Read the interview by Time Extension:
Tom Kalinske served as the CEO and President of Sega of America from 1990-1996. During that time, Sega went from owning just a small percentage of the US video game market to beating the current market leader Nintendo. It did this through a combination of canny marketing techniques, assembling a strong software library, and directly appealing to an older audience than its competitors.
But, just as soon as Sega of America started to emerge as the dominant force in the US video game market, tensions started to emerge between it and Sega of Japan. Kalinske claims he was increasingly forced into defending bad decisions that the company's parent company was making, such as the premature release of the Sega Saturn, and had to turn down promising hardware partnerships with companies like Sony. That's despite originally joining the company on the promise of being able to run things autonomously from the States.
Time Extension: Let's start at the very beginning, what was your background before joining Sega as CEO/president? Were you aware of video games or Sega before getting the job?
Tom Kalinske: I spent 17 years at Mattel and I ended up as CEO of Mattel, but before that Mattel was a conglomerate. We owned the Ringley Bros. and Barnum & Bailey Circus, Western Publishing, Turco Tubular Steel Manufacturing Company, Audio Magnetics, Optigon Organ, Monogram Models, and of course, during that time, Intellivision.
Now, I was only in the toy business at that time. I didn’t have anything to do with any of those other companies, but I saw what happened with Intellivision when it tried to take on Atari and Atari went downhill laughably; it vanished, and so did Intellivision. So I was definitely aware of video games and I was also aware of video game technology and had certainly seen both Atari and Intellivision games. While I was with Mattel Toys, I was also aware of Sega too, because it was owned by Paramount Pictures.
Sega reported to Barry Diller who was at Paramount, and Mike Eisner, kind of interestingly, who later ran Disney. Mattel would work with Paramount on various Paramount projects, licenses, and what have you, and sometimes they would bring up Sega to us and show us what the Sega arcade business was. Because that’s all they had at the time: Sega arcades. Through that, I came to know the guy who became chairman of Sega: Hayao Nakayama.
When I went to Matchbox — which is a whole other story about how [Mattel] tried to buy Matchbox and couldn't, but a friend of mine named David Yeh who ran Universal manufacturing did — I joined with [Yeh] and we fixed [some of that company's problems]. Matchbox was in receivership so we fixed those and took Matchbox public on the New York stock exchange and it was a very difficult period.
I worked on it for three years, travelled 250 days a year, and I was never home, because Matchbox’s main business was in Europe and Australia, not so much in the US. Anyway, after we took it public, we ended up selling it to Tyco, which interestingly years later was purchased by Mattel. So Matchbox owned by [Tyco] became a Mattel property.
Time Extension: It would be interesting to hear - how did you initially get the job at Sega? And what first attracted you to the role?
Tom Kalinske: While I was running Matchbox — and after we had fixed its problems in Europe and increased its revenue and distribution and what have you — Hayao Nakayama at Sega asked me to take on the 8-bit Master System business and handle the distribution of the Master System in Europe. I took a look at it and I compared it to the NES and I told him, ‘This is not any better, there’s not any advantage to it, so I’m going to turn you down.'
But Nakayama knew me and apparently liked me, so after we had sold Matchbox and I was lying on a beach in Hawaii with my family, he tracked me down to my executive assistant and literally came to Hawaii and said, ‘You’ve got to come with me to Japan and look at 16-bit technology because I think you’re really going to like it.’ And you know, initially, I didn’t want to do it, and then he said, ‘We also have a colour handheld unit to compete with Game Boy and I think you’re really going to like that too, and you’re going to help me take on Nintendo in the Western world.’
I went back to Japan and he was right! I really, really fell in love with 16-bit technology. I saw it as a tremendous advantage over 8-bit, and I really liked what became the Game Gear handheld unit. So that’s how I landed at Sega. So my history is that it actually goes back a long way. I did know about video games and I certainly knew about Hayao Nakayama.
Time Extension: There was a 1993 Wired article that I think was trying to put in context the sudden growth of Sega under your leadership and one of the things that it alluded to was the fact that in Japan at the time it was very uncommon to compare yourself to a competitor and that Nakayama was reluctant in the start to compare themselves directly to Nintendo. It says you helped talk him around to the idea. What was that conversation like? How did you convince Nakayama to take that route?
