Spring+2009+Lecture+17+Notes

= __Spring 2009 Lecture 17 Notes__ =


 


 * End of 1986 – Nintendo of America started selling NES nationally
 * Arakawa felt he needed a marketing partner with strong presence in US stores
 * Turned to Worlds of Wonder (WOW) – company founded by 5 former Atari employees
 * Former Atari VP Don Kingsborough – saw new invention – founded WOW
 * New invention – toy based on animatronic tech – developed by former Disney employees
 * WOW licensed technology – developed Teddy Bear with tape recorder built-in
 * Child inserted tape – bear's mouth moved – look like it was telling story – Teddy Ruxpin
 * WOW needed marketing force to sell Teddy Ruxpin
 * Familiar with aggressive sales-force at Atari – hired on former Atari sales-representatives
 * Teddy Ruxpin released holiday season 1985 – huge sensation – hard to keep in stock
 * Next year WOW came out with another huge hit – Laser Tag
 * Laser Tag – game where people wore light-sensors – shot each other with light guns
 * WOW became big player in toy business – Nintendo saw them as desirable partner
 * 1986 Arakawa approached WOW to partner with Nintendo to market the NES
 * Deal presented to WOW entirely different than proposed deal with Atari 3 years earlier
 * Atari would have gained rights to manufacture and sell Famicom
 * WOW deal solely about distribution of NES – Nintendo retained full control of product
 * Arakawa hoped NES marketed with two of the hottest toys would bring recognition
 * WOW – composed primarily of former Atari employees – most familiar with NES
 * Believed it to be superior console to anything prior – accepted Nintendo's offer
 * Partnership worked as Arakawa hoped – WOW already had access to top retailers
 * Demos of Teddy Ruxpin and Laser Tag now included NES
 * NES quickly became hottest product WOW was pushing
 * 1986 Teddy Ruxpin hit peak sales – 1987 neither Teddy Ruxpin nor Laser Tag doing well
 * NES kept building steam – 1986 alone – 3 million NES units sold in America
 * Next year sales of NES doubled – just as popular if not more-so than Famicom in Japan
 * Huge sales meant massive commissions for WOW sales representatives
 * NES basically selling itself – Nintendo began to reconsider partnership with WOW
 * Holiday season 1987 approached – WOW made a fatal mistake
 * Thought Teddy Ruxpin would be as popular as before – made far more then could be sold
 * Large surplus of expensive robotic bear – WOW faced potential bankruptcy
 * October 1987 – Arakawa broke off Nintendo's partnership with WOW
 * WOW preparing to lay off sales-force – Arakawa hired WOW sales force at Nintendo
 * Ironically – Nintendo ended up with same sales-force it once tried to get with Atari (since WOW sales for included the former Atari sales force)
 * 1986 Nintendo received its first real competition – from Sega
 * Sega is not Japanese word – abbreviation of Service Games
 * Company is Japanese – founded by Americans – can be traced back to Marty Bromley
 * Bromley – ran game rooms in then US territory of Hawaii
 * Game rooms included coin-op machines – such as slot machines
 * Faced severe restrictions after US laws passed in 1951 against use of slot-machines
 * Government confiscating slot machines – Bromley and father bought machines back
 * Shipped machines to Japan – Service Games founded in May 1952
 * Bromley set up game rooms in Japan to entertain US troops stationed there
 * Japan – early 1950's – almost 3rd-World Nation – still recovering from WWII
 * Service Games flourished due to US soldiers there
 * Bromley manufacturing his own machines – including jukeboxes
 * Manufacturing plant – Nippon Kikai Seizo - Service Games – Nippon Koraku Bussan
 * Became one of three largest coin-op amusement companies in Japan
 * Other two – Taito and Rosen Enterprises Ltd.
 * Bromley had two partners at time who stayed in Japan to run business
 * 1964 – David Rosen new partner – merged Service Games with Rosen Enterprises
 * Merged company called Sega Enterprises, Ltd.
