Console Wars

by Blake J. Harris

  “I like it,” Kalinske said, “but don’t quite understand. What do you mean?”

  “Let’s not run from this thing. We’ve got egg all over our face, but instead of running to go wipe it off and pretending like it never happened, let’s just not wipe off the egg. Let’s stand here, embarrassed, and just laugh at ourselves.”

  “So we turn into the skid?”

  “Exactly! We embrace the failure. Maybe we even turn the game into a collector’s edition. But whatever we do, we don’t run and hide. After all, even though it’s named after an overweight former heavyweight champion, it does happen to be a really fun game. And the name of the game—”

  “Is the game.”

  Nilsen nodded, proud of his boss. “So, what do you say?”

  At the time, Kalinske couldn’t have known that by going along with this plan, James “Buster” Douglas Knock Out Boxing would go on to be a critical and commercial success. He didn’t know that the game would sell so well that Sega would have to order a second shipment and that upon its rerelease it would be packaged with the tongue-in-cheek branding of “Sega Classics.” And he didn’t know that this game, and the company’s laugh-at-us stance in releasing it, would give Sega a certain credibility and coolness with gamers and the press. At the moment Kalinske didn’t know any of these things. But he knew that what Nilsen said was the best idea he had heard in a long time, and for them to have any chance of pulling off the impossible, it was exactly the type of thing they needed Sega to become: the fun, rebellious, sarcastic underdog.

  “Let’s do it,” Kalinske said, with the enormous confidence, fearlessness, and appreciation the idea deserved.

  11.

  LIGHTNING IN A BOTTLE

  It is a rare thing for five smart, skeptical adults to be so awed that in unison, their jaws drop in astonishment. But what Kalinske, Rioux, Toyoda, Nilsen, and Schroeder were staring at in the conference room was quite possibly the most extraordinary thing they’d ever seen: an early, incomplete, minute-long demo for Sonic The Hedgehog. The game was so fast, so exhilarating, and so unlike anything they’d ever seen before that their facial responses hardly did it justice.

  “This is . . .” Kalinske began. “This is genius.”

  “A work of art,” Schroeder chimed in.

  “A home run!” Toyoda declared.

  “Consider my expectations exceeded,” Rioux added.

  They looked to Nilsen, their resident gamer, for his assessment. “Eh, it’s okay,” Nilsen said, drawing blank stares from his colleagues. “Actually, wait, that didn’t sound right. Can I borrow someone’s sarcasm? Mine doesn’t seem to be up to snuff.”

  The five of them, like bank robbers who had just completed an unbelievable heist, continued to stare at the game and allow themselves to indulge in a series of what-ifs. What if Sega could change the way videogames were played and perceived? What if they could take off the gloves, pound their chests, and declare war? What if they could actually go after Nintendo?

  When Kalinske returned from New Orleans, this was exactly the kind of fearless ambition he wanted his team to harbor as he prepared for his big trip to Japan. The employees now admired him; he was smart, approachable, and inspiring. He was a man obsessed with competitive advantages, and soon enough, that kind of strategic thinking became infectious. Between his vision, Rioux’s meticulous day-to-day management of operations, and Toyoda’s constant efforts to protect America from Japan, the what-ifs began bubbling inside Sega’s employees. But to fully believe, they needed something to see, and that’s what Sonic The Hedgehog was: proof of possibility.

  “This is it,” Kalinske said, fixated on Sonic, their beloved blue hedgehog, who somehow managed to come across as both rebellious and adorable. This was the character who would embody the Sega spirit and give them a puncher’s chance against Nintendo’s 16-bit machine. “We need everyone to see this,” Kalinske proclaimed, and then stuck his head out the door and invited everyone in the office to check it out.

  The Sega of America employees gathered around the television set and had the same reaction that had just occurred in the five who’d first seen it.

  “This is . . . wow,” an astounded employee said.

  “Holy crap,” said another. “We’re going to sell a million of these, aren’t we?”

