Sega Corporation is a Japanese video game company that is owned by Sega Sammy Holdings. Its main office is in Tokyo. Sega creates many popular video game series for arcades and consoles, such as 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. Between 1983 and 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 took over the business of Service Games of Japan. In 1965, the company 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. After the arcade business slowed down in the early 1980s, Sega began making video game consoles, starting with the SG-1000 and Master System. However, Sega faced competition from systems like the Nintendo Entertainment System. In 1984, Sega executives David Rosen and Hayao Nakayama led a buyout of the company with help from CSK Corporation.

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. The Genesis briefly sold more units than its main competitor, the Super Nintendo Entertainment System, in the United States. In 2001, after several unsuccessful consoles like the 32X, Saturn, and Dreamcast, Sega stopped making consoles and became a third-party developer and publisher. In 2004, Sega was bought by Sammy Corporation. In 2015, Sega Holdings Co., Ltd. was created. Sega Corporation was renamed to Sega Games Co., Ltd., and its arcade division became 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 its internal research and development teams (which use the Ryu Ga Gotoku Studio and Sonic Team names for key game series), Sega Sapporo Studio (which supports Tokyo-based teams and helps develop games), and Atlus (including its research and development divisions). Sega also has 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 worldwide. Sega is known for its video game consoles, creativity, and innovations. In recent years, Sega has faced criticism for some business choices and the quality of its games.

As the entertainment division of Sega Sammy Holdings, Sega is part of the Sega Sammy Group. Sega also owns a toy and amusement machine company called Sega Fave, which includes its arcade development and manufacturing teams. Sega Fave also has two animation studios: TMS Entertainment, which makes, produces, 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 provide coin-operated amusement machines, like slot machines, to military bases because more soldiers were stationed there 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 needs.

In 1952, the U.S. government banned slot machines in its territories. To continue their business, Bromley sent employees Richard Stewart and Ray LeMaire to Tokyo to start Service Games of Japan, which would provide slot machines to U.S. bases in Japan. A year later, 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.

In 1960, Service Games of Japan was shut down after investigations by the U.S. government found illegal 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. Kikai Seizō, which operated as Sega, Inc., made slot machines. Goraku Bussan, which worked as Utamatic, Inc. under Stewart, distributed and operated coin-operated machines, like jukeboxes. The two companies merged in 1964, keeping the name Nihon Goraku Bussan.

Around the same time, David Rosen, an American Air Force officer in Japan, started a photo booth business in Tokyo in 1954. His 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, while Stewart was president and LeMaire was the director of planning. Sega later stopped providing games to military bases and focused on coin-operated amusement machines. It 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 game Sega made was the submarine simulator Periscope, released worldwide in the late 1960s. It used light and sound effects that were new at the time and was popular in Japan. Periscope was later sold in Europe and the U.S., helping set a standard price of 25 cents per game in American arcades. Sega made between 8 and 10 games each year for two years after Periscope’s success. The game’s popularity started a new wave of innovative arcade games in the late 1960s and early 1970s. However, copying of Sega’s games led the company to stop exporting its products around 1970.

In 1969, Sega was sold to the American company Gulf and Western Industries, though 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-based game, Pong-Tron, in 1973. Even though Taito’s Space Invaders was a hit 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 U.S., 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 at the time. In 1982, Sega introduced Zaxxon, the first game with isometric graphics.

By 1982, the arcade business started to decline. In September 1983, Gulf and Western sold its North American arcade manufacturing and licensing rights to Bally Manufacturing. Gulf and Western kept Sega’s research and development team in the U.S. and its Japanese subsidiary, Sega Enterprises, Ltd. As the arcade business slowed, Sega’s president in Japan, Nakayama, pushed the company to use its hardware skills to enter the home video game market. This led to the development of the SC-3000 computer and the SG-1000 home console. The SG-1000 sold 160,000 units in 1983, more than Sega expected, but it sold fewer units than Nintendo’s Famicom. This was partly because Nintendo partnered with many outside developers, while Sega was slower to work 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. 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 major Japanese 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, a redesigned version of the SG-1000. For North America, the Mark III was rebranded as the Master System, with a futuristic design meant to appeal to Western customers. The Mark III was released in Japan in October 1985. Although it had more powerful hardware than Nintendo’s Famicom in some areas, it did not sell well at first. Sega made its own games and got permission to port games from other developers. To market the Master System in North America, Sega partnered with Tonka, a toy company, to sell it as a toy

Corporate structure

Since 2004, Sega has been part of 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 Sega products.

Relationships between Sega’s offices in different countries have not always been easy. In the 1990s, some conflicts may have happened because Sega’s president, Nakayama, supported Sega of America. According to Kalinske, “Some people in leadership did not like that Nakayama seemed to favor the U.S. team. Some Japanese leaders felt jealous, and this may have influenced decisions.” In contrast, author Steven L. Kent said Nakayama treated American leaders unfairly and believed Japanese leaders made better choices. Kent also said that Sega of America leaders, Kalinske, Stolar, and Moore, were nervous about meeting with leaders from Sega of Japan.

After forming the Sega Group in 2015 and creating Sega Holdings, the old Sega Corporation was renamed Sega Games Co., Ltd. Under this structure, Sega Games focused on selling video games and developing 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 Corporation was officially merged into Sega Corporation. The company includes Sega Networks, which makes games for smartphones. Sega Corporation creates and sells games for major video game consoles but has said it does not plan to make consoles again. Former Sega Europe CEO Mike Brogan said, “There is no future in selling hardware. Hardware becomes common over time. If a company sells hardware, it should only do so to help sell software, even if it means losing money on the hardware.”

