Sega Corporation is a Japanese video game company owned by Sega Sammy Holdings. It is based in Tokyo and creates many popular game series for arcades and consoles, including Sonic the Hedgehog, Angry Birds, Football Manager, Phantasy Star, Puyo Puyo, Super Monkey Ball, Bayonetta, Total War, Virtua Fighter, Megami Tensei, Sakura Wars, Persona, and Yakuza. From 1983 to 2001, Sega also made its own video game consoles.
Sega was started in 1960 by Martin Bromley and Richard Stewart as a company named Nihon Goraku Bussan. Soon after, it took over the business of Service Games of Japan. In 1965, it changed its name to Sega Enterprises, Ltd., after buying Rosen Enterprises, which imported coin-operated games. Sega made its first coin-operated game, Periscope, in 1966. In 1969, Sega was bought by Gulf and Western Industries. In the early 1980s, when arcade games became less popular, Sega began making video game consoles, such as the SG-1000 and Master System. However, Sega faced competition from systems like the Nintendo Entertainment System. In 1984, executives David Rosen and Hayao Nakayama, with support from CSK Corporation, bought the company.
In 1988, Sega released the Mega Drive (called the "Genesis" in North America). The Mega Drive had difficulty competing in Japan, but the Genesis became popular outside Japan after the release of Sonic the Hedgehog in 1991. It briefly sold more units than the Super Nintendo Entertainment System in the United States. In 2001, after several unsuccessful consoles like the 32X, Saturn, and Dreamcast, Sega stopped making its own consoles and became a company that develops and publishes games for others. In 2004, Sega was bought by Sammy Corporation. In 2015, Sega Holdings Co., Ltd. was created, and Sega Corporation was renamed to Sega Games Co., Ltd. Its arcade division was split into Sega Interactive. In 2020, Sega Games and Sega Interactive merged to form Sega Corporation again.
Sega's international offices, Sega of America and Sega Europe, are located in Irvine, California, and London. Sega has several development studios, including internal research and development teams that use the Ryu Ga Gotoku Studio and Sonic Team brands for major game series. Sega Sapporo Studio supports Tokyo-based teams and helps develop some games. Other studios include Atlus and five in the UK and Europe: Creative Assembly, Sports Interactive, Sega Hardlight, Two Point Studios, and Rovio Entertainment (including Ruby Games). Sega is known for creating many arcade games, and its mascot, Sonic, is well-known worldwide. Sega is recognized for its video game consoles, creativity, and innovations.
As the entertainment division of Sega Sammy Holdings, Sega also owns Sega Fave, a company that makes toys and arcade machines. Sega Fave includes two animation studios: TMS Entertainment, which creates, produces, and distributes anime, and Marza Animation Planet, which specializes in computer-generated (CG) animation.
History
In May 1940, American businessmen Martin Bromley, Irving Bromberg, and James Humpert started a company called Standard Games in Honolulu, Hawaii. They wanted to sell coin-operated amusement machines, such as slot machines, to military bases because more soldiers were arriving due to World War II. After the war ended in 1945, the founders sold Standard Games and created a new company called Service Games the next year. The name Service Games was chosen because the company focused on military work. In 1952, the US government banned slot machines in its territories, so Bromley sent employees Richard Stewart and Ray LeMaire to Tokyo to start Service Games of Japan, which provided slot machines to US bases in Japan. A year later, all five men formed Service Games Panama to manage Service Games worldwide. Over the next seven years, the company expanded to include distribution in South Korea, the Philippines, and South Vietnam. The name Sega, short for Service Games, was first used in 1954 on a slot machine called the Diamond Star.
In 1960, Service Games of Japan was shut down after the US government investigated its business practices. On June 3, 1960, Bromley created two new companies, Nihon Goraku Bussan and Nihon Kikai Seizō, to take over Service Games of Japan’s business. Nihon Kikai Seizō, which operated as Sega, Inc., made slot machines. Nihon Goraku Bussan, which operated as Utamatic, Inc. under Stewart, distributed and operated coin-operated machines, like jukeboxes. These two companies joined in 1964 and kept the name Nihon Goraku Bussan.
