Console Wars

by Blake J. Harris

  The three of them decided to meet for dinner at the private club atop the Sony offices at 55th and Madison. Kalinske entered the white-facaded building and took the elevator all the way up to the thirty-seventh floor, where Olafsson and Schulhof were waiting for him. “Right on time,” Olafsson said, flashing a half smile. “Tom, meet Mickey Schulhof; and Mickey, say hi and be kind to my friend, the incomparable Mr. Kalinske.”

  “A pleasure,” Schulhof said, extending a hand. He was a handsome man with perfectly parted hair, a tan, and a bright white smile. Though his soft handshake might have suggested that he was another of the dime-a-dozen pampered executives, he glowed with a gritty, omnipotent confidence. “I’ve heard way too many great things about you from Olaf, so I already know they can’t all be true.”

  “I like it when the bar is set high,” Kalinske replied. “Otherwise, what’s the point?”

  Kalinske, Olafsson, and Schulhof were seated by a window overlooking the city, where they enjoyed an elegant seafood meal with a fine chardonnay. They started off the evening by sharing rehearsed chapters from their individual life stories, and eventually progressed to sharing impromptu anecdotes from their travels around the world. Somewhere between five and ten bites into their main course, though, the conversation shifted to business matters. “So,” Schulhof began, “Olaf tells me that you plan to turn the videogame industry on its head.”

  “That’s the plan,” Kalinske said with a smirk.

  “Excellent,” Schulhof said. “That’s what I like to hear.”

  “The fact is, we strongly believe in the business,” Olafsson clarified. “The games themselves, I could take or leave. But the industry as a whole—there will be a gold rush.”

  “In many ways,” Kalinske said, “it has already begun.”

  “True, true,” Olafsson said, nodding. “Perhaps my vantage point is a bit affected by Sony’s angle on all of this.”

  Kalinske leaned back in his chair to get a better look at both of his hosts. “So tell me, then, what is the ideal scenario for Sony?”

  Schulhof gladly fielded the question. “When I first began at Sony in the late seventies, we made our bones selling televisions and stereos. We did quite well. Well enough that it would have been easy to stick our heads in the sand and keep cashing paychecks for the foreseeable future. If it ain’t broke, don’t fix it, right?”

  The three used the rhetorical pause to take a long sip from their wineglasses. After a satisfied sigh, Schulhof continued, “But then in 1978 an audio engineer named Nobutoshi Kihara invented a small, portable stereo that allowed people to listen to music anywhere they went. Many questioned this logic and wondered why anybody in their right mind would possibly want to enjoy music outside the living room. Sony, however, didn’t bat an eyelash, and moved full steam ahead with this device called the Walkman. Without any need to take the risk, we pushed all of our chips to the middle and changed the way that music is enjoyed around the world.”

  “I remember getting my first Walkman,” Kalinske said nostalgically.

  “Of course you do,” Schulhof said. “Because if Sony does something, we do it memorably. The whole nine yards, or nothing at all.”

  Olafsson smiled. “I believe the popular parlance is ‘Go big or go home.’ ”

  “It’s true,” Schulhof said. “Columbia Pictures. Compact discs. CBS Records.”

  “You don’t need to paint me a résumé,” Kalinske said. “I’m already thoroughly impressed. But I’d like to know where Sega fits into all of this. Is Sony looking to make an acquisition?”

  “Not at all,” Schulhof said, shaking his head. “I truly believe in synergy. Not the bullshit buzzword version of the term, but the real-life implications of finding situations of mutual benefit.”

  Olafsson elaborated. “Sega has the experience and is gaining the credibility. Sony has the tech and financial resources. But what we share is the intelligence to realize that multimedia is the inevitable future of entertainment. On that note, is it safe for me to assume that Sega has some kind of CD-based gaming system in the works?”

  Kalinske considered a vague response but decided to reveal his hand. If there was any chance of building something with Sony, he couldn’t start with smoke and mirrors. “Yes, that’s accurate,” he said. “Sega is planning a CD attachment to Genesis.”

