Console Wars

by Blake J. Harris

  “I need to run,” Van Buskirk said, gathering her mittens and preparing to brave the snow. “But you can borrow that if you’d like.”

  “Fantastic,” Nilsen said, and bade her farewell. But before heading back to the land of Beavis and Butt-head, he stayed in the coffee shop with the magazine to spend a few more minutes with Sonic and friends.

  The story was as wonderful as the cover indicated, but it was something at the very end of the story that caught his attention. After all the pages of gushing about Sega, Sonic, Kalinske, and Nakayama, there was an article written by Neil Gross and Robert D. Hof after a recent interview they had conducted with Nintendo’s Hiroshi Yamauchi. The article itself wasn’t all that interesting, but what was interesting was that although it appeared in Business Week and would be read by millions, it seemed as if it were written exclusively for Yamauchi’s son-in-law:

  After months of being bloodied by Sega Enterprises Ltd. in North America, Nintendo Co. President Hiroshi Yamauchi is taking off the gloves. In a talk with Business Week at his spartan headquarters in Kyoto, Yamauchi revealed a plan to recoup market share. Many details remain vague. But the stern, 66-year-old patriarch of Japan’s biggest game company made one thing clear: He’ll make big change in the way Nintendo manages its U.S. Operations, promotes its products, and develops its game.

  His first priority is fixing the disaster in the U.S. market, where Nintendo’s share of the 16-bit market plummeted from 60 percent at the end of 1992 to 37 percent a year later, according to Goldman Sachs & Co. With surprising candor, Yamauchi lays part of the blame on his son-in-law, Nintendo of America Inc. President Minoru Arakawa. When Sega started running comparative ads in 1990, Nintendo failed to respond. In effect, says Yamauchi, Arakawa “allowed Sega to brand our games as children’s toys. It was a serious mistake.”

  Yamauchi expects Arakawa to change his style—and hand more responsibility to senior American staffers. “I’m giving him another chance,” says the president. “But even in Japan, if results don’t improve, you can’t stay in a job.” Informed of those comments, Arakawa issued a statement promising that “1994 will be the most aggressive marketing year Nintendo of America has ever seen.”

  What stopped Yamauchi from acting sooner is that the U.S. unit did so well under Arakawa’s early stewardship. From 1987 to 1991, Nintendo’s exports in the U.S. grew eightfold. Americans have snapped up over 65 million Nintendo game machines since they went on sale in 1985. But growth has slowed in the past year and profits are falling.

  Big words, Nilsen thought as he finished, but he had trouble imaging that Nintendo would actually do anything different. Yamauchi might be upset, but it wasn’t like he was going to fire his son-in-law.

  Nilsen was correct, Minoru Arakawa would not be fired, but Yamauchi did end up firing a warning shot at his son-in-law. Days after the interview, Howard Lincoln received a call from Yamauchi and was informed that he was Nintendo of America’s new chairman (making him comanager of NOA with Arakawa). It was just a title, and Lincoln had always been steering the ship right there with Arakawa, but it meant that for the first time in years, Nintendo was willing to change. And that was significant.

  A couple of months later, Perrin Kaplan was in San Francisco to visit Silicon Graphics and discuss ways to position Project Reality. She was joined there by Don Varyu, a former news director (he had won the 1988 Edward R. Murrow Award for the best local news operation in the country) who had transitioned into public relations and been working with NOA since 1991. He was a lover of telling stories, a man who knew how to combine big ideas with small anecdotes, and as a result of this passion and talent he had earned Nintendo’s trust and was often involved in the company’s big-picture messaging. He was also usually the one who worked with Peter Main and Howard Lincoln to craft their speeches for press conferences, analysts’ meetings, and the CES shows.

  “I’m sure that Perrin already has at least a million golden ideas,” Varyu explained to the guys at SGI, “but I think something we should keep in the back of our minds throughout is the cautionary tale of 3DO.”