  It was, of course, intended to be nothing more than a rhetorical comment, but the idea of having something that a million people would want to buy sent Kalinske’s mind into overdrive. The combination of seeing this game, Sega’s new Buster-ized attitude, and the fact that more great software was on its way (both internally and from Electronic Arts) led him to what he believed was a game-changing realization. “No, we’re not,” Kalinske said. “We’re not going to sell a single one of these. And that’s exactly what I’m going to tell Japan.”

  12.

  THE REVOLUTION WILL BE PIXELATED

  Kalinske, with Toyoda by his side, stood in front of eighteen unimpressed Japanese men: Sega’s board of directors. The room was stuffy and claustrophobic, and the atmosphere inside it gave the impression that a bout of laughter might be punishable by death.

  The only sympathetic face in the crowd belonged to Nakayama, though Kalinske noticed that in this context there was something different about his demeanor. Among the board members, he seemed less like an excitable and affable business visionary and more like a cheerfully cunning Machiavellian politician. Nevertheless, Nakayama’s presence was a relief. He was the man who had believed in Kalinske even before Kalinske believed in himself.

  “Let us begin,” Nakayama said with a nod to Kalinske and then a briefer one to Toyoda.

  “Ready?” Kalinske asked Toyoda, who would be translating for him.

  “Always and never,” his translator answered.

  “Excellent,” Kalinske said, with a hint of here-goes-nothing in his voice. Kalinske never felt more at ease, more like himself, than when he was speaking to a crowd. As he began, whatever nervousness he had been feeling instantly evaporated, and he possessed the confidence of a man who believed he could convince anyone of anything. “Members of the board, I want to thank you very much for inviting me here today to speak with you.”

  Toyoda dutifully translated.

  “It is both an honor and a privilege to be asked to share my thoughts with you,” he continued. When Kalinske had first taken the job, Nakayama advised him that as soon as he had gotten his bearings, he would be invited to speak with the board and provide his assessment of Sega, his opinions on the burgeoning videogame industry, and plans for how the company might be able to carve out a bigger piece of the market. Kalinske understood this was something of a formality, but initially he’d been worried that after only a few months he wouldn’t have much to say. Now, however, he was worried he wouldn’t have enough time to say everything on his mind.

  Simply put, the videogame industry was nothing more than a modern, pixelated version of the Wild West. There were no rules, no code of ethics, and absolutely no law, except for Nintendo’s attempt to appoint themselves sheriff. Consequently, Kalinske was in a position to implement his own laws. And today, in front of these unimpressed gentlemen, that was exactly what he planned to do.

  Kalinske had trekked to Japan to deliver his “Four-Point Plan,” a bold vision that he hoped would turn videogames into an acceptable, cool, mainstream activity. If Nintendo fancied themselves as makers of the ultimate toy, well, then let them have their children. Sega was ready to scoop up everybody else; the hard-core gamers who demanded only the best, the teenagers who were always looking for new ways to procrastinate, and even Nintendo’s precious children when they were a few years older and ready for something more sophisticated.

  So instead of standing in front of the board of directors with a saccharine smile, appeasing eyes, a double thumbs-up, and an assurance that he’d keep on course, he’d showed up with a proposal that he believed would either flip the gaming landscape upside down or blow it up in spectacular fashion. “I hope t
hat my suggestions, observations, and criticisms do not offend you, but are accepted in the spirit in which they are intended,” Kalinske began. “We all want what’s best for Sega, and I truly believe that over the next few years, we can go from wanting the best to being the best.” He had organized his thoughts about how to reach that next level into four easily understandable areas of attack, beginning with the most controversial:

  1. Games: When customers purchased a Sega Genesis, it currently came bundled with the game Altered Beast. That had to stop. Yes, it was a popular arcade game, but like most arcade games, it was too short, too repetitive, and too unsophisticated when played at home with limitless time. Plus, middle America had complained that the name Altered Beast sounded like devil worship. This was all completely unacceptable. Sega had to put their best foot forward and bundle with its consoles the game that absolutely, positively would differentiate them from Nintendo: Sonic The Hedgehog. Giving away their best game for free would cost the company tens of millions, but it should be considered an investment that would help them make hundreds of millions down the line.