  “How far along is it?” Olafsson asked.

  “Nearing the end,” Kalinske said. “We want to go to market in late ’92.”

  “Sega will beat the drum about this at CES in Vegas?”

  “That’s a fair assumption.”

  Olafsson pursed his lips, calculating the ramifications. “Good, that’s exactly what Sega ought to be doing,” he said. “And now that we know hardware needs are off the table, then any convergence between ourselves would be focused on software.”

  “I hear that’s where the money is anyway,” Schulhof chimed in.

  Olafsson subtly nodded to himself. “Is it also safe for me to assume that with the Genesis surging and all hands on deck to support the system, there is an increased need for outside parties to provide Sega with CD-based software?”

  “Definitely,” Kalinske said. “I won’t even consider bringing a CD add-on to America until we have the right software in place.”

  Olafsson looked at Schulhof, hinting that there was potentially something here. They paused again for a bite or two of their delicious seafood dinner before Olafsson spoke up once more. “We’re obviously not at a place to jump into anything of substance here,” he said. “But we have no reservations saying that we like you, and I believe that feeling is mutual.”

  Kalinske nodded; it certainly was.

  “So we’re two teens in love,” Olafsson mused, “ready to offer the world to each other, but any consummation would require parental approval.”

  “And Japanese parents have a reputation for being strict,” Kalinske added.

  “Tell me about it,” Schulhof murmured, shaking his head.

  “Nevertheless,” Olafsson concluded, “with some massaging, I think that there very well could be a way for Sony to help supply Sega’s software needs.”

  “I’ll work on things from my end,” Kalinske commented.

  “And we’ll do the same,” Schulhof replied.

  “Fantastic, then,” Olafsson said. “But I would like to note, in the spirit of complete and utter honesty, that a working relationship would likely not preclude the possibility of Sony one day looking to get into the console business.”

  Kalinske shrugged. “I wouldn’t expect it any other way. But for now, I think we both have a lot to gain by holding hands. Down the road? Maybe that’s something we explore together, or maybe we go our separate ways. But I’m okay with that ‘maybe.’ ”

  “Us too,” Schulhof said.

  “Good,” Kalinske said, and raised his glass, prompting Olafsson and Schulhof to do the same. “To ‘maybe,’ and all the wonderful possibilities that the word may create.”

  20.

  WORTH WAITING FOR

  Thick trees with raggedy brown leaves. A graying road. And another parking lot. Although the view from Kalinske’s new office could hardly compare to the princely panorama from atop the building where he’d dined with the Sony executives a few months earlier, it felt a good deal more satisfying. This was a view that he and his employees had earned, the reward for their furious innovation, imagination, and experimentation. Their efforts had precipitated a blizzard of success, requiring Sega to move into a new building in late 1991.

  It was a long, gray, two-story building in Redwood City, with the downstairs dedicated to operations, sales, market research, and human resources, and the upstairs devoted to marketing, legal, and the executive staff. The Redwood City office was a bit more formal than the last one but still had a humble work-in-progress feel that precluded any sort of Jeffersons-like moving-on-up moment. Besides, with things just beginning to heat up, everyone was too busy to spend time patting each other on the back.


  Sega went into Christmas 1991 by continuing to curve upward at a near exponential rate and, by now, had captured about 25 percent of the market. Stores were selling out of the Genesis with such frequency that it began to become a problem. It was great to feel like the popular, unattainable guy at the party, but not at the risk of suitors settling for a more available, second-rate friend. At first Sega managed the problem by air-freighting in systems from Japan—a costly proposition, but worth the additional overhead to avoid losing customers. But, like a Band-Aid that’s lost its sticking power, this was no longer a viable option as the holidays approached and demand skyrocketed. To maintain the momentum, Nilsen spearheaded a marketing program intended to prevent parents from settling for Nintendo at any cost. The initial concept was for a preorder reservation kit that would ensure customers a Genesis by a certain date and reward them for waiting with a free, collectible T-shirt. But with the crazy Christmas season around the bend, it was impossible to get retailers set up in time. So Nilsen took the idea and stuck it in his pocket for a rainy day, at the time not realizing how well it would serve Sega in the future.