  The 32-bit 3DO console had only been out for a few months, but it had failed so badly that it already felt like a thing of the past. A large part of the failure was the system’s ridiculous price tag, $699, but another part was that it had been marketed so heavily as the technological answer to everything that nobody thought of it when it came to a specific anything. It was a videogame system, a movie player, and a CD-ROM device, but nobody thought of it as the videogame system, the movie player, or the CD-ROM device. Even more important than taking it as a lesson in the value of specificity, Nintendo interpreted the failure of the 3DO as proof that consumers need more than just technology. For years, Sega had been goading Nintendo into entering a technological arms race, and although they had thus far resisted, there was always that temptation to consider the what-ifs. But after 3DO, Nintendo felt even more confident in their longer-term, higher-quality strategy, particularly when it came to demonstrating patience with Project Reality.

  As Kaplan and Varyu started discussing the broad strokes of the messaging behind Nintendo’s new console, a secretary from SGI interrupted them with an urgent message. “Howard needs to speak with you immediately,” she advised Kaplan, who went outside to take the call. Minutes later she returned, looking half astonished, half petrified. “You’re not going to believe what Howard wants to do.”

  “Probably not,” Varyu replied. “But now I’m very curious to find out.”

  “How do you feel about poetry?” Kaplan asked, still with that peculiar look on her face. “Particularly poems that rhyme.”

  “Uh-oh,” Varyu replied, now sporting the same expression as Kaplan.

  Earlier that morning, Howard Lincoln had come across a quote from Tom Kalinske in which he claimed to be amazed that Nintendo “would so irresponsibly drag retailers and the entire video game . . . industry through the mud in their efforts to slow down our momentum.” Lincoln was stunned by the quote; it represented exactly how he felt, except about Sega. They were the ones who had caused this whole mess and threatened to ruin the industry with their blatant disregard for integrity. Not only was Kalinske’s quote patently ridiculous, but the timing of it was almost as offensive.

  About six weeks earlier, Sega, Nintendo, and the industry’s other major players had come to an agreement to set up a national ratings board, which would later become the Entertainment Software Ratings Board (ESRB). Dr. Arthur Pober would head the effort and work to get the operation up and running by the end of year. To supervise the ratings board and also usher the industry into maturity, Kalinske had played a vital role in creating the Interactive Digital Software Association (IDSA). Accomplishing both of these things in such a short period of time was no small task, but it had the desired effect of impressing Senator Lieberman and the other representatives, so following the second round of hearings in March, the politicians decided to give the videogame industry the autonomy to regulate itself. There was no doubt that Kalinske deserved a significant amount of credit for rallying the industry, but so did Lincoln. Pulling this off required unity, compromise, and string-pulling on the part of both leaders, but they had gotten it done and managed to save their respective companies from the clutches of Congress. Lincoln harbored no illusions that they were now friends, nor did he believe that Sega and Nintendo would ever blissfully hold hands and waltz into the next generation of videogames, but come on . . . for Kalinske to say what he’d said, and to say it so soon? Give me a break.

  Lincoln was mad and wanted a way to fire back at Kalinske. In the past that outlet had often been litigation, but here that made no sense. The most efficient and effective response would be to give an interview or issue some kind of press release. But both of these methods felt too tame, too expected, and too unmemorable. Lincoln would say something, and then Kalinske would say something back, and the word count between the two would pile up faster than dead Montagues and Capulets. What Lincoln needed w
as a way to end the conversation and make sure Nintendo had the final word—and, ideally, have some fun in the process. Over the past couple of years, and particularly the past couple of months, Nintendo had stopped remembering to have fun. That likely had a lot to do with Sega taking a bite out of Nintendo’s market share, but it was time to remember what Nintendo was all about.

  When asked what she did for a living, Perrin Kaplan used to say, “I sell joy,” and she’d been 100 percent correct. Nintendo was about wandering through the Mushroom Kingdom and saving the princess. That was what they did for a living, and it was time to bring back the fun. Yamauchi had appointed Lincoln as chairman to start making changes, and there was no better way to demonstrate this new era at Nintendo than by publicly doing something fun.