At the same time, David Rosen, an American Air Force officer in Japan, started a photo booth business in Tokyo in 1954. This business became Rosen Enterprises, and in 1957, it began importing coin-operated games to Japan. In 1965, Nihon Goraku Bussan bought Rosen Enterprises to form Sega Enterprises, Ltd. Rosen became the CEO and managing director, while Stewart became president and LeMaire became the director of planning. Soon after, Sega stopped leasing machines to military bases and shifted focus from slot machines to other coin-operated amusement machines. Sega imported games like Rock-Ola jukeboxes, pinball machines from Williams, and gun games from Midway Manufacturing.
Because Sega imported used machines that needed frequent repairs, the company began making replacement parts for its games. This led to Sega creating its own games. The first arcade game Sega made was the submarine simulator Periscope, released worldwide in the late 1960s. Periscope had special light and sound effects and was very successful in Japan. It was later sold in Europe and the United States and helped set the standard price of 25 cents per game in US arcades. Sega was surprised by Periscope’s success and made between eight and ten games each year for the next two years. Periscope’s success started a new wave of innovative arcade games in the late 1960s and early 1970s. However, because of illegal copying of games, Sega stopped exporting its games around 1970.
In 1969, Sega was bought by the American company Gulf and Western Industries, but Rosen stayed as CEO. In 1974, Gulf and Western made Sega Enterprises, Ltd. a subsidiary of an American company called Sega Enterprises, Inc. Sega released its first video game, Pong-Tron, in 1973. Even though Taito’s Space Invaders came out in 1978, Sega did well during the arcade video game boom of the late 1970s. By 1979, Sega’s revenue reached over $100 million. During this time, Sega bought Gremlin Industries, which made microprocessor-based arcade games, and Esco Boueki, a coin-operated machine distributor owned by Hayao Nakayama. Nakayama was placed in charge of Sega’s Japanese operations. In the early 1980s, Sega was one of the top five arcade game makers in the United States, with revenue reaching $214 million. In 1979, Sega released Head On, a game that inspired the "eat-the-dots" gameplay later used in Pac-Man. In 1981, Sega licensed Konami’s Frogger, its most successful game until then. In 1982, Sega introduced Zaxxon, the first game with isometric graphics.
After the arcade business declined starting in 1982, Gulf and Western sold its North American arcade manufacturing and licensing rights to Bally Manufacturing in 1983. Gulf and Western kept Sega’s North American research and development operations and its Japanese subsidiary, Sega Enterprises, Ltd. As the arcade business struggled, Sega Enterprises, Ltd. president Nakayama pushed the company to move into the home video game market in Japan. This led to the creation of the SC-3000 computer. Learning that Nintendo was making a games-only console called the Famicom, Sega developed its first home video game system, the SG-1000, alongside the SC-3000. Rebranded versions of the SG-1000 were sold in other countries. The SG-1000 sold 160,000 units in 1983, which was much more than Sega’s goal of 50,000 units. However, Nintendo’s Famicom sold better because Nintendo worked with many outside game developers, while Sega was hesitant to collaborate with companies it competed against in arcades.
In November 1983, Rosen announced he would step down as president of Sega Enterprises, Inc. on January 1, 1984. Jeffrey Rochlis was named the new president and CEO of Sega. Soon after the SG-1000 was launched, and after the death of Gulf and Western’s founder Charles Bluhdorn, the company began selling its other businesses. In 1984, Nakayama and Rosen arranged for Japanese investors to buy Sega’s Japanese operations with financial support from Computer Service, a major Japanese software company. Sega’s Japanese assets were bought for $38 million by a group led by Rosen and Nakayama. Isao Okawa, head of CSK, became chairman, and Nakayama became CEO of Sega Enterprises, Ltd.
In 1985, Sega began working on the Mark III, a redesigned version of the SG-1000. For North America, Sega rebranded the Mark III as the Master System, with a futuristic design meant to appeal to Western buyers. The Mark III was released in Japan in October 1
Corporate structure
Since 2004, Sega has been owned by Sega Sammy Holdings. Sega’s main office is in Shinagawa, Tokyo, Japan. Sega also has offices in Irvine, California (Sega of America), London (Sega Europe), Seoul, South Korea (Sega Publishing Korea), and in Singapore, Hong Kong, Shanghai, and Taipei. In other areas, Sega works with companies to sell its games and consoles, such as Tectoy in Brazil. Sega once had offices in France, Germany, Spain, and Australia, but those areas now use other companies to sell its products.