 * Rosen – originally from NY – served in US Air Force during Korean War
 * Serving in Japan – saw Japanese people as highly industrious – wouldn't stay poor long
 * Decided to start business there – started before officially discharged from Air Force
 * After discharged – went back to US to further college education – ran business from US
 * Business art-based – portrait-drawing from photos big in Japan
 * Rosen sent US photos to Japan to have portraits drawn from them
 * Business failed – Rosen returned to Japan to start new business – run while living there
 * Found Japan entered growth phase – required photo-IDs for everyone
 * Needed IDs for things from work/school applications to getting rice-ration cards
 * 1953 – Japanese photo-studios charged 250 yen – 70 cents by conversion rates of the time
 * Photos took about 3 days to be developed and delivered to customers
 * Rosen knew US had self-automated photo-booths – cost 25 cents – photo done instantly
 * Rosen researched – found photo-booths took photos that faded after one or two years
 * No good – Japan needed photos for official IDs – needed to last four or five years
 * Found problem easily fixed – photo-booths took pictures without negatives
 * Used positive-paper – if process was done at right temperatures photos would last
 * No temperature controls in US photo-booths – pictures only for novelty purposes
 * Temp controls too costly – Rosen hired Japanese worked to develop photos by hand
 * Workers sat behind booth – monitored temperature conditions as film developed
 * Ideal solution – Japanese economy weak – people looking for jobs – could be hired cheap
 * New photo-business called Nifun Shashin - “two minute photo”
 * Brand of photo-booths called Photorama – charged 150-200 yen – 40-50 cents
 * Less than 250 yen of regular studios – also done in few minutes rather than few days
 * Business wildly successful – people lined up for hours to get photos at Photorama booths
 * Rosen quickly able to set up over 100 Photorama booths around Japan
 * Too successful – Japanese photographers began complaining about Photorama
 * Protested to US consulate that Rosen was taking their customers away
 * Consulate asked Rosen to help – he offered to license Photorama booths to photographers
 * Possibly first ever franchise business in Japan
 * Franchising led to immediate profits – over time killed Rosen's business
 * More than doubled Photorama locations – soon imitators arose – no patent on Photorama
 * Early 1960's Rosen closed Photorama business – had already entered into other ventures
 * Rosen importing electro-mechanical games from US to Japan
 * Heavy import tariffs on “luxury items” – spent a lot of money bringing in games
 * Most imported games shooting games – placed at some of 100 locations for Photorama
 * Charged 20 yen per-play – 6 cents – even at low price made back investment in 2 months
 * Began setting up arcades featuring his machines at movie theatres
 * Company – Rosen Enterprises Ltd. – top amusement corporation in Japan
 * Closest competitors – aforementioned Service Games and Taito
 * Rosen tried bringing other amusement ideas to Japan
 * Mechanical golf-game – computer read speed and direction of ball players hit into net
 * Didn't catch on – Japanese saw golf as outdoor game – other ideas also not successful
 * Changed when Rosen brought bowling to Japan – amazing success
 * Rosen only ever opened a single bowling alley – others quickly copied him
 * 1960's – bowling was the activity to do in Japan
 * Abandoned in 70's – taken over by Nintendo's Laser Skeet Ranges
 * More competitors to coin-op business appearing in Japan by end of 1964
 * Rosen discussed 3-way merger with Service Games and Taito
 * Taito backed out – Rosen Enterprises, Ltd/Service Games merge – Sega Enterprises, Ltd.
 * Sega simply bought import games for a while – eventually built its first mechanical game
 * Periscope – Sega's 1st self-made game – discussed prior – featured periscope-style viewer
 * Only made for Japanese use – soon international orders started coming in
 * Sega decided to charge $1295 to sell game overseas – US operators complained
 * Felt no game priced over $1200 could ever pay for itself
 * Sega recommended charging a quarter per-play – became industry-standard
 * Periscope big hit – Sega quickly made more games – 10 new games a year ready to export
 * So successful – Bromley, Rosen, other partners talking going public
 * Only 3 years after merger – idea turned out to be too ambitious
 * Sega would have been 1st foreign company on Japanese stock exchange post WWII
 * Instead of selling stock – decided to sell entire company
 * Spoke to American companies – 1967 – finally sold to Gulf & Western – oil company
 * Sale left Rosen CEO of Sega through 1972 – Bromley/other partners retired millionaires
 * Rosen became close with heads of Gulf & Western – they saw his entrepreneurial nature
 * Offered spin-off US-listed company – Rosen Chairman/CEO/2nd-largest share-holder
 * Sega acquired large American arcade company – Gremlin – Sega's manufacturing dpt.
