Is Sega the next Atari?

Former Sega of America CEO Tom Kalinske bemoans 20 years of wrong decisions from the Sonic maker, weighs in on whether Nintendo should go mobile

As CEO of Sega of America in the early 1990s, Tom Kalinske oversaw the company during its glory days, when all eyes in the industry were glued to the titanic struggle for console superiority between the Super Nintendo and Sega Genesis.

Times have changed, to put it mildy. Kalinske left Sega in 1996 and soon signed up with educational entertainment company LeapFrog, where he remains a vice chairman today. The intervening decades have seen Nintendo's best days as well as its worst, and the company sits in a distant third place in the current console race. Meanwhile, Sega hasn't been the same since Kalinske left. The Sega Saturn bombed. The Dreamcast signaled an end to Sega's days as a first-party hardware maker, and the ensuing decade-plus as a third-party publisher hasn't been all wine and roses, either.

"[Sega] seem to have made the wrong decisions for 20 years."

Kalinske spoke with earlier this month at the DICE Summit, just days after Sega announced staff reductions and the relocation of its San Francisco offices. Though Kalinske said he doesn't keep especially close tabs on the mainstream gaming space these days, he was shocked to hear his old company was pulling out of San Francisco. And while it might have seemed a foregone conclusion that Sega couldn't compete in the gaming industry once giants like Sony and Microsoft got involved, Kalinske dismissed the notion.

"It was not inevitable," Kalinske said. "It could have been avoided if they had made the right decisions going back literally 20 years ago. But they seem to have made the wrong decisions for 20 years."

Regardless of Sega's ability to best the deep-pocketed intruders, Kalinske said it could have joined them had the right decisions been made.

"One of the key reasons why I left Sega is when we had the opportunity to work with Sony, when [Sony Interactive CEO] Olaf Olafsson, [Sony Corporation of America president and CEO] Mickey Schulhof and I had agreed we were going to do one platform, share the development cost of it, share the probable loss for a couple years on it, but each benefit from the software we could bring to that platform. Of course, in those days, we were much better at software than they were, so I saw this as a huge win. We went to Sony and they agreed, 'Great idea.' Whether we called it Sega-Sony or Sony-Sega, who cared? We go to Sega and the board turned it down, which I thought was the stupidest decision ever made in the history of business. And from that moment on, I didn't feel they were capable of making the correct decisions in Japan any longer."

Regardless, there's still hope for Sega as a brand. And Kalinske should know, having helped breathe new life into flagging brands numerous times over his career, from giving The Flintstones a jolt with the introduction of a line of vitamins to bringing Barbie back from the brink in the early '70s. There's never a shortage of experts willing to pile dirt on a brand before it's truly dead, but as Kalinske emphasized in his DICE talk, "The Experts Are Always Wrong." That said, brands aren't immortal, and Kalinske did identify one thing strong enough to kill them.

"You have to really make a lot of mistakes to kill a strong brand."

"Stupidity," Kalinske laughed. "They're hard to kill. You have to really make a lot of mistakes to kill a strong brand. I do think some great brands obviously have been destroyed, Atari being one of them. Why didn't that survive? I think there's a lot of bad decision making involved in killing brands like that. I hope Sega isn't the same thing."

But even a destroyed brand has some value, some potential for future success. The Atari brand still exists, and people are trying to resuscitate it with a mix of familiar franchises, real money gaming, and fitness apps. Kalinske said even he and original Atari founder Nolan Bushnell saw value in it, as they attempted to acquire the name somewhat recently.

"And we failed in that effort, obviously," Kalinske said. "It was maybe five years ago. We weren't able to put it together. At the time it was owned by the French, and the French didn't want to sell."

Moving back to the big brands of today, many analysts and experts have called on Nintendo to get out of the hardware market and bring its valuable stable of intellectual properties to new platforms, specifically mobile devices. While it's another case that might fall under Kalinske's "The Experts are Always Wrong" dictum, he thought they might only be half-wrong in this case.

"I don't think [Nintendo] should give up hardware or consoles," Kalinske said. "I am surprised that they haven't formed a division to extend the IP. I'd love to play some of their games on my iPhone or iPad. It's really a form of marketing for them in a sense. They wouldn't even need to make that much money off it, but it would keep their brands relevant with the users, including people that are older, like me. So it seems to me it's a marketing mistake, but I don't think they should give up what they're doing because they're damn good at it."

"I don't think [Nintendo] should give up what they're doing because they're damn good at it."