  Kaplan loved this attitude and was with Lincoln every step of the way, except when it came time to demonstrate the fun.

  “A poem?” Varyu confirmed.

  “Actually,” she revised, “a roses-are-red poem.”

  “That’s terrible.”

  “Isn’t it?”

  “Absolutely.”

  “Good, because that’s what I told him.”

  “And what did he say?”

  “He said I was right.”

  Varyu sighed with relief. What an embarrassment that would have been! After a relieved chuckle, he and Kaplan got back to discussing Project Reality. Things were going well until an hour later, when the secretary returned with news that Howard Lincoln was on the line again. This time Varyu went into the hallway with her and stated his case for why this was a terrible idea. Although Lincoln was angry with Kalinske and upset by their reaction, he could see the reason in their logic and thanked both of them for their advice.

  Once again, they felt glad to get back to their discussions about how to position Nintendo’s new 64-bit system: sophisticated but accessible, a high-powered machine but one that didn’t look intimidating. Everyone was on the same page and they appeared to be getting somewhere until, for the third time, Howard Lincoln called to discuss poetry.

  “It’s still not a good idea,” Kaplan responded in faux exasperation. “And since we last spoke, I think I’ve come up with at least ten more reasons why!”

  “Howard, buddy,” Varyu added, “I admire the effort, but you just can’t do it.”

  “Well, actually,” Lincoln replied, sounding as calm and calculating as he always did, “I can. I’m the chairman, and I’m doing it.”

  The following day Nintendo issued a press release with the poem that the new chairman had written:

  Dear Tom,

  Roses are red,

  violets are blue,

  so you had a bad day,

  boo hoo hoo hoo.

  All my best,

  Howard

  59.

  BLAST FROM THE PAST

  “Now tell me,” Olafsson said from his office in New York, as he interviewed candidates for the president’s job at Sony Computer Entertainment of America (SCEA), “what have you been up to since departing Sega?”

  The candidate chuckled. “How much time do you have?”

  Olafsson liked this guy already, and his answers further convinced Olafsson that he was the right man to run SCEA, which had been formed in May 1994 as the formal division within Sony to launch its new videogame console, PS-X. Much like he did with Sony Imagesoft and Psygnosis, Olafsson would oversee this new division, but whoever became president would be given the space to operate as he or she saw fit. Although the Sony name carried a lot of weight, there was skepticism about this venture from retailers, from distributors, and most of all from consumers. Whoever became responsible for launching the PS-X would need to be an intuitive thinker, an inspiring leader, and a smooth talker—and, as crass as it may sound, would need to have balls of steel. “But on a serious note,” Olafsson continued, “where has the world taken you?”

  The candidate, Steve Race, smirked. He loved to tell a good story. “Let’s see . . . After Sega I did a few turnaround assignments for some venture capital firms that I’ve kept in touch with over the years. Nothing wild, nothing lasting more than a couple of months, until I got a call from Philips. They wanted me to come in and evaluate this product called DBI. Have you ever seen this thing? I’d sprinkle in a few details about the piece of shit, but it’s a waste of goddamn brain space if you ask me. Anyway, I came to the conclusion very quickly that this was a noncompetitive product and they ought to shut it down. They became we, ultimately me, and I was given the exciting task of dismantling this needlessly elaborate house of cards.”

  “Is that something you take pleasure in?”

  Race shrugged. “I’m good at it, I guess. I seem to do well with putting things together, or with taking things apart.”

  “Beginnings and endings,” Olafsson said. “Well, that pretty much runs the spectrum, then. Do you not possess any areas of weakness?”

  “Oh, I’ve got plenty of those,” Race said with a grin.

  “Would you like to share?”

  “Nah,” Race replied. “If you bring me in, you’ll find out soon enough.”

  The interview progressed very nicely from there. Olafsson appreciated Race’s run-through-a-wall mentality and his ability to convince others to follow him through. This would be particularly valuable given that Sony would be selling a product nobody had ever seen, heard of, or thought about before. Race too was taken with Olafsson, whom he quickly nicknamed the “Nordic Knucklehead.”

