Electronics.

  I was a VP of marketing at the time, and one of my product development groups developed the first portable games. We introduced them on Father’s Day. Nobody thought it was going to be successful, and, of course, the products were phenomenally successful. Within that same group, they developed the Intellivision technology. But what happened was that because it was clear the electronics business was going to become such a major part of the company, we decided to create a totally separate company. Once we made that decision and staffed it with some new hires and with some e-toy people, I never had anything to do with it again.

  —Tom Kalinske

  A rising star at Mattel, Kalinske tracked the new electronics division’s meteoric ascent and fall.

  I eventually ended up on the board of directors of Mattel Inc., and during that time period the Intellivision company would report its results back in. So I had some involvement at a board level with them and how they were doing. All of a sudden one day the guys from Mattel Electronics said, “Oh my god, the bottom has fallen out. Atari just lost all its money, and we’re losing all this money, and it looks like we’re gonna lose $350 million.”

  —Tom Kalinske

  Twelve years after he started at Mattel, Kalinske began a three-year stint as president of the company. During this time, he went toe-to-toe with television network executives over advertising sales. “We were spending millions of dollars, and the networks treated us like dirt,” says Kalinske. “They had McDonalds and other big companies, and they acted as if they were doing us a favor by giving us advertising time.”

  Mattel came up with an alternative medium for reaching children—a cartoon series and a line of toys called HeMan and the Masters of the Universe. The idea was to create a hit cartoon series for non-network television where advertising was more affordable. The idea worked. “Masters of the Universe ended up getting a 7.5 rating at a time when the networks’ shows weren’t getting a 7.5 rating. From that point on, the networks were much easier to work with.”

  After sixteen years with Mattel, Kalinske went to Matchbox for a short period, then replaced Michael Katz, who had spent the last year trying to find a foothold in the market. In truth, Katz has seldom been given enough credit for his role in Sega’s success. Much attention has been given to the rise in profits under Kalinske, jumping from approximately $100 million in sales in 1990 to over $1 billion by 1993. Much of this success, however, grew out of programs started by Katz.

  We started the aggressive advertising campaign “Genesis does what Ninten-don’t.” We concentrated on games that Americans would play…. sports games, specifically, and some other products. And we attempted to develop a mascot character like Mario.

  —Michael Katz

  Several people who worked under Kalinske when he first joined Sega say that he did not know much about video games but that he was a fast learner. In the early days, marketing executives and engineers had to brief him before meetings with reporters, and some Sega of America employees wondered if he was right for the job. Playing off his Mattel background, some reporters dubbed Kalinske Sega’s “Ken doll” spokesperson, suggesting that he was a good-looking figurehead with little else going for him. The label was grossly inaccurate. According to those who worked with him, Kalinske studied hard and quickly developed an understanding of the industry. He demonstrated the ability to make tough decisions and the willingness to defend his decisions when challenged by the Japanese board of directors of Sega Enterprises. He also surrounded himself with industry-savvy advisers such as Steve Race, an Atari veteran and one of the founders of Worlds of Wonder; Bob Harris, who had helped launch both Master System and Genesis; Paul Rioux, who had worked on Intellivision; and Al Nilsen, who had been JC Penney’s merchandise buyer during the Atari’s heyday.

  Tom focused on retail and how to represent the company and third-party relationships. I mean, that was Tom. He made sure that the best people outside of us wanted to work on Genesis.

  Shinobu Toyoda was the vice president of licensing, and he was the man behind building the Sonic franchises and licensing in and out. He wanted to go to Hollywood. To this day he works in Los Angeles at our Sega PC offices. He’s the one who wanted to do the Paula Abdul game. He’s the one who would go down to Hollywood and go onto all the sets to get licenses like Batman. He was the one who made sure Sonic was on every bath towel and all of that stuff, and he worked very closely with the Sonic cartoon.

  The guy who was most underrated and the guy who doesn’t get a lot of positive press was Paul Riuox. I can tell you from firsthand experience … I got to sit and watch all these guys, and Paul Rioux was the guy who pushed hard to improve the quality when the quality wasn’t there. He was the guy who saw the value of making money in peripherals. He was the “make it happen” guy, the sort of nuts and bolts guy who would be involved in all aspects. He didn’t have the most romantic job, but I assure you, he was a really key part of the success.

  You know, it was a real triad, though. If all three of them [hadn’t been] there, I really feel like we wouldn’t have been successful. The chemistry between the three was essential.

  —Michael Latham, former director of Omega Group, Sega of America

  A student of classic marketing, Kalinske believed in the Gillette school of “giving away the razors to sell the blades.” Above all else, he felt that Sega had to get as many Genesis consoles into consumers’ hands as possible and as quickly as possible. Working with his executive team, Kalinske developed a four-point strategy that he believed could weaken Nintendo’s hold on the market. His plan included dropping the price of Genesis from $189 to $149, with the eventual goal of getting it down to $100; replacing Altered Beast, the first bundled game, with a game called Sonic The Hedgehog that was under development at the time; assembling a U.S.-based team to create games more suited to American tastes; and adopting strident advertising campaigns that challenged Nintendo head on.* Kalinske prepared a presentation with these suggestions and flew to Japan to present them to Nakayama and the board of Sega Enterprises. The board nearly rejected his i
deas.

  It was like I’d hit them with a bucket of cold water. They asked, “Are you out of your mind? You want to lower the price until we don’t have any profit at all? You want to take out our regular software and put in our best software? You want to take on this company that has 92 percent of the market in an advertising campaign?”

  That’s essentially what they told me. I thought, “Well, this is the shortest career anybody ever had. I guess I’d better start looking for something else to do.”

  As the other guys got up to leave, Nakayama turned and said, “On the other hand, he was hired to make decisions for the U.S. market, and if that is what he thinks needs to be done, he should go ahead and do it.”

  —Tom Kalinske

  Kalinske returned to Sega of America with Hayao Nakayama’s approval on all four suggestions. The next step was putting his plan to work.

  Sega’s Secret Weapon

  A large portion of Kalinske’s recovery plans would fall on the shoulders of Sonic The Hedgehog,* a speedy blue rodent in red tennis shoes.

  Sonic was the creation of Yuji Naka, a young game designer whose credentials included Phantasy Star, a role-playing title generally remembered as the best game ever released for Sega Master System, and Ghouls ’N Ghosts for Genesis, a flawless translation of a popular Capcom coin-op game. Of the games released around the launch of Genesis, Ghouls ’N Ghosts stands out among the finest.