Relationships between Sega’s offices in different countries have not always been easy. In the 1990s, some problems may have happened because Sega’s president, Nakayama, supported Sega of America. According to Kalinske, “Some people in Japan did not like that Nakayama seemed to favor the American team. Some Japanese workers felt jealous, and that may have influenced decisions made at the time.” However, author Steven L. Kent said Nakayama treated American leaders unfairly and believed Japanese workers made better choices. Kent also said that American leaders at Sega of America, including Kalinske, Stolar, and Moore, were nervous about meeting with Japanese leaders.
After forming Sega Group in 2015 and creating Sega Holdings, the old Sega Corporation was renamed Sega Games Co., Ltd. Under this system, Sega Games focused on selling video games and creating products for home use, while Sega Interactive Co., Ltd. handled arcade games. In 2020, these two companies were combined and renamed Sega Corporation. In 2021, Sega Group was officially merged into Sega Corporation. The company includes Sega Networks, which makes games for smartphones. Sega Corporation now creates and sells games for major video game consoles but has not said it will make consoles again. Former Sega Europe leader Mike Brogan said, “Selling hardware is not the future. Hardware becomes common over time, and companies should only sell it to help their software, even if it means losing money on the hardware itself.”
Sega Fave Corporation, which Sega bought in 1991 (originally called Yonezawa Toys), makes toys for children’s games like Oshare Majo: Love and Berry, Mushiking: King of the Beetles, Lilpri, Bakugan, Jewelpet, Rilu Rilu Fairilu, Dinosaur King, and Hero Bank. Products sold in the West include the home planetarium Homestar and the robot dog iDog. The Homestar was first sold in 2005 and has been updated several times. Its newest version, Flux, came out in 2019. The series was created by Takayuki Ohira, a Japanese inventor and businessperson who has won many innovation awards and works with his company, Megastar, to build planetariums worldwide. Sega Toys also inherited the Sega Pico handheld system and made games for it. The company also creates and sells arcade games that were once managed by Sega until 2024.
Since the late 1960s, Sega has been connected to bowling alleys and arcades through its former company, Sega Entertainment Co., Ltd., in Japan, and smaller companies in other countries. Attempts to grow in places like the United States, the United Kingdom, France, Spain, and Taiwan were not long-lasting. In November 2020, Sega bought most of Sega Entertainment’s shares to reduce losses from the COVID-19 pandemic. Since then, Sega’s arcades in Japan have been run by Genda Incorporated’s Genda GiGO Entertainment division. Its DartsLive company makes electronic darts games, while Sega Logistics Service fixes and sells arcade machines.
In 2015, Sega and a Japanese advertising company, Hakuhodo, created a partnership called Stories LLC to make movies and TV shows. Stories LLC has the right to turn Sega’s games into films and TV series and has worked with producers to create shows based on Shinobi, Golden Axe, Virtua Fighter, The House of the Dead, and Crazy Taxi.
Sega makes games using its own research and development teams. The Sonic the Hedgehog series, managed by Sega’s Sonic Team, is one of the most popular game series. Sega has also bought other companies, including Atlus, Play Heart, Creative Assembly, Hardlight, Sports Interactive, Two Point Studios, and Rovio Entertainment.
Sega’s software research and development teams started with one group led by Hisashi Suzuki, who was in charge of R&D for a long time. As home video game consoles became more popular, Sega added three Consumer Development (CS) teams. In October 1983, Sega expanded its arcade development to three teams: Sega DD No. 1, 2, and 3. After the release of Power Drift, Sega reorganized its teams into the Sega Amusement Machine Research and Development Teams, or AM teams. Each team was separate, and there was competition between the arcade and consumer development teams.
In 2000, Sega reorganized its arcade and console teams into ten independent studios led by top designers. These studios were United Game Artists, Smilebit, Hitmaker, Sega Rosso, WOW Entertainment, Overworks, Wave Master, Amusement Vision, Sega-AM2, and Sonic Team. Sega encouraged these studios to try new ideas and gave them more freedom to approve projects. In 2003, Hisao Oguchi became company president and said he wanted to bring the studios back together. Before Sega was bought by Sammy, the company started merging its studios into the main company. Toshihiro Nagoshi, who once led Amusement Vision, said this time was “a labor of love” for Sega, as it taught creative workers how to manage a business.