In some ways, Leap Frog faces the same dilemma as Nintendo. It has its own hardware and software built using a proprietary language, so anyone wanting to play LeapFrog content has to play it on LeapFrog devices. And while the company makes consoles and tablets, they aren't exactly as ubiquitous as an iPad.

"We're struggling with that," Kalinske acknowledged. "It's a big internal issue and there's a lot of work going on in that area I really can't talk about. But from my perspective, I would love to see a way [to have LeapFrog content on mobile devices]--so long as it was profitable, because you don't want to do these things if they're not at least a little profitable. And that's what they're struggling with, because most of the education content on iOS doesn't make a profit. Almost none on Android makes a profit."

Kalinske's complaints with the educational app market on mobile devices should sound familiar to anyone who's worked on entertainment apps in recent years.

"There's an awful lot of stuff available that's losing money and isn't very good," Kalinske said. "So you have a mess out there right now. This is one of the criticisms I have of Apple. They should take a look at all the educational content on their site right now, it's terribly confusing to parents, and they ought to do a better job of curating that. Put some standards in and make sure that anything saying it's educational actually is, and get rid of a lot of stuff that isn't very good."

That seems unlikely to happen in the near term. Kalinske has been in the interactive edutainment field since 1996, and one constant he's seen is that the seismic overhauls that reshape interactive entertainment every few years don't seem to happen at the same pace.

"It's really hard to make a profit off doing education well. It's pretty easy, relatively, to do entertainment well."

"Education's been much slower," Kalinske said. "The adoption of really good technology has been much slower. It's still slow. It's still happening. It's great to see Massive Open Online Courses (MOOCS), but it's not great to see MOOCS that are boring. My whole thing has been to figure out what the great curriculum is, and then figure out ways to make it fun and interesting, whether that's for a young child or a college age student. Why does it have to be dull and boring lectures?"

There's a reason behind that slower pace of adoption for educational games, and it's one Kalinske said he learned back when he was still at Sega.

"We were doing the Pico, and Pico was a really good system for young kids," Kalinske said. "And we were doing $100 million in business from the Pico and its software. But it had a lower gross margin on it than obviously, entertainment software. And this is again during that time when Japan was making decisions for me. And they said to me, 'Stop wasting your time on that. It takes too much effort and too much money. You could just do another Sonic title and do a lot more revenue, a lot more profitably. It's easier.' And it struck me. That's why Disney hasn't been that good at education, or any of the other big entertainment companies, like Sony. Because it's hard. It's really hard to make a profit off doing education well. It's pretty easy, relatively, to do entertainment well.

"With the amount of storage that one can do today at a reasonable cost, no matter what the subject is, if we wanted to present that curriculum to children or even teenagers in a way that was most interesting to them, we could do that today," Kalinske added. "And we're not doing it. And that frustrates me."

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Latest comments (12)

Dan Griliopoulos Senior Games Writer, Improbable7 years ago
Whatever their long-term goals, I think Sega of Europe made two superb purchasing decisions - Creative Assembly and Sports Interactive. Two consistently-performing studios who have high-ranking, annual franchises that have both fans and critics consistently scoring 80%+. Whoever bought those needs a pat on the back.
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Francisco Javier QA Engineering & Coordination, Saber Interactive Spain7 years ago
The intervening decades have seen Nintendo's best days as well as its worst, and the company sits in a distant third place in the current console race.

3ds+WiiU = 57 millions of hardware.

How are Sony and Microsoft doing?

Edited 2 times. Last edit by Francisco Javier on 23rd February 2015 3:49pm

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Darren Adams Managing Director, ChaosTrend7 years ago
Whoever bought those needs a pat on the back.
I believe Gary Rowe (currently at Greenman) had a hand in this, you can thank him. :)
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Show all comments (12)
Is it possible for one executive to take claim for "steering SEGA through the glory days.."?
The influence of the Japanese management over SEGA and its divisions is always down played when some executives like to point to success - or carp when failure ensues!

From a Japanese perspective - the board of SEGA Sammy would feel correct in thinking that they may have received some very ripe executive direction from their Western divisions over the last couple of years - many of those leaving on golden parachutes and claiming big things? [imho]
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Jeff Kleist Writer, Marketing, Licensing 7 years ago

The board in Japan took cues from Kalinske because he was succeeding where they were failing. Kalinske didn't respect the hierarchy, and said when he thought things were stupid, and worse, was often proven correct. So once the Mega Drive/Genesis was on top, they felt justified in elbowing him out from below. Yes, Kalinske and those he hired and inspired turned the company around, got them into Wal-Mart, fixed the monstrosity that was the original Sonic, and a who,e lot more.

