Sega Corporation is a Japanese video game company that is owned by Sega Sammy Holdings. It is based in Tokyo and creates many popular game series for arcades and video game consoles. These include 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 called Nihon Goraku Bussan. Soon after, it bought the assets of its earlier company, Service Games of Japan. In 1965, it became known as Sega Enterprises, Ltd., after buying Rosen Enterprises, a company that imported coin-operated games. Sega created its first coin-operated game, Periscope, in 1966. In 1969, Sega was bought by Gulf and Western Industries. After the arcade business declined in the early 1980s, Sega began making video game consoles, such as the SG-1000 and Master System, but faced competition from systems like the Nintendo Entertainment System. In 1984, Sega executives David Rosen and Hayao Nakayama led a management buyout with support from CSK Corporation.
In 1988, Sega released the Mega Drive, known as the "Genesis" in North America. The Mega Drive had limited success in Japan, but the Genesis became popular worldwide after the release of Sonic the Hedgehog in 1991 and briefly outsold the Super Nintendo Entertainment System in the United States. In 2001, after several failed consoles like the 32X, Saturn, and Dreamcast, Sega stopped making its own consoles and became a company that develops and publishes games for others. It was bought by Sammy Corporation in 2004. In 2015, Sega Holdings Co., Ltd. was created, and Sega Corporation was renamed to Sega Games Co., Ltd. Its arcade division was later split into Sega Interactive. In 2020, Sega Games and Sega Interactive merged to form Sega Corporation again.
Sega has international offices, including Sega of America in Irvine, California, and Sega Europe in London. Its development studios include internal teams that create games under brands like Ryu Ga Gotoku Studio and Sonic Team. Other studios include Sega Sapporo Studio, which supports Tokyo-based teams and helps develop games, and Atlus, along with five studios in the UK and Europe: Creative Assembly, Sports Interactive, Sega Hardlight, Two Point Studios, and Rovio Entertainment (including Ruby Games). Sega is one of the world’s largest makers of arcade games, and its mascot, Sonic, is well-known globally. Sega is known for its video game consoles, creativity, and innovations. In recent years, it has faced criticism for some business choices and the quality of its games.
As part of Sega Sammy Holdings, Sega also owns a toy and amusement machine company called Sega Fave. This includes its arcade development and manufacturing divisions, as well as two animation studios: TMS Entertainment, which creates and distributes anime, and Marza Animation Planet, which specializes in computer-generated 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 stationed there due to World War II. After the war ended, the founders sold Standard Games in 1945 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 U.S. 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 coin-operated slot machines to U.S. bases in Japan. In 1955, all five men formed Service Games Panama to manage the company’s global operations. Over the next seven years, the company expanded to South Korea, the Philippines, and South Vietnam. The name "Sega" was first used in 1954 on a slot machine called the Diamond Star, which was an abbreviation of Service Games.
In 1960, Service Games of Japan was shut down after investigations by the U.S. government found problems with 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., distributed and operated coin-operated machines like jukeboxes. The two companies merged in 1964, keeping the name Nihon Goraku Bussan.
In 1954, David Rosen, an American Air Force officer in Japan, started a photo booth business in Tokyo. This company became Rosen Enterprises and began importing coin-operated games into Japan in 1957. In 1965, Nihon Goraku Bussan bought Rosen Enterprises to form Sega Enterprises, Ltd. Rosen became the CEO, and Stewart became president. LeMaire was the director of planning. Soon after, Sega stopped renting machines to military bases and focused on selling coin-operated amusement machines instead of slot 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 used light and sound effects that were considered new and was very popular in Japan. It was later sold in Europe and the United States and helped set a standard price of 25 cents for arcade games in the U.S. Sega was surprised by its success and made between eight and ten games each year for two years. Periscope’s success started a "technological renaissance" in the arcade industry, leading to more games with sound and pictures. However, copying of Sega’s games caused the company to stop exporting its games around 1970.
In 1969, Sega was sold to 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 and renamed it Sega Enterprises, Inc. Sega released its first video-based game, Pong-Tron, in 1973. Even though Taito’s game Space Invaders became popular in 1978, Sega did well during the arcade video game boom of the late 1970s, earning over $100 million by 1979. 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 became a manager of Sega’s Japanese operations. By the early 1980s, Sega was one of the top five arcade game makers in the U.S., with revenues 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 at the time. 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 research and development team in North America and its Japanese subsidiary, Sega Enterprises, Ltd. As the arcade business struggled, Nakayama, president of Sega Enterprises, Ltd., pushed the company to use its hardware skills to enter the home video game market in Japan. This led to the creation of the SC-3000 computer and the SG-1000 home video game system. The SG-1000 sold 160,000 units in 1983, more than Sega expected, but it sold fewer units than Nintendo’s Famicom. Part of the reason was that Nintendo worked with outside developers to create more games, while Sega was slower to do so.