Sega still has first-party studios as part of its research and development division. Sonic Team is now Sega’s CS2 research and development department. Sega’s CS3 or Online department created games like Phantasy Star Online 2, and Sega’s AM2 department has worked on projects like the smartphone game Soul Reverse Zero. Toshihiro Nagoshi stayed with Sega as chief creative officer and worked on the Yakuza series until 2021. Other studios include Ignited Artists and Play Heart.
Legacy
Sega is one of the world's most active arcade game producers. Since 1981, it has created more than 500 games, 70 game series, and 20 arcade system boards. Guinness World Records has recognized Sega for this achievement. Eurogamer’s Martin Robinson described Sega’s arcade games as lively, diverse, and full of showmanship. He also noted that Sega’s arcade games have been more successful than its console games. Hideki Sato, who helped design Sega’s hardware, said a major problem for Sega was not combining its arcade and console divisions to work better together.
The Sega Genesis is often considered one of the best video game consoles in history. In 2014, USgamer’s Jeremy Parish said the Genesis helped change the market by breaking Nintendo’s dominance, creating modern sports games, and making television games popular in the UK. Kalinske believed Sega was innovative by making games for older players and introducing the “street date” idea, which released Sonic the Hedgehog 2 at the same time in North America and Europe. Sega of America’s marketing for the Genesis influenced how later consoles were promoted.
The Sega Saturn is well known for its game collection, but it did not have many popular game series. Edge magazine wrote that fans still remember the Saturn for games like Burning Rangers, Guardian Heroes, Dragon Force, and Panzer Dragoon Saga. Sega’s management was criticized for how it handled the Saturn. Greg Sewart of 1Up.com said the Saturn will be remembered as one of the most difficult and greatest systems ever made.
The Dreamcast was ahead of its time, introducing features that later became standard in consoles, such as motion controls and online play. Its end is linked to changes in the video game industry. Duncan Harris wrote in 1001 Video Games You Must Play Before You Die that the Dreamcast’s end marked the end of arcade gaming culture. He said the Dreamcast gave hope that fast, fun games and bright graphics would not be replaced by realistic war games. Jeremy Parish noted that the Dreamcast had a wide variety of games, unlike the more traditional games that followed.
Damien McFerran of Eurogamer said Sega’s decisions in the late 1990s were “a tragic example of overconfidence and poor business choices.” Travis Fahs of IGN noted that after the Sammy takeover, Sega made fewer games and relied more on Western studios, reducing its arcade operations. He also said, “Sega was one of the most creative and productive developers in the industry, and nothing will change that fact.” In 2015, Sega president Haruki Satomi told Famitsu that Sega had disappointed older fans in the past and wanted to rebuild the Sega brand. During the promotion of the Sega Genesis Mini, Sega executive Hiroyuki Miyazaki said, “Sega has never been the top video game company, but many people love Sega because of its underdog image.” Former Sega leaders said the lack of Dragon Quest and Final Fantasy games on Sega consoles hurt its success in Japan. In The Sega Arcade Revolution, Horowitz connected Sega’s decline in arcades after 1995 to changes in the industry. He said Sega’s biggest problems came from losing key creative workers like Yuji Naka and Yu Suzuki after the Sammy takeover. However, he concluded that “Sega is now in the best financial position it has been in the past 20 years. The company has endured.”
Companies founded by ex-employees
Over the years, many employees from large Japanese game companies, such as Capcom and Square, have left to start their own studios. Among the first was Arc System Works, founded in 1988 by programmer Minoru Kidooka.
In October 1990, Hiroshi Hamagaki and Tomo Kimura left to start Genki, which later developed the popular Tokyo Xtreme Racer (Shutokō Battle) series.
After working as a designer for the first two Tekken games for Namco, Seiichi Ishii, who designed Virtua Fighter, founded DreamFactory in November 1995 as a subsidiary of Square. He brought many employees from Sega and Namco with him. DreamFactory developed Tobal No. 1, its sequel, Ehrgeiz, and The Bouncer. Due to financial problems at Square, DreamFactory became independent in 2001. As of 2024, Ishii, who now lives in Montreal, continues to manage the studio from his home.