Tom Kalinske: Before I accepted the job, I had a very frank conversation with Nakayama. I said, ‘Look, Japanese companies have a reputation for making all of the decisions for the western world, i.e. the US and Europe, back here in Tokyo, and I can’t work if that’s the way it is.’ He said, ‘No, no, no, you will be able to make the decisions for the western world.' So I had that agreement with him weeks before I joined the company. And to that point, when I joined Sega, I knew a little bit about it, but I spent a month really analyzing the situation versus Nintendo and came up with what I called my five-point plan.
I went back to Japan and met with Nakayama-san and the board of directors. And I said, ‘Okay, here’s what we’ve got to do. We’re going to take on Nintendo, but we’ve got to lower the price of our hardware from $200 to $149. We’ve got to start doing more sports titles in Europe and the United States; we’ve got to do NFL Football and MLB Baseball and NBA Basketball and in Europe FIFA soccer. We’ve got to do more American licenses, and we’ve got to do more product development/game development in the US on those types of products. We’ve got to position ourselves as the system that is for the older age group in that we do what Nintendoesn’t do. And we’ve got to position Nintendo as the little kids’ system. They’re a little toy for little kids aged 9-12. We’re the adult system for teens and college age and up. And we’ve got to really position the strategy games as being appropriate for the older age, and the sports titles and what have you. And then we’ve got to take what’s going to be our best title and pack it in with the hardware and get rid of this thing called Altered Beast because in Kansas they think that’s devil worship. And we’re going to aggressively advertise against Nintendo and make fun of them.'
Everybody in the room hated everything I said. Absolutely hated it. Including Nakayama. He eventually got up and said to me, ‘Well, nobody agrees with anything you said.’ He kicked over a chair and he started to walk out of the room, and I thought, ‘Well, that’s the shortest career anybody ever had.’ But at the door, he turned and said, ‘But when I hired you, I made the commitment that you could make the decisions for the Western world’ so go ahead and do all of these things that you have outlined and I hope they are successful, and that was it.
Time Extension: You mentioned earlier about the commitment from Nakayama that Sega of America would be able to make its own decisions, but later on it seemed like Sega of America was forced into a lot of situations based on decisions made by Sega of Japan, especially in regards to hardware. What were the conversations like in terms of pushing back on that?
Tom Kalinske: Obviously, the situation did change dramatically. It went from where I was able to do whatever basically I wanted to, to all of a sudden, I was being dictated to. And I really, at the time, didn’t understand why this was occurring. We’d been so successful, so I didn't understand why all of a sudden decisions were being forced on me from Japan, even to the degree of all that stuff I’ve talked about before on the Saturn where I was forced to introduce it, we didn’t have enough hardware, we didn’t have enough software, and then, to make matters worse, we were forced to introduce it five months earlier than we wanted — well, we didn’t want to introduce it anyway.
[At the time], I also couldn’t get Japan to look at this chipset out of Silicon Graphics – well, they did eventually look at it. Jim Clark, who was chairman of Silicon Graphics at the time. He was the guy who later founded Netscape. He called me up, we knew each other, and he lived near me actually. He wanted us to look at a chipset that they had that they thought was perfect for a video game system. And of course, Silicon Graphics was a company that was very well known for having these very advanced computers for special effects and movie-making, and what have you. And so I went over there and his chief engineer was Jensen Huang, who later founded [NVIDIA]. Anyway, I looked at it and I thought it was really good, but we of course were not responsible for hardware, we were supposed to do whatever Japan told us to do and just worry about software.
So I called up Nakayama-san and told him about what Silicon Graphics had, and he sent a team over to look at it. And they basically turned it down, saying that the chip was too hard to manufacture, it would have been too big of a chipset, and it would have had too much throw-off waste in the manufacturing process; it would have been too expensive. So that was the reason for not doing it. That same chip was later sold to Nintendo. The reason why all of a sudden, they started making the decisions for me, I later found out.
The reason was every Monday Nakayama-san would go into the so-called ‘Decision Room’ where he met with the key staff and he would beat the hell out of all of the managers and directors over and say things like, ‘Why can’t you guys get the revenue up like Tom has in the United States?’, ‘Why can’t we more successfully compete with Nintendo like Tom in the United States?’