Sega Fave Corporation, originally called Yonezawa Toys and bought by Sega in 1991, makes toys for children’s characters 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. Homestar was released in 2005 and has been updated several times. Its newest version, Flux, came out in 2019. The series was created by Japanese inventor Takayuki Ohira, who also runs Megastar, a company that provides planetariums worldwide. Sega Toys also inherited the Sega Pico handheld system and made games for it. The company also creates and sells arcade games, which it managed until 2024.

Since the late 1960s, Sega has operated bowling alleys and arcades through its former Sega Entertainment Co., Ltd. subsidiary in Japan and smaller companies in other countries. Efforts to expand to places like the U.S., UK, France, Spain, and Taiwan were short-lived. 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 managed by Genda Incorporated’s Genda GiGO Entertainment division. Its DartsLive subsidiary makes electronic darts games, while Sega Logistics Service handles repairs and distribution of arcade games.

In 2015, Sega and the Japanese advertising company Hakuhodo formed a partnership called Stories LLC to create entertainment for films and TV. Stories LLC has exclusive rights to make movies and TV shows based on Sega’s characters, such as Shinobi, Golden Axe, Virtua Fighter, The House of the Dead, and Crazy Taxi.

Sega creates games using its own research and development teams. The Sonic the Hedgehog series, managed by Sega’s Sonic Team division, is one of the best-selling game series. Sega has also bought other game studios, including Atlus, Play Heart, Creative Assembly, Hardlight, Sports Interactive, Two Point Studios, and Rovio Entertainment.

Sega’s software development teams began with one group led by Hisashi Suzuki, Sega’s long-time head of research and development. As home consoles became popular, Sega added three Consumer Development (CS) divisions. In October 1983, arcade development teams were split into three groups: 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 focused on different areas, and there was competition between arcade and consumer development divisions.

In 2000, Sega restructured 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. These groups were encouraged to experiment and had more freedom to make decisions. In 2003, Hisao Oguchi, who became Sega’s president, planned to combine these studios again. Before Sega was bought by Sammy, the company started merging its subsidiaries back into the main company. Toshihiro Nagoshi, who once led Amusement Vision, said this period was “in many ways a labor of love” for Sega, as it taught creative teams how to run a business.

Sega still operates first-party studios as parts of its research and development division. Sonic Team is part of Sega’s CS2 research and development department, while Sega’s CS3 or Online department created games like Phantasy Star Online 2. Sega’s AM2 department recently worked on projects like the smartphone game Soul Reverse Zero. Toshihiro Nagoshi stayed involved in research and development as Sega’s chief creative officer while working 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 over 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, varied, and full of creativity. He also noted that Sega’s arcade games often succeeded where its console games did not. Hideki Sato, who helped design Sega’s hardware, said a major mistake was not combining Sega’s arcade and console divisions more closely to work together better.

The Sega Genesis is often listed as one of the best video game consoles in history. In 2014, USgamer’s Jeremy Parish said the Genesis helped change the market by challenging Nintendo’s dominance, creating modern sports game series, and making television games popular in the UK. Sega’s leadership believed the Genesis was innovative because it made games for older players and introduced the idea of releasing Sonic the Hedgehog 2 at the same time in North America and Europe. Sega of America’s marketing strategies 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 faced criticism for not having enough famous game series. Edge magazine noted that loyal 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 challenging and impressive systems in history.

The Dreamcast is known for introducing ideas that later became standard in video game consoles, such as motion controls and online features. Its failure is linked to changes in the video game industry. In 1001 Video Games You Must Play Before You Die, Duncan Harris wrote that the Dreamcast’s end marked the decline of arcade gaming culture. He said the Dreamcast gave hope that the fun and colorful style of games would not be replaced by realistic war games. Jeremy Parish compared the Dreamcast’s wide variety of games to the lack of creativity in the industry during the following decade.

In Eurogamer, Damien McFerran wrote that 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, worked with more Western studios, and reduced its arcade operations. He also said, “Sega was one of the most active, creative, and productive developers the industry has ever known, and nothing that has happened to Sega since will change that.” In 2015, Sega president Haruki Satomi told Famitsu that Sega had disappointed older fans in the past ten years 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 company in the video game industry, 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, Horowitz linked Sega’s decline in arcades after 1995 to broader industry changes. He said Sega’s biggest problems came from losing key creative talent, like Yuji Naka and Yu Suzuki, after the Sammy takeover. However, he concluded that “Sega is in its best financial condition in the past two decades and 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. 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, a studio that later developed the popular Tokyo Xtreme Racer (Shutokō Battle) series.

After working as a designer on 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 developed Tobal No. 1, its sequel, Ehrgeiz, and The Bouncer. Because of financial problems, DreamFactory became independent in 2001. As of 2024, Ishii, who now lives in Montreal, continues to manage the studio from his home.

In January 1997, Adrian Stephens and Peter Morawiec of Sega Technical Institute founded Luxoflux 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, the following year, started Isopod Labs, which 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, former Sega marketer Masanobu Tsukamoto 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. 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 AM2 programmer and director Keiji Okayasu on September 19, 2000. The studio co-developed Odama with Vivarium. In May 2022, it was renamed to FUN Corporation.

In 2001, Sonic Team planner Kaya Takafumi left Sega and founded Signal Talk the following year. Signal Talk 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. This followed the merger of UGA into Sonic Team the previous month. Mizuguchi 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, Naka joined Square Enix, where he created Balan Wonderworld with Arzest. He revealed in 2019 that Prope had been reduced to a one-person company in April 2017. Naka was later arrested for insider trading in 2022.

Kenji Sasaki, director of the Sega Rally series and many of the company's racing titles, left in 2005 and founded arcade developer Bitster 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 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 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. Neilo 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.