  Instead, with the same c’est la vie spirit that Kalinske and Nilsen had taken one year earlier with the Buster Douglas game, Sega decided to embrace the dilemma. Starting on December 9, Sega launched their “Worth Waiting For” campaign. They aired ads on national television and radio (print would have taken too long) to speak directly to customers and let them know that even though the Genesis was red hot and might be hard to find, they shouldn’t give in and buy an SNES. Sega revealed that they were airfreighting in new systems every day, and suggested that customers keep checking with their local stores, turning a frustrating shortage into something of a rousing scavenger hunt. The ads also publicized a toll-free number that allowed callers to voice their grievances and, at the same time, receive a special offer to buy one of four titles directly from Sega with guaranteed arrival before Christmas. As a result, Sega managed to dominate the holiday season and edge out their hated rival.

  Or did they? Kalinske stared out the window of his new office, positively convinced that Sega had stolen Christmas from Nintendo. Eight hundred miles north, however, it was fair to assume that Peter Main was drinking a cup of coffee and reveling in Nintendo’s destruction of Sega.

  Nintendo claimed to have its goal of 2.1 million Super Nintendos sold by the end of 1991. The problem was, however, that even though Nintendo had sold all these systems to retailers, those retailers had only sold about 70 percent of the product. Meaning that on the day after Christmas, stores still had 30 percent of their Nintendo inventory on the shelves, which they could return, mark down, or continue to sell. Sega, on the other hand, sold through a staggering 95 percent of their systems, totaling 1.6 million by the end of the year. Though numbers can get slippery, Sega’s 1.6 million was higher than Nintendo’s 1.4 million (70 percent of 2.1 million), making them the clear victor. Then again, Nintendo had only been selling the SNES since September, just a third of the entire year, further devolving the issue into a heated cup of number soup. “True or false?” Steve Race asked, sidling into Kalinske’s office. “The real reason we moved from South San Francisco to Redwood City was because Nakayama believed the wind here would be kinder to his combover.”

  “I can neither confirm nor deny that,” Kalinske said as Race took a seat in front of his desk. “But if I had to lean one way or the other, it would not be toward deny.”

  “Perfect,” Race said. “I’ve always believed that there’s an illustrious career waiting for me in the conspiracy-theory racket.”

  “Oh, yeah?” Kalinske asked. “Well, there’s an illustrious career waiting for you here at Sega if you’re ready to make the move to full-time.”

  “Jumping right into the ball pit, are you?” Race mused. “How dare you deprive me of that patented Kalinske small talk? For example, how was your Christmas?”

  “You want small talk?” Kalinske playfully replied. “All right, here you go. During the break, Karen comes up to me with this sneaky look on her face. It’s a classic of hers, one of my favorites, and she tells me that she has news. Which do I want first, the good news or the bad? Of course I want the good, so that’s what I say, and back comes that sneaky look and she says: ‘it’s a boy.’ ”

  “Congrats!” Race exclaimed. “That’s a hell of a gift.”

  “Sure is,” Kalinske replied. “And what about you? How was your Christmas?”

  “There may have been some seasonal debauchery,” Race murmured, “but nothing too crazy. In fact, for the most part, it was a very Sega-filled holiday season. I started really digging into the handheld market.”

  “Is your disciple not working out?”

  “Rather the opposite. Thus far Diane has been a godsend,” Race said, referring to Diane Adair. Race had hired her in late November to replace Bob Botch, Sega’s director of marketing responsible for the Game Gear, who left to become president of a software company called US Gold. Though Race was admittedly not brokenhearted to see Botch go, as he had grown tired of breaking up shouting matches between Botch and Nilsen, the timing couldn’t have been worse. With Sega growing at Sonic speed, Botch’s departure threatened to throw a wrench into things. Luckily, Adair fit right in and hit the ground running. She was a doe-eyed woman with a happy-go-lucky voice, and she wasn’t afraid to dive headfirst into problems or get her hands dirty. With Nintendo now in the 16-bit console business, Sega’s executive staff wanted to extend the lines of battle and make their opponent fight a war on two fronts, hence the emphasis on the handheld Game Gear.