Adrian Stephens and Peter Morawiec of Sega Technical Institute founded Luxoflux in January 1997 after Sega of America closed STI in December 1996. Luxoflux developed Vigilante 8 and the True Crime series for Activision, which acquired the studio in October 2002. Activision closed Luxoflux in February 2010. Stephens and Morawiec had already left the studio in 2006 and started Isopod Labs the following year, which developed Vigilante 8 Arcade.
Marvelous Entertainment was established in 1997 by Haruki Nakayama, the son of then-Sega president Hayao Nakayama. Nakayama was responsible for the media mix development of Sakura Wars. In 2011, Marvelous merged with AQ Interactive and Liveware to become MarvelousAQL (now the second version of Marvelous).
After a short time at General Entertainment, where he worked on Pen Pen TriIcelon, former Sega marketer Masanobu Tsukamoto founded Land Ho! in 1999 with members of the General team who also worked on the game.
Artoon was founded on August 27, 1999, by Naoto Ohshima, co-creator of Sonic the Hedgehog, and executive Yoji Ishii. The studio included members from Sonic Team and Team Andromeda, such as Manabu Kusunoki, the art director for the Panzer Dragoon series. Artoon developed Blinx: The Time Sweeper, Yoshi’s Island DS for Nintendo, and worked with Mistwalker on Blue Dragon. In 2005, Artoon became a subsidiary of AQ Interactive and was absorbed into AQ in 2010. Around the same time, Ohshima, Ishii, and key Artoon members formed a new studio called Arzest.
studiofake was founded by AM2 programmer and director Keiji Okayasu on September 19, 2000, and co-developed Odama with Vivarium. In May 2022, it was renamed to FUN Corporation.
Sonic Team planner Kaya Takafumi left Sega in 2001 and founded Signal Talk the following year, which developed the mahjong game Maru-Jan.
Tetsuya Mizuguchi, creator of Space Channel 5 and Rez, and head of United Game Artists, founded Q Entertainment in October 2003 after leaving Sega following the merger of UGA into Sonic Team the previous month. He was joined by senior vice-president Shuji Utsumi. Q developed Lumines, Meteos, and Rez HD. In 2014, Mizuguchi started Enhance, Inc., which released Tetris Effect and Rez Infinite.
Yuji Naka, co-creator of Sonic the Hedgehog, president of Sonic Team, and Sega executive officer, left during the development of the 2006 Sonic reboot and founded Prope on May 23, 2006. In 2018, he joined Square Enix, where he created Balan Wonderworld with Arzest. In 2022, he was arrested for insider trading.
Kenji Sasaki, director of the Sega Rally series and many racing titles, left in 2005 and founded arcade developer Bitster in June 2006.
Kotaro Hayashida, who left Sega in 1996 to join Game Arts, founded mobile game developer Liber Entertainment in September 2006.
Grounding Inc. was founded on February 7, 2007, by Space Channel 5 producer Mineko Okamura, Panzer Dragoon creator Yukio Futatsugi, and designer Noboru Hotta, a founding member of Q Entertainment. The studio developed Crimson Dragon, Sakura Samurai: Art of the Sword, and Space Channel 5 VR: Kinda Funky News Flash! Grounding also creates board games, including Machi Koro.
Yu Suzuki founded Ys Net in 2008 and officially left Sega in September 2011. Ys Net developed Shenmue III (a project funded through Kickstarter) and the Apple Arcade title Air Twister.
Takeshi Hirai, who left Sega with Mizuguchi to become chief technology officer at Q Entertainment, founded Neilo in 2010, developing Orgarhythm.
Tez Okano, director of Segagaga and Astro Boy: Omega Factor, established indie studio HUGA in January 2014, which focuses on retro-styled side-scrolling shooters.
Shoichiro Kanazawa, a member of AM3, founded the support studio ArAtA in June 2016.
After leaving Sega in November 2021, Toshihiro Nagoshi and Daisuke Sato joined NetEase, where they formed Nagoshi Studio with other former Sega employees. The studio is currently developing Gang of Dragon.