In November 1983, Rosen announced he would leave his role as president of Sega Enterprises, Inc. in 1984. Jeffrey Rochlis became the new president and CEO. 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 help from Computer Service, a software company. Isao Okawa, head of CSK, became chairman, and Nakayama became CEO of Sega Enterprises, Ltd.
In 1985, Sega began working on the Mark III, an improved version of the SG-1000. For North America, the Mark III was rebranded as the Master System, designed to look futuristic and appeal to Western buyers. The Mark III was released in Japan in October 1985. Even though it had better hardware than Nintendo’s Famicom in some areas, it was not successful at first. To help sell the Master System in North America, Sega partnered with Tonka, a toy company, to market it like a toy. However, Tonka’s marketing efforts were not effective, and sales in North America were low. By 1992, production of the Master System in North America stopped. It sold between 1.5 million and 2 million units in the region, which was less than Nintendo and Atari, which had 80% and 12% of the market. The Master System was more successful in Europe, where its sales matched Nintendo’s NES. As late as 1993, the Master System had 6.25 million active users
Corporate structure
Since 2004, Sega has been a subsidiary of Sega Sammy Holdings. Sega's global headquarters are in Shinagawa, Tokyo, Japan. Sega also has offices in Irvine, California (as Sega of America), in London (as Sega Europe), in Seoul, South Korea (as Sega Publishing Korea), and in Singapore, Hong Kong, Shanghai, and Taipei. In other regions, Sega has contracted distributors for its games and consoles, such as Tectoy in Brazil. Sega has had offices in France, Germany, Spain, and Australia; those markets have since contracted distributors.
Relations between the regional offices have not always been smooth. Some conflict in the 1990s may have been caused by Sega president Nakayama and his admiration for Sega of America. According to Kalinske, "There were some guys in the executive suites who really didn't like that Nakayama in particular appeared to favor the US executives. A lot of the Japanese executives were maybe a little jealous, and I think some of that played into the decisions that were made." By contrast, author Steven L. Kent said Nakayama bullied American executives and that Nakayama believed the Japanese executives made the best decisions. Kent also said Sega of America CEOs Kalinske, Stolar, and Moore dreaded meeting with Sega of Japan executives.
After the formation of Sega Group in 2015 and the founding of Sega Holdings, the former Sega Corporation was renamed Sega Games Co., Ltd. Under this structure, Sega Games was responsible for the home video game market and consumer development, while Sega Interactive Co., Ltd. comprised Sega's arcade game business. The two were consolidated in 2020, renamed as Sega Corporation, and Sega Group Corporation was formally absorbed into Sega Corporation in 2021. The company includes Sega Networks, which handles game development for smartphones. Sega Corporation develops and publishes games for major video game consoles and has not expressed interest in developing consoles again. According to former Sega Europe CEO Mike Brogan, "There is no future in selling hardware. In any market, through competition, the hardware eventually becomes a commodity … If a company has to sell hardware then it should only be to leverage software, even if that means taking a hit on the hardware."
Sega Fave Corporation, originally known as Yonezawa Toys and acquired by Sega in 1991, has created toys for children's franchises such as Oshare Majo: Love and Berry, Mushiking: King of the Beetles, Lilpri, Bakugan, Jewelpet, Rilu Rilu Fairilu, Dinosaur King, and Hero Bank. Products released in the West include the home planetarium Homestar and the robot dog iDog. The Homestar was released in 2005 and has been improved several times. Its newest model, Flux, was released in 2019. The series is developed by the Japanese inventor and entrepreneur Takayuki Ohira. As a recognized specialist for professional planetariums, he has received numerous innovation prizes and supplies large planetariums internationally with his company Megastar. Sega Toys also inherited the Sega Pico handheld system and produced Pico software. The company also develops and sells arcade games that were previously held under Sega until 2024.
Since the late 1960s, Sega has been affiliated with operations of bowling alleys and arcades through its former Sega Entertainment Co., Ltd. subsidiary in Japan, as well as a number of other smaller regional subsidiaries in other countries. Initiatives to expand operations in other territories, such as the US, UK, France, Spain, and Taiwan, have been more short-lived, and following the 85.1% majority acquisition of Sega Entertainment's shares in November 2020 to mitigate losses caused by the COVID-19 pandemic, Sega's arcades in Japan since have been run under Genda Incorporated's Genda GiGO Entertainment division. Its DartsLive subsidiary creates electronic darts games, while Sega Logistics Service distributes and repairs arcade games.
In 2015, Sega and Japanese advertising agency Hakuhodo formed a joint venture, Stories LLC, to create entertainment for film and TV. Stories LLC has exclusive licensing rights to adapt Sega properties into film and television, and has partnered with producers to develop series based on properties including Shinobi, Golden Axe, Virtua Fighter, The House of the Dead
Legacy
Sega is one of the world's most active makers of arcade games, having created more than 500 games, 70 game series, and 20 arcade system boards since 1981. 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 succeeded in ways that its console games sometimes have not. Hideki Sato, who helped design much of Sega’s hardware, said a major problem for Sega was not combining its arcade and console divisions more closely to work together better.