  At this point, the Game Gear had been in stores for over six months, and sales were strong but not spectacular. Part of the reason was continued problems with battery life, but a larger part was the lack of software, visibility, and brand identity. Kalinske hoped that Adair could pull a rabbit from her hat and do for the Game Gear what Nilsen was doing for the Genesis. Sega had been able to come up with creative solutions to some of the challenges (for example, an accessory could be purchased to extend battery life) and found imaginative ways to take advantage of the Game Gear’s un-Nintendo-like ability to display colors (a tuner could be purchased that allowed one to watch TV on the handheld). During her second week on the job, Adair became fast friends with Race’s other key hire, EBVB. Both women had been sent to Los Angeles for media training sessions with their PR guru, Brenda Lynch, at MS&L. There, Adair was wowed by EBVB’s on-camera presence and her talent for compressing complicated topics into easily digestible media bites. EBVB, equally smitten, perceived Adair as a model of efficiency, always planning ten steps ahead with another five steps in reserve as a backup in case things went awry. Mutual admiration quickly led to daily morning jogs, which ultimately led to long-lasting friendship.

  “She’s a playmaker,” Race said, who had known Adair since the late eighties, when she had worked for him at a failed start-up called Homestar that sold housewares by phone. “She’s just as good in the worst of times as she is in the best of times. That’s rare, trust me. She’ll be a big part of what you’re putting together here.”

  “I don’t doubt it,” Kalinske said. “But what about you?”

  “Right now, the sixty-four-thousand-dollar question,” Race said with a grin.

  “There’s a lot more money in it for you than sixty-four grand.”

  “It’s not about the money.”

  “It’s always a little bit about the money.”

  Race bobbed his head. “True. But obviously that’s not the issue here.”

  “So what’s the issue?” Kalinske asked. “The budgets are too low?”

  “No,” Race said dismissively. “You know I like doing more for less.”

  “You don’t like the games?”

  “I don’t like any games,” Race conceded, “but ours seem better than most.”

  “The marketing team? I’ve let you stack the deck with your own aces. All key personnel, except Al,” Kalinske said, considering this. “Is
he the problem?”

  “Nilsen?” Race said with a chortle. “He’s a strange dude, that guy. You would think he has a hidden laboratory where he pulls the wings off butterflies.”

  “Hey,” Kalinske said, defending Nilsen, “if he keeps churning out these great wild ideas, then I’ll buy him a case of exotic butterflies.”

  “Save the call to your butterfly broker,” Race said. “Nilsen is an odd duck, but a good guy nonetheless. And he’s drunk the company Kool-Aid, which never hurts.”

  “Most people have,” Kalinske noted. “Myself included. And it tastes great.”

  “I’d love nothing more than to do the same,” Race said. “But if you look on the label, you’ll notice that it says ‘Made in Japan’ right there beside the ingredients.”

  “Seriously?” Kalinske asked. “The Japan thing again?”

  “Trust me,” Race explained, “I don’t give a shit about the color of someone’s skin or the slant of their eyes. All I care about is doing business, and our friends in Japan seem intent on fucking us at every turn.”

  Kalinske nodded, because he shared a lot of the same frustrations. He also wasn’t completely surprised to hear this. He knew that Race had been locking horns with some of the folks at SOJ, who had taken to calling him “racist” in Japanese behind his back. Kalinske just hadn’t realized this had mounted to the point that it was preventing Race from accepting the opportunity of a lifetime. “I understand where you’re coming from,” Kalinske said. “Believe me, I really do. Sometimes it drives me crazy, but at the end of the day Nakayama has always been fair to me and let me run this how I want to.”

  “LPGA Tour?” Race asked.

  “Fine, almost always,” Kalinske said with a lighthearted roll of the eyes. “But don’t let that stuff drag you down. I can protect you.”