The History of Video Games #21: The Birth of SEGA

Updated: Jun 7


SEGA Logo


From the mid-1980s and throughout most of the 1990s, the home console gaming market was dominated by two industry giants. Their decade-and-a-half long rivalry would become common knowledge, even outside of gaming circles. So intense was this competition that it has since been jokingly referred to as ‘The First Console War.’ We investigated one of the protagonists - Nintendo - and the consoles they created in the last few articles. Now we will investigate the competition - SEGA. Let’s dive in…



A Brief History of Sega (The Early Years)


Sega can trace its history back to 1940s Hawaii, when US businessmen Martin Bromley, Irving Bromberg, and James Humpert formed ‘Standard Games’. Their aim? To install coin-op amusement machines and slot machines (AKA ‘fruit machines’ and ‘one-arm bandits’) at military bases to entertain the troops and make a tidy profit whilst doing so. It was assumed - probably correctly - that the rapidly growing number of servicemen operating at US Military bases would appreciate the distraction such machines offered.


After the war Standard Games was sold, and 'Service Games' established in its place - its name indicating its military leanings. In 1952 the US government banned slot machines throughout its territories. In response, 'Service Games of Japan' was formed to provide slot machines for the US bases in Japan. This soon became 'Service Games Panama' which expanded its reach to the Philippines, South Korea, and the then South Vietnam. (This was before the Vietnam war and subsequent unification of the country.)


The name ‘SEGA’ - a portmanteau of Service Games - was first displayed publicly in 1954 on the Diamond Star slot machine.



SEGA Diamond Star slot machine, fruit machine, one arm bandit
The one in the middle

Allegedly, Service Games was suspected to be engaged in some rather ‘dodgy dealings’, which prompted the US Government to investigate. Service Games was subsequently dissolved on the 31st of May 1960. Less than a week later, Bromley founded two separate companies to pick up where Service Games left off - 'Nihon Goraku Bussan' and 'Nihon Kikai Seizō'.


Between them, the two companies bought up all of Service Games of Japan’s assets. Nihon Kikai Seizō - trading name ‘Sega inc.’ concentrated on creating slot machines. Goraku Bussan, trading under the name 'Utamatic, Inc.' concentrated on coin-operated amusements - principally jukeboxes. In 1964 the two companies merged, maintaining the trading name 'Nihon Goraku Bussan'.


This just goes to show that ‘Business, ah, finds a way’, and that the link between video games and gambling is far from a modern phenomenon.



From Manufacturer to Importer



About this time, a USAF officer by the name of David Rosen was stationed in Japan. In 1954 he founded the Tokyo based photo booth business ‘Rosen Enterprises’. By 1957 Rosen Enterprises was importing coin-operated games into Japan. Nihon Goraku Bussan brought out Rosen Enterprises in 1965 and formed 'Sega Enterprises Ltd.'


Sega then ceased leasing to military bases and pivoted towards the civilian commercial market, whilst also shifting its focus away from the controversial ‘one arm bandits’ in favour of the more socially acceptable coin-operated amusement machines such as jukeboxes, pinball machines and gun games.



From Importer to Manufacturer



Many of Sega’s imported machines were second hand, which required significant maintenance to keep running. To remedy this Sega began creating replacement flippers and light guns for its imported pinball machines and gun games respectively. This led Sega to develop its own games machines. Their first offering was the 1966 submarine themed Electro-Mechanical game Periscope.


The game was surprisingly successful in locations beyond its ‘natural home’ i.e. the pinball arcades. These ‘surprise hit’ locations included department stores and malls, places that rarely hosted coin-operated machines at the time.


Periscope’s success did much to cement the US$0.25 cost per play price-point which would become the standard for many future arcade games. Indeed, it has been claimed that Periscope helped to kick-start the nascent arcade game industry.



Periscope - Arcade


Video by neiarcade99 Playagame



The Video Arcade Age



Sega was sold to the US-based conglomerate 'Gulf and Western Industries' in 1969, which then created 'Sega Enterprises Inc.', and its subsidiary 'Sega Enterprises Ltd.', in 1974. Around this time Sega created their first true video arcade game - Pong-Tron - a Japanese audience-centric clone of Pong, which Atari had released two years earlier.


Sega’s fortunes fared well during the late 1970s - often referred to as The Golden age of the Video Arcade. Among its offerings were Head On (which predated Pac-Man), the iconic Frogger and the highly influential Zaxxon - the first video game to use isometric graphics.



Head On - Arcade - 1979


Video by Old Classic Retro Gaming



Frogger - Arcade - 1981


Video by CrashFan96's Gaming Channel



Zaxxon - Arcade - 1982


Video by Old Classic Retro Gaming



By 1979 Sega’s revenue grew to over US$100 million. Soon after Sega brought out the microprocessor-based video arcade game manufacturer 'Gremlin Industries', and the coin-op distributor 'Esco Boueki'. By the early 1980s, Sega had become a leading video game manufacturer, sitting among the top five operating in the US, earning a cool $214 million in revenue.



Sega Prepares to Enter the Home Console Market



Like many video arcade companies, Sega’s fortunes took a turn for the worse during the downturn in video arcade gaming in 1982. By 1983 this prompted Gulf and Western to sell its North American arcade game manufacturing organisation, and the licencing rights for its arcade games, to Bally Manufacturing.


However, Gulf and Western retained both Sega’s North American Research and Development organisation and its Japanese subsidiary, Sega Enterprises, Ltd. With the video-arcade industry seemingly in decline, Sega decided to turn its technical know-how and manufacturing experience towards the home consumer market.


Wisely, they decided to target the nascent Japanese market instead of the established US market. By doing so, they avoided entering a market that either was, or would soon be, in free-fall due to the so-called ‘Great Video Game Crash of 1983’, which many at the time had wrongly predicted would be the death of home video gaming.


The early devices Sega used to attempt to break into the Japanese home market, and the more commercially successful successor they spawned - the Sega Master System - will be the topics of the next article<