NIntendo would be very wise to listen to him. He kicked their ass before, and the picture they're painting is very similar to Sega's downfall. But
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Antoine Baker Artist/Designer/QA Tester 7 years ago
@Fransisco Javier

The Wii U has been out for two years and has only sold 9 Million Units. The XBOX One and Playstation 4 have been out in HALF that time and has sold more units (The former nearing 15 million units and the latter nearing 20 million). The DS family will always sell, as there is no other competition in the portable market. Portables usually transcend generations as they just release newer models of the same thing. So that's not helping the point on consoles for Nintendo as that demonstrates a weakness in the company.
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Morville O'Driscoll Blogger & Critic 7 years ago
Times have changed, to put it mildy. Kalinske left Sega in 1996
So he was on-watch when the 32x was released? And the Mega CD?
Meanwhile, Sega hasn't been the same since Kalinske left. The Sega Saturn bombed. The Dreamcast signaled an end to Sega's days as a first-party hardware maker
As I intimate above, I'd say Sega started to lose ground before he left - the tide was already turning against them in 1994/1995, and I say this as a core-games consumer in the mid-90s.

Interestingly, I think Sega losing so massively in quick succession - the Game Gear, the Sega CD, the 32x, the Saturn, the Dreamcast - has made them far better in the long-run. Where other Japanese publishers took their time to look outside their home country, or even their own company, Sega drove home their brand name outside of Japan. Sega was always larger in Europe and the US than Japan, and their movement in PC can be seen as an extension of that Western attachment, together with the (almost humiliating) loss in the console domain.

Edited 3 times. Last edit by Morville O'Driscoll on 24th February 2015 12:34pm

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Jeff Kleist Writer, Marketing, Licensing 7 years ago
Kalinske left precisely because of stuff like the 32x, though he was a believer in the Sega CD. The big problem the CD has was that the vast majority of their titles were FMV stuff, a good deal of it pulled from a cancelled Hasbro effort. No one really knew what to do with it, and by the time they figured it out, it was pretty much cooked. He saw the 32x as a distraction, and felt the Saturn was a mess.

Kalinske was a big proponent of the Sony co-op as stated above. Good ideas, poorly executed, pissing off your third parties, losing EA, starting to sound familiar :)

The terrible thing is that the Dreamcast was great, but the brand was so poisoned to consumers and third parties (yet still sold faster than WiiU), it's innovations still echo in everything we do today. Standard screen in the controller, standard online play, DLC, sandbox games, all debuted on Dreamcast.
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Andre Kling David 3D Artist, Social Point SL7 years ago
@Antonie, do you really see nintendo as a competition to the ps4 or xbone? I really dont get why everybody wants to see this as a race, if nintendo can sell their console and make profit, that the whole point. The games on the wiiU are different than the ones found on the hardcore consoles ps4 and Xb1.
There is a place in the market for more than one console, as soon as nintendo release more of their magic those numberswill increase, and as a parent i see more value on a nintendo game for my child than in a ps4 or xb1 game.
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Jeff Kleist Writer, Marketing, Licensing 7 years ago

The bigger question is, how would that game be different on a non-nintendo console? Especially considering that most NINTENDO owners own at least one other console, what is the real world benefit to the consumer?

I guarantee you Microsft and Sony couldn't give them sweetheart royalty rates fast enough, so there's business sense too
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Carlos Brandão Director, Game Rental7 years ago
Sega did pretty well with their amazing 16 bit machine, The Mighty Genesis, at those time, but after that, Sega didn't keep up the same triumph with their successors consoles: the strange Saturn and the unfinished Dreamcast. They made gaming focused in the hardcore audience only, letting behind, the mainstream gamers. They didn't try to bring the games to people that never played before just like Nintendo did with Wii.

Ofcourse, they made history indeed, but now is only an old brand, that loses it's importance, each day. Sega products makes part of good memories in the heads of the true fan...BTW, the rank is: PS4 sold 19.1 Millions of units, Xbox One sold 11.3 Millions of units and Wii U sold 9.1 Millions of units.


Edited 5 times. Last edit by Carlos Brandão on 25th February 2015 5:33pm

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Alfonso Sexto Lead Tester, Ubisoft Germany7 years ago
Bit of the "Betteridge's law of headlines" right there, which I never consider a good idea, but regardless.

I don't think Sega can be put at the same level. Wrong decision? totally! But I don't believe we'll see another game crash, at least not outside of certain sectors currently injecting air into the bubble they are sitting over.

Just my opinion, of course.

Edited 1 times. Last edit by Alfonso Sexto on 26th February 2015 9:09am

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