  2. Price: As he had mentioned to Trip Hawkins, Kalinske believed in the Gillette philosophy of giving away the razors in order to sell the blades. And with over thirty million American homes owning the NES, Sega had to be willing to take a loss on sales of the Genesis hardware just to get it through the door. Once they had established an installed base, then they’d start making back their money by selling games. Not only that, but a lower retail price for the Genesis—$149, down from $189—would make Nintendo’s 16-bit console, whenever they introduced it, appear to be that much more expensive.

  3. Marketing: Let Nintendo have the kids. Kalinske wanted everyone else, and he aimed to let them know they were wanted. Sega needed to redefine itself as hip, cool, and in-your-face. Doing so would not only speak to older generations but present videogames as a mainstream form of entertainment, no different from books, movies, and music. Toward that end, Kalinske proposed to increase Sega’s advertising budget and create edgy advertisements that mocked Nintendo and appealed to teens and college students rather than younger kids.

  4. Development: Sega of Japan developed great games, but many of those great games tended to have a particularly Asian appeal. Unsurprisingly, their Japanese brethren at Nintendo had a similar tendency. If Sega wanted to plant their flag in America, they needed to make games for that specific demographic. And SOJ needed to accept SOA’s input on how to alter Japanese titles for the American audience, similar to how they had revised Sonic The Hedgehog. To do this, Kalinske wanted to expand Sega of America’s product development budget and staff.

  When Kalinske finished, he inspected the faces of the board members. Their expressions suggested that they were even more unimpressed than they had been before. Any hints of friendliness had now been replaced by shock, confusion, and rage. And moments later, a barrage of angry questions, comments, and concerns flooded the room.

  Toyoda nimbly worked to translate the ruckus as Kalinske tried to address their worries one by one. Eventually, however, there were too many criticisms, and Toyoda couldn’t keep up with the chorus of condemnation.

  “You’d think with the law of averages,” Kalinske said to Toyoda in an aside, “that at least one of them would have something nice to say.”

  “That guy over there called you a ‘tall handsome American,’ ” Toyoda replied.

  “Oh, yeah? And was that all he had to say about me?”

  “No comment.”

  Kalinske could hardly believe what he was seeing. These people didn’t just disagree with what he had said; his suggestions had actually provoked them to abandon rationality and reply with fury. Somehow he had struck a nerve. And while it is never a good idea to aim at the Achilles’ heel of someone you’re doing business with, Kalinske knew it was an especially terrible idea to do so in Japanese culture, where form, respect, and honor are valued above all else.

  Suddenly Kalinske felt like the walls were closing in around him, and he experienced a powerful sense of déjà vu. It was happening again. Just like at Mattel, where he had given that company the best years of his life and assumed that he would be there forever, until suddenly he wasn’t.

  He still had trouble making sense of what had happened at Mattel. Everything had been going so well there. His job was his life, and he loved it that way, because at Mattel he was the best version of himself. In 1981, after a decade of rising through the ranks, he was rewarded for his enormous contributions and named president of the Toy Division. He felt like he had reached the pinnacle of his career, and considered it an honor to spend the rest of his life selling the magic of toys to kids around the world.

  The promotion enabled him to control most aspects of the production, distribution, and marketing of toys—most, but not all. Ultimately, because Mattel was a public company, the board of directors had the final word. And if there was one thing the board members cared about—more than growth, money, or making great products—it was being right. Knowing this, Kalinske tried his best to agree with the board, but that wasn’t always possible, especially with the new path he envisioned for Mattel.

  In the early 1980s, “conglomeration” was the business world’s buzzword du jour. It was no longer enough for a company to excel at what they had been doing; now they had to buy up stakes in unrelated companies and manage those as well. The benefits of entering into unfamiliar industries were said to be diversification, tax breaks, and the possibility of synergy. Kalinske, however, knew the real reason: power. He could see this in Mattel’s board whenever it announced new acquisitions, ranging from the understandable (Ringling Bros. Circus and Western Publishing) to the absurd (Turco Steel and Metaframe Pet Supply). Though Kalinske tended to disagree with this type of corporate expansion, he voiced his doubts to the board only when investment in these new businesses came at the expense of what had gotten Mattel to this point: toys. Whenever he objected, his dissent was noted and not forgotten. The board of directors had the final word, and there were always ways for them to silently retaliate.