  As Race heard more about the budgets that would be involved, and Sony’s commitment to aggressive marketing, he began to covet the chance to once again shake up the videogame industry with his heat-seeking competitive strategies and snarky brand of shenanigans. But, as at Sega, there was a lingering concern.

  “To be perfectly honest,” Race explained, “I’m very reluctant to go and work for a Japanese company. That kind of conservative micromanaging is not really for me. So can you tell me a little about what that dynamic would look like?”

  “This is an excellent question,” Olafsson replied, “and I believe you will be pleased with the answer. Essentially, Sony corporate does not fully believe in what we are doing. They have agreed to a pay a few bills and open a couple of connections, but it seems to me like they might be very happy if we just went ahead and failed spectacularly. This sounds like embellishment, perhaps, but there is a hard edge of truth to it. For example, they would prefer we don’t use the Sony name on the product, and they have already prohibited its usage on the packing.”

  “Sounds like a serious bummer.”

  “It is,” Olafsson agreed. “But with this imposed distance comes a certain level of freedom. One which I believe would suit you quite well.”

  This was mostly truth, but it was also what Olafsson knew Race needed to hear. He also knew that given Race’s reputation for either flaming out or getting bored easily, he likely wouldn’t be at the company long enough for this to become a major issue. At this specific time, Race was the right man for the job, and so Olafsson offered to protect him from the Japanese if this man, who had had a finger in Atari, Nintendo, and Sega, was willing to slap on an eye patch and come sail Sony’s pirate ship into the unknown.

  “One more question,” Olafsson said, “which I had failed to ask earlier. Sega: do you have any ill will toward them?”

  “No,” Race replied. “The opposite, actually. I think rather highly of Kalinske and what he’s got going on over there.”

  “And it will be no problem for you to compete with former colleagues?”

  “Not at all,” Race said, shaking his head in a way that made it appear weightless. “As the saying goes, the devil you know is more fun to do battle with than the devil you don’t.”

  Olafsson wasn’t quite sure the saying went this way, but he couldn’t argue with the logic of SCEA’s soon-to-be president, and he wouldn’t dare do anything to dampen that wonderful fighting spirit.

  While Olafsson was at work reeling in a blast from the past, Kalin
ske took the opportunity to welcome one of his own: Mike Fischer, the American at SOJ who had been such a great subtle peacemaker over the years.

  Fischer had been on the fence about leaving Sega of Japan, but after his father’s recent heart attack and the quintuple bypass that followed, it felt like the right time to move back to the United States. And so, in the spring of 1994, Fischer had left SOJ to join SOA and help Kalinske oversee SOE. With Sega’s rapid ascension in Europe, Fischer’s move appeared to have come at the perfect time, but as excited as Kalinske was to have a trusted colleague building European relations, he worried about what this meant for his Japanese relations. Fischer had always alerted him to things on SOJ’s radar, but now he would be flying blind.

  “Let me ask you a question,” Kalinske began, giving Fischer a tour of Sega’s headquarters at Redwood Shores, “are you at all opposed to my cloning you? That way you can work both here and in Japan?”

  “Not at all,” Fischer said with a smile, “as long as I or, rather, my clone and I, are getting paid double.”

  “Sure,” Kalinske replied, “I’ll just have to check with HR about that.”

  Although Fischer was being treated to the same wit as usual, he sensed something askew in Kalinske’s tone. “Tom, is everything okay?”

  Ninety-nine times out of a hundred Kalinske answered that question with an optimistic nonresponse, but there was something about Fischer that always relaxed his demeanor. “I don’t know,” Kalinske said, pausing to let a group of smiling employees from product developed pass by. “These are just weird times, I suppose.”

  “What kind of weird?”

  Kalinske didn’t quite know how to put it into words, but it was a very specific feeling. “It’s hard to say,” he described, scouring his mind for the best example of this wordless thing. “But it’s happening more and more lately. Okay, I realize that sounds ominous, so let me just give you an example. Earlier today I was looking at the most recent software numbers.”