 * Sega US branch/Gremlin – Sega ended 1970's major video-arcade supplier in US/Europe
 * Early 1980s – Rosen sense video-games growing at uncontrolled rate
 * Predicted pending disaster – gave speech suggesting Sega should make arcade kits
 * Allow arcade operators to convert older games to new ones – no need to buy new cabinets
 * Similar in spirit to General Computer enhancement boards/Nintendo's arcade cartridges
 * At time speech considered blasphemous – Rosen booed for even suggesting it
 * Late 1981 – Rosen proposed Gulf & Western buy out minority share-holders
 * Included Rosen himself – Gulf & Western did – Rosen agreed to stay as corporate adviser
 * In this role Rosen saw the collapse he had predicted
 * 1983 Gulf & Western wanted out of business – sold Sega's US assets to Bally/Midway
 * Contacted Rosen to offer to sell Sega Enterprises, Ltd. to him for $38 million
 * Rosen found backers to get money – once again took control of Sega in March 1984
 * Hayao Nakayama – one of Rosen's backers – took on role of CEO of Sega
 * Nakayama decided Sega needed to diversify products in wake of crash
 * Saw Nintendo's huge success with Famicom – thought Sega should launch own console
 * Sega's Mark III console launched in Japan
 * Mark III used more powerful processor then Famicom – Zilog Z-80 processor
 * Mark III had nearly twice as much RAM as Famicom
 * When released Nintendo controlled nearly 90% of Japanese home video-game market
 * Sega couldn't make a dent – Mark III did not fare well in Japan
 * Nakayama set his sights on America – October 1986 – Sega released Mark III in US
 * Renamed console Master System for US market
 * Master System more powerful than NES – better graphics and more colors
 * Sega had strong arcade-presence – Sega never directly released products in US before
 * Nintendo also big arcade presence – but had sold things in US previously – Donkey Kong
 * Sega licensed all games to other companies – like Coleco – to distribute in US
 * Master System marked Sega's first direct entry into US market
 * Though technologically superior to NES – Sega lacked consumer product experience
 * Tried to mimic Nintendo and NES in many ways
 * Master System's controllers seemed modeled after NES controllers
 * Used same rectangle design with left-side plus-shape pad and right-side buttons
 * No start/select buttons on Master System controller
 * Draw-back since most NES games let users pause game using start button
 * Had to pause Master System games via pause button on console – inconvenient
 * Pause button right next to reset button and identically shaped – caused obvious problems
 * Controllers had one thing NES didn't – hole in center of directional pad
 * Let players screw-in tiny joysticks – allowed for play slightly similar to older consoles
 * Master System – like NES and others – used interchangeable cartridges
 * Also used other media for games – game cards
 * Cards looked like small plastic credit cards with metal connectors on one end
 * Cards held less info than cartridges – but cheaper to produce
 * Thus sold for less money – still not many game cards made
 * Nintendo packaging Super Mario Bros. with NES – Sega tried to do similar thing
 * Used its own popular arcade game – Hang On – motorcycle racing game
 * One of top games at arcades – didn't convert as well as Super Mario Bros. did to home
 * Arcade had handle-bar controllers – deluxe version had full motorcycle-model for control
 * Home version used standard controller – seemed less interactive, slower, and just plain
 * People went to stores to ask for “system which played Mario” – few noticed Hang On
 * Marketing stand-point – Sega vastly underpowered (not as much marketing force) compared to Nintendo
 * Sega's consumer products division formed only in April 1986
 * Only had 2 employees – worked out of small room in back of Sega's coin-op division
 * Had to arrange for outside agency to handle marketing of Master System
 * 2 months after joining Sega – had to make an 1,800-square-foot booth at June CES 1986
 * Displayed Master System at show – many attendees never even heard of Sega
 * Some mistook Sega for food company Saga Foods
 * Made comments that it was odd for a food distributor to enter video-game business
 * Master System not as widely distributed as NES – still found in most major cities in US
 * NES, Master System, and recently re-released Atari 7800 often side-by-side at stores
 * 7800 least expensive of 3 consoles – had huge library of games – played all VCS games
 * 7800 games looked dated compared to newer consoles – quickly vanished from shelves
 * Master System most expensive – sold with Hang On for $139
 * NES Control Deck set sold with Super Mario Bros. for $129.95
 * NES Action Set came with addition of Zapper and Duck Hunt for $149
 * Master System had similar set – featured Light Phaser and Safari Hunt – also at $149
 * Even with less powerful system – Nintendo had number of advantages
 * Early WOW partnership gave it marketing strength with retailers – NES became hot item
 * Sega struggled to meet with retailers and to get recognition for its system
 * Nintendo had stronger name-recognition in US
 * Donkey Kong second only to Pac-Man and Ms. Pac-Man in US arcade history
 * Donkey Kong even had his own cartoon – furthered Nintendo name in America
 * Nintendo games had similar themes – similar cabinet artwork – used family of characters
 * When Nintendo broke away with Punch Out – Donkey Kong still seen sitting in audience
 * Recognizable characters furthered Nintendo's brand- identity
 * Sega arcade games were in US sooner – but no similar themes/characters creating identity
 * Nintendo had stronger games – Mario more popular than Hang-On in arcades/at home
 * Nintendo had other popular and recognizable arcade games brought to NES
 * Donkey Kong, Donkey Kong Junior, Popeye, etc.
 * Hiroshi Yamauchi also saw importance of establishing relationships with other publishers
 * Nintendo got exclusive partnerships with popular companies to make NES games
 * Namco, Taito, Bandai (leading Japanese toy company) – biggest names at first
 * Capcom and Konami became some of Nintendo's most important partners in 1980's
 * Nintendo also established the “Nintendo Seal of Approval” for games
 * Meant to ensure only quality software on NES through Nintendo approval-process
 * Tried to show that NES would avoid tons of lackluster games like VCS had
 * Approval process and seal may or may not have made big difference to games
 * No Purina Chase the Chuck Wagon or Rubik's Cube on NES, though
 * Customers also felt more secure seeing the Nintendo Seal on NES games
 * Sega simply could no overcome all of Nintendo's advantages
 * Master System never even came close to matching sales of NES


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