  By 1983 the board’s trigger-happy acquisition strategy, coupled with major losses due to the videogame crash, had led Mattel to the brink of bankruptcy. Miraculously, the company managed to survive—with the last-minute help of junk bond guru Michael Milken. He raised enough money to keep Mattel afloat while simultaneously making the company leaner by selling off its recent, unrelated acquisitions. In the face of failure, the board’s power weakened and some members were let go, but those who remained were not happy to have been proven wrong. Nevertheless, they were in no position to retaliate, since they needed Kalinske’s help to rebuild the company. Two years later, as Mattel flourished, the board of directors rewarded Kalinske’s strong stewardship by offering him the position of CEO. He didn’t particularly want the job, as it would pull him away from the Toy Division, but he interpreted the offer as an olive branch from the board of directors and accepted.

  The relationship briefly worked well until Kalinske made a jarring discovery: in the years since Milken had restructured the company, interest rates had dropped by half but Mattel was still paying a much higher rate to its debt holders. He quickly realized what he perceived to be the reason: any change would require approval from the members of the board, many of whom were also the debt holders. Believing this to be a conflict of interest, Kalinske requested this matter be voted on, but only by independent board members who did not hold any of Mattel’s debt. Naturally, his resolution passed, but it also fostered anger among many of the board members.

  The directors were still not strong enough to replace Kalinske, but they were powerful (and clever) enough to point out that he was only thirty-eight and surely would benefit from having some leadership assistance. So they brought in John Amerman, the fifty-three-year-old head of Mattel’s International Division, to become his co-CEO until Kalinske had matured enough to handle the post alone. Unsurprisingly, that never came to pass. In truth, Kalinske and
Amerman got along fine, but the perception was that battle lines had been drawn, and the internal politics between Kalinske and the board spilled into every division of the company, with employees feeling obliged to take sides. Eventually the perceived turmoil fractured the company and caused it to grind to a halt. Kalinske stepped down, ceding the position to his “older and wiser” co-CEO.

  Following the unceremonious end to his tenure, the board tried to keep Kalinske with Mattel by offering him the COO position. But this time he declined, sick of playing politics and believing that there had to be something better out there. Now, years later, he was in front of an equally angry board of directors, having foolishly believed that Nakayama had offered him that something better.

  As the grumbling from Sega’s board continued to mount, Kalinske resorted to what he did best: speaking. Foolish as it may have been, he continued to plead his case. “It sounds crazy, I know, but these are the type of calculated risks that Sega needs to take. Please, just trust me. Aren’t you sick and tired of being bested by Nintendo?”

  It was clear that this comment had struck another nerve. Kalinske turned to Nakayama, who looked almost pleased. Had this been Nakayama’s plan all along? Had he hired Kalinske purely for the amusement of watching him fail? Had the entire thing—the wooing in Hawaii, the red-carpet treatment in Japan, the promise of autonomy in San Francisco—all been part of some carefully orchestrated charade by Nakayama to get revenge for something years ago that Kalinske either had never known about, or no longer remembered? These thoughts hit him harder than any of the gripes from the board did. A few months ago he’d had no interest in this job, but now it was the only thing that mattered to him. It was his last chance to make his family proud, to prove that he was as successful as he’d always believed he had been.

  Nakayama angrily pounded his fist on the table, silencing the room. He stood up sharply, shook his head, and locked eyes with Kalinske. Nakayama opened his mouth to rule on this matter, and as he did a sly smile graced his face. “Tom, no one agrees with anything you’re saying. In fact, everyone in here thinks you are nuts.” Nakayama took a deep breath. “But this is why I hired you. You may go ahead with the plan.”