Well, if you’re one of those managers sitting over in Tokyo and every Monday you’re getting the hell beaten out of you and yelled at by Nakayama – and he was very physical, I saw him in meetings literally slap subordinates – after a while, you start to hate this guy Tom over in the United States. And so, I stopped getting cooperation from other senior managers inside Sega Japan. I think that was why they started making the decisions for us and forcing Nakayama to overrule me in the United States. It’s kind of a strange thing, and I never found out about this until literally after I left Sega, when I was told it by several different Sega managers who have since left the company.
Time Extension: You mentioned recently about Sony and Sega potentially partnering up on a console, and that Sony had greenlit it but Sega of Japan was very reluctant. I found recently an article in The Greenville News (dated 21 May 1992) about a Sony/Sega partnership but for software for the Genesis, Game Gear, and Sega CD. I’m wondering, is that software relationship what eventually blossomed into those conversations about hardware?
Tom Kalinske: Well, the software relationship started between myself and Olaf Olafsson who was head of Sony Entertainment, and the agreement was to help them do software and literally teach them how to do software. So we literally did.
My head of R&D Joe Miller literally taught Sony engineers how to think about developing video game software and they ended up with a studio down in Santa Monica, and we sent people down there to work with them and the idea was to develop software for the Mega Drive/Genesis CD-ROM.
It was quite a good relationship and it worked pretty well, so when we started talking about what the next system should be like Olaf and I thought, let’s do one hardware system together. We’ll bear the risk and the cost of doing the new hardware system. It will be an optical system with a CD drive in it, but whoever does the best software will benefit from that revenue and that profit on the software – each company individually. So that was the deal and we talked about it, and Sony agreed to it in principle and Sega never agreed to it.
Time Extension: Do you remember what Sega of Japan’s objections were?
Tom Kalinske: Sega of Japan never agreed to it. I think Nakayama’s comments were, ‘Why should we help Sony in that way? We’ll do our own system and they can do whatever they want.’ And so, that was that.
Tom Kalinske served as the CEO and President of Sega of America from 1990-1996. During that time, Sega went from owning just a small percentage of the US video game market to beating the current market leader Nintendo. It did this through a combination of canny marketing techniques, assembling a strong software library, and directly appealing to an older audience than its competitors.
But, just as soon as Sega of America started to emerge as the dominant force in the US video game market, tensions started to emerge between it and Sega of Japan. Kalinske claims he was increasingly forced into defending bad decisions that the company's parent company was making, such as the premature release of the Sega Saturn, and had to turn down promising hardware partnerships with companies like Sony. That's despite originally joining the company on the promise of being able to run things autonomously from the States.
Time Extension: Let's start at the very beginning, what was your background before joining Sega as CEO/president? Were you aware of video games or Sega before getting the job?
Tom Kalinske: I spent 17 years at Mattel and I ended up as CEO of Mattel, but before that Mattel was a conglomerate. We owned the Ringley Bros. and Barnum & Bailey Circus, Western Publishing, Turco Tubular Steel Manufacturing Company, Audio Magnetics, Optigon Organ, Monogram Models, and of course, during that time, Intellivision.
Now, I was only in the toy business at that time. I didn’t have anything to do with any of those other companies, but I saw what happened with Intellivision when it tried to take on Atari and Atari went downhill laughably; it vanished, and so did Intellivision. So I was definitely aware of video games and I was also aware of video game technology and had certainly seen both Atari and Intellivision games. While I was with Mattel Toys, I was also aware of Sega too, because it was owned by Paramount Pictures.
Sega reported to Barry Diller who was at Paramount, and Mike Eisner, kind of interestingly, who later ran Disney. Mattel would work with Paramount on various Paramount projects, licenses, and what have you, and sometimes they would bring up Sega to us and show us what the Sega arcade business was. Because that’s all they had at the time: Sega arcades. Through that, I came to know the guy who became chairman of Sega: Hayao Nakayama.