The Sega Genesis is often listed among the best video game consoles in history. In 2014, USgamer’s Jeremy Parish said the Genesis helped change the market by breaking Nintendo’s near-complete control, created modern sports game series, and made television games popular in the UK. Sega’s president, Jack Kalinske, believed Sega had made progress by creating games for older players and by 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.
Although the Sega Saturn was not commercially successful, it is still praised for its collection of games. However, it was criticized for not having enough famous game series. Edge magazine wrote that fans who liked the Saturn still remember 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 troubled but also one of the greatest systems ever made.
The Dreamcast is remembered for being ahead of its time, with ideas that later became standard in consoles, such as motion controls and online features. 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 decline of arcade gaming culture. He said the Dreamcast gave hope that fast, fun games and colorful graphics would not be replaced by realistic war games. Jeremy Parish noted that the Dreamcast’s wide variety of games contrasted with the lack of creativity in the industry during the next decade.
Damien McFerran of Eurogamer wrote that Sega’s choices in the late 1990s were "a tragic example of overconfidence and poor business decisions." Travis Fahs of IGN said that after Sega was taken over by Sammy, the company made fewer games, worked more with Western studios, and reduced its arcade operations. However, he added that Sega was one of the most creative and productive game developers in history, and nothing would change that. In 2015, Sega president Haruki Satomi told Famitsu that in the previous ten years, Sega had "betrayed" the trust of older fans and hoped to rebuild the Sega brand. During the promotion of the Sega Genesis Mini, Sega executive Hiroyuki Miyazaki said, "I feel like 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 popular games like Dragon Quest and Final Fantasy on Sega consoles hurt its success in Japan. In his 2018 book The Sega Arcade Revolution, Marc Horowitz linked 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 "as of this writing, Sega is in its best financial condition in the past two decades. The company has endured."
Companies founded by ex-employees
Over the years, many employees from large Japanese game companies, like Capcom and Square, have left to start their own studios. One of the first was Arc System Works, which was founded in 1988 by programmer Minoru Kidooka.
In October 1990, Hiroshi Hamagaki and Tomo Kimura left to start Genki. The company 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 had previously designed Virtua Fighter, founded DreamFactory in November 1995 as a subsidiary of Square. He brought many employees from Sega and Namco with him. DreamFactory created 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 bought 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. Isopod Labs developed Vigilante 8 Arcade.
Marvelous Entertainment was founded in 1997 by Haruki Nakayama, the son of then-Sega president Hayao Nakayama. Haruki 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, Masanobu Tsukamoto, a former Sega marketer, founded Land Ho! in 1999 with members of the General team who had also worked on the game.
Artoon was founded on August 27, 1999, by Naoto Ohshima, co-creator of Sonic the Hedgehog, and Yoji Ishii, an executive. 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 wholly-owned subsidiary of AQ Interactive. The studio was absorbed into AQ in 2010, and Ohshima, Ishii, and key Artoon members formed a new studio, Arzest, around the same time.
studiofake was founded by Keiji Okayasu, an AM2 programmer and director, on September 19, 2000. The studio co-developed Odama with Vivarium. In May 2022, it was renamed to FUN Corporation.
Kaya Takafumi, a Sonic Team planner, left Sega in 2001 and founded Signal Talk the following year. The studio developed a mahjong game called 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. This followed the merger of UGA into Sonic Team the previous month. Mizuguchi was joined by senior vice-president Shuji Utsumi. Q Entertainment 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. He founded Prope on May 23, 2006. In 2018, Naka joined Square Enix, where he created Balan Wonderworld with Arzest. He later announced that Prope had been reduced to a one-man company in April 2017. In 2022, Naka was arrested for insider trading.
Kenji Sasaki, director of the Sega Rally series and other racing titles, left in 2005 and founded Bitster, an arcade developer, in June 2006.
Kotaro Hayashida, who had left Sega to join Game Arts in 1996, founded mobile game developer Liber Entertainment in September 2006, ten years later.
Grounding Inc. was founded on February 7, 2007, by Mineko Okamura, producer of Space Channel 5; Yukio Futatsugi, creator of Panzer Dragoon; and 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 specializes in 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. The studio developed Orgarhythm.
Tez Okano, director of Segagaga and Astro Boy: Omega Factor, established indie studio HUGA in January 2014. HUGA specializes in retro-styled side-scrolling shooters.
Shoichiro Kanazawa, a member of AM3, founded the support studio ArAtA in June 2016.
In November 2021, Toshihiro Nagoshi and Daisuke Sato left Sega and joined NetEase. They formed Nagoshi Studio with other former Sega employees. The studio is currently developing Gang of Dragon.