When I went to Matchbox — which is a whole other story about how [Mattel] tried to buy Matchbox and couldn't, but a friend of mine named David Yeh who ran Universal manufacturing did — I joined with [Yeh] and we fixed [some of that company's problems]. Matchbox was in receivership so we fixed those and took Matchbox public on the New York stock exchange and it was a very difficult period.
I worked on it for three years, travelled 250 days a year, and I was never home, because Matchbox’s main business was in Europe and Australia, not so much in the US. Anyway, after we took it public, we ended up selling it to Tyco, which interestingly years later was purchased by Mattel. So Matchbox owned by [Tyco] became a Mattel property.
Time Extension: It would be interesting to hear - how did you initially get the job at Sega? And what first attracted you to the role?
Tom Kalinske: While I was running Matchbox — and after we had fixed its problems in Europe and increased its revenue and distribution and what have you — Hayao Nakayama at Sega asked me to take on the 8-bit Master System business and handle the distribution of the Master System in Europe. I took a look at it and I compared it to the NES and I told him, ‘This is not any better, there’s not any advantage to it, so I’m going to turn you down.'
But Nakayama knew me and apparently liked me, so after we had sold Matchbox and I was lying on a beach in Hawaii with my family, he tracked me down to my executive assistant and literally came to Hawaii and said, ‘You’ve got to come with me to Japan and look at 16-bit technology because I think you’re really going to like it.’ And you know, initially, I didn’t want to do it, and then he said, ‘We also have a colour handheld unit to compete with Game Boy and I think you’re really going to like that too, and you’re going to help me take on Nintendo in the Western world.’
I went back to Japan and he was right! I really, really fell in love with 16-bit technology. I saw it as a tremendous advantage over 8-bit, and I really liked what became the Game Gear handheld unit. So that’s how I landed at Sega. So my history is that it actually goes back a long way. I did know about video games and I certainly knew about Hayao Nakayama.
Time Extension: There was a 1993 Wired article that I think was trying to put in context the sudden growth of Sega under your leadership and one of the things that it alluded to was the fact that in Japan at the time it was very uncommon to compare yourself to a competitor and that Nakayama was reluctant in the start to compare themselves directly to Nintendo. It says you helped talk him around to the idea. What was that conversation like? How did you convince Nakayama to take that route?
Tom Kalinske: Before I accepted the job, I had a very frank conversation with Nakayama. I said, ‘Look, Japanese companies have a reputation for making all of the decisions for the western world, i.e. the US and Europe, back here in Tokyo, and I can’t work if that’s the way it is.’ He said, ‘No, no, no, you will be able to make the decisions for the western world.' So I had that agreement with him weeks before I joined the company. And to that point, when I joined Sega, I knew a little bit about it, but I spent a month really analyzing the situation versus Nintendo and came up with what I called my five-point plan.
I went back to Japan and met with Nakayama-san and the board of directors. And I said, ‘Okay, here’s what we’ve got to do. We’re going to take on Nintendo, but we’ve got to lower the price of our hardware from $200 to $149. We’ve got to start doing more sports titles in Europe and the United States; we’ve got to do NFL Football and MLB Baseball and NBA Basketball and in Europe FIFA soccer. We’ve got to do more American licenses, and we’ve got to do more product development/game development in the US on those types of products. We’ve got to position ourselves as the system that is for the older age group in that we do what Nintendoesn’t do. And we’ve got to position Nintendo as the little kids’ system. They’re a little toy for little kids aged 9-12. We’re the adult system for teens and college age and up. And we’ve got to really position the strategy games as being appropriate for the older age, and the sports titles and what have you. And then we’ve got to take what’s going to be our best title and pack it in with the hardware and get rid of this thing called Altered Beast because in Kansas they think that’s devil worship. And we’re going to aggressively advertise against Nintendo and make fun of them.'
Everybody in the room hated everything I said. Absolutely hated it. Including Nakayama. He eventually got up and said to me, ‘Well, nobody agrees with anything you said.’ He kicked over a chair and he started to walk out of the room, and I thought, ‘Well, that’s the shortest career anybody ever had.’ But at the door, he turned and said, ‘But when I hired you, I made the commitment that you could make the decisions for the Western world’ so go ahead and do all of these things that you have outlined and I hope they are successful, and that was it.
Time Extension: You mentioned earlier about the commitment from Nakayama that Sega of America would be able to make its own decisions, but later on it seemed like Sega of America was forced into a lot of situations based on decisions made by Sega of Japan, especially in regards to hardware. What were the conversations like in terms of pushing back on that?
Tom Kalinske: Obviously, the situation did change dramatically. It went from where I was able to do whatever basically I wanted to, to all of a sudden, I was being dictated to. And I really, at the time, didn’t understand why this was occurring. We’d been so successful, so I didn't understand why all of a sudden decisions were being forced on me from Japan, even to the degree of all that stuff I’ve talked about before on the Saturn where I was forced to introduce it, we didn’t have enough hardware, we didn’t have enough software, and then, to make matters worse, we were forced to introduce it five months earlier than we wanted — well, we didn’t want to introduce it anyway.
[At the time], I also couldn’t get Japan to look at this chipset out of Silicon Graphics – well, they did eventually look at it. Jim Clark, who was chairman of Silicon Graphics at the time. He was the guy who later founded Netscape. He called me up, we knew each other, and he lived near me actually. He wanted us to look at a chipset that they had that they thought was perfect for a video game system. And of course, Silicon Graphics was a company that was very well known for having these very advanced computers for special effects and movie-making, and what have you. And so I went over there and his chief engineer was Jensen Huang, who later founded [NVIDIA]. Anyway, I looked at it and I thought it was really good, but we of course were not responsible for hardware, we were supposed to do whatever Japan told us to do and just worry about software.
So I called up Nakayama-san and told him about what Silicon Graphics had, and he sent a team over to look at it. And they basically turned it down, saying that the chip was too hard to manufacture, it would have been too big of a chipset, and it would have had too much throw-off waste in the manufacturing process; it would have been too expensive. So that was the reason for not doing it. That same chip was later sold to Nintendo. The reason why all of a sudden, they started making the decisions for me, I later found out.
The reason was every Monday Nakayama-san would go into the so-called ‘Decision Room’ where he met with the key staff and he would beat the hell out of all of the managers and directors over and say things like, ‘Why can’t you guys get the revenue up like Tom has in the United States?’, ‘Why can’t we more successfully compete with Nintendo like Tom in the United States?’
Well, if you’re one of those managers sitting over in Tokyo and every Monday you’re getting the hell beaten out of you and yelled at by Nakayama – and he was very physical, I saw him in meetings literally slap subordinates – after a while, you start to hate this guy Tom over in the United States. And so, I stopped getting cooperation from other senior managers inside Sega Japan. I think that was why they started making the decisions for us and forcing Nakayama to overrule me in the United States. It’s kind of a strange thing, and I never found out about this until literally after I left Sega, when I was told it by several different Sega managers who have since left the company.
Time Extension: You mentioned recently about Sony and Sega potentially partnering up on a console, and that Sony had greenlit it but Sega of Japan was very reluctant. I found recently an article in The Greenville News (dated 21 May 1992) about a Sony/Sega partnership but for software for the Genesis, Game Gear, and Sega CD. I’m wondering, is that software relationship what eventually blossomed into those conversations about hardware?
Tom Kalinske: Well, the software relationship started between myself and Olaf Olafsson who was head of Sony Entertainment, and the agreement was to help them do software and literally teach them how to do software. So we literally did.
My head of R&D Joe Miller literally taught Sony engineers how to think about developing video game software and they ended up with a studio down in Santa Monica, and we sent people down there to work with them and the idea was to develop software for the Mega Drive/Genesis CD-ROM.
It was quite a good relationship and it worked pretty well, so when we started talking about what the next system should be like Olaf and I thought, let’s do one hardware system together. We’ll bear the risk and the cost of doing the new hardware system. It will be an optical system with a CD drive in it, but whoever does the best software will benefit from that revenue and that profit on the software – each company individually. So that was the deal and we talked about it, and Sony agreed to it in principle and Sega never agreed to it.
Time Extension: Do you remember what Sega of Japan’s objections were?
Tom Kalinske: Sega of Japan never agreed to it. I think Nakayama’s comments were, ‘Why should we help Sony in that way? We’ll do our own system and they can do whatever they want.’ And so, that was that.
