Sega Arcade History: The Formative Years

—What was it like for Sega at the dawn of the arcade era?

Nagai: Sega, Taito, and other game companies didn’t start off making games. Taito got their start selling peanut vending machines, while the roots of Sega go back to the import and sale of jukeboxes. And to go back even further, we have to talk about American army bases and stationed troops. (laughs) Before we began selling jukeboxes, there was a club for petty officers in the American base camp, and Sega’s first business1 was installing slot machines there. Because it was an American camp under US jurisdiction, we were allowed to install genuine gambling machines.

From there, Sega also started handling jukebox imports. Seeburg and Rock-Ola were the two big American jukebox brands then. It was a 3-way trade war between Taito, Sega, and V&V: Taito imported Seeburg machines, Sega imported Rock-ola, and V&V (which, incidentally, was where former Sega President Hayao Nakayama was employed) imported Wurlitzers.

Alongside our business of supplying the US bases, we also ran a business targeting the general population. We sold slot machines to Japanese establishments which, at about 1000 dollars per machine, brought in 360,000 yen in sales. Unfortunately the laws later changed and we had to give up that business. The slot machines took 10 yen coins, and returned 10 yen coins back, so they were genuine gambling machines.

With the new prohibitions we quit the slot machine business and focused on jukeboxes, and then started importing pinball machines, too. However, the jukebox business started to feel the pressure from karaoke, which had gradually started to take prominence. Back then, you see, the karaoke machines were installed in public places like bars, unlike today where there are private karaoke booths. The influence of cable tv/radio also played a large part. We tried to advertise the strength of jukeboxes by saying, “With cable, you can’t listen to the songs you want. But with a jukebox, you can hear your favorite tunes anytime!”

—What did the game center and arcade look like, back then?

Nagai: Before Atari’s Pong, there weren’t any “game centers”. Instead, you had “gun corners”, which featured light gun games, but not video games. Technically, Sega didn’t work alone in that business—we merged with Rosen Enterprises in 1965, and our first gun corners were established in Hibiya (in Tokyo) and Umeda (in Osaka). We also imported pinball and gun games manufactured by Midway, an American company.

Later there was a bowling boom in Japan, and bowling alleys merged with gun corners to become “game corners”. We brought in a variety of American machines, but they were all used, second-hand machines. Being used, they broke down a lot. The maintenance was terrible. Partly for that reason, we decided to manufacture guns and flippers ourselves in Japan, which led us to start developing our own arcade games. That was the official start of Sega. That was all thanks to the bowling boom and the resulting expansion of the game corners.

Also, there started to be game corners at department store rooftop areas. Those areas were the province of companies who were very strong game developers—relative latecomers like Namco. Companies like Taito and Sega started with foreign investment and initially targeted US army bases. Our business started with jukeboxes and pinball machines and only later expanded into gun corners, so we had a different business model than Namco, and didn’t directly compete with them then.

—Right. I understand that Sega was first focused more on import sales rather than creating their own games.

Nagai: Before Sega was a game developer, we operated gaming establishments. Later we started making our own machines, but Sega, Taito, and Namco alike all operated our own centers, and imported machines there. But that wasn’t very exciting, and there wasn’t much future opportunity there, so we started making our own games. Then we would put the games we made in our own game corners, and eventually we sold them to other companies’ establishments too. That was all during the “gun corner” era.

—With the release of Pongtron, Sega arrives at the video game era. What was that period like, between Pongtron and Taito’s Space Invaders?

Nagai: Invaders was a very important game. But before that, there was Pongtron, and then the block-breaking games (like Breakout). Those games allowed us to set the price for a single play from 10 yen to 50 yen or 100 yen… so in a way, I think those games were just as important as Space Invaders. With Pongtron and Breakout, we started to see more upright cabinets, and then there were the balloon games. It’s because all of these were hits, that you got to Space Invaders.

—How did the game corners change between the gun game era and the new age of video games?

Nagai: Before video games, it was all electro-mechanical arcade machines. The software development side of video games is very challenging, but as far as the manufacturing goes, they were far, far simpler. All you needed was the monitor and the pcb, and they didn’t require maintenance either. Electro-mechanicals, on the other hand, had many hand-made components, and their development took a lot of time. If one part went bad, the whole machine was inoperable until it could be repaired.

With video games, the fact that the pcb could be re-written with new software was the overwhelmingly decisive factor in their dominance. That, plus the new movement / action that couldn’t be achieved on electro-mechanicals. For instance, the angles you could hit the ball at in Pong—to the people back then, that felt very revolutionary. I also really enjoyed playing them myself. Another big factor was how many new visuals could be portrayed with the video image.

It was so popular, there were locations that featured nothing but Space Invaders. At Sega we tried many things to keep up, including inviting celebrities to come work for us and promote our games. (laughs) Sega’s Senkan Yamato was made when I was there, but we couldn’t beat Taito.

However, after that we put out Space Fighter and Head On, which were both big hits. The Invader Boom ran out of steam, and then you had Namco’s Pac Man, and after that the arcade industry as a whole started to soar.

—With the 80s, you start to see establishments dedicated exclusively to arcade games.

Nagai: I believe Sigma was the first, with the medal game arcade they opened in Shibuya in 1969 to test the market. After that they opened Game Fantasia Milano in Shinjuku. This was all before the Laws Regulating Adult Businesses (fueihou) were passed, so the arcades operated 24 hours, most of them centered around medal games in the Kabukicho district. There were some dedicated arcades then, but I remember that most video games were still found in the game corner sections of bowling alleys, department stores, etc. There were also places that had merged with drive-ins, and operated 24 hours a day. But when the regulations passed in 1985, the number of dedicated arcades greatly increased.

—In the 80s, game centers still had an image of being slightly sketchy, seedy places.

Nagai: The latter half of the 80s saw the arcades really try and clean up their act. The whole industry embarked on the “3K Cleanup Campaign”— getting rid of the kurai, kowai, and kitanai [dark, scary, and dirty] aspects of arcades by installing proper lighting, providing clean bathrooms, etc.

One question that occurred to me during the cleanup campaign was “Why do game centers only have one bathroom…?” So one of our first priorities when we opened new game centers was making sure there were bathrooms for both men and women. We also did things like train the employees properly, remove cigarette butts, clean ash trays, and set up smoking areas. With those efforts I think we moved closer to being a proper service provider.

Gross sales for 1984 were about 160 billion yen. Around that time we started directly managing our stores, and it was also the debut of our taikan2 style arcade cabinets. There was Hang-On, and Yu Suzuki’s masterpiece Out Run. Out Run, in particular, was really amazing for its time. I think we sold 20,000 units worldwide. Suzuki went on to make After Burner and a number of other games, but Out Run is still talked about with a special kind of wonder. With the taikan games, Sega’s arcade business, which had been Sega’s lowest performer in sales, gradually started to rise. Because of the Laws Regulating Adult Businesses, sales for the arcade industry as a whole had declined to 2500 billion yen. But with taikan games, the period from 1985 to 1995 saw a steady rise.

This was also the time that Sega started to create more of its own game center locations, too. In a single year we opened 150 new stores! Before that, we had rented locations and operated them, but the owners tended to be very stubborn, which spurred us to create our own locations we could directly manage. We were trying to change our image as a company then, and creating our own game centers helped contribute to that.

The 80s really saw the arcades take off. Nintendo released Donkey Kong in 1981, and in 1983 Capcom was formed, and it was at this point that the balance of video games vs. electro-mechanicals tipped decisively in the favor of video games. While there was a period of slumping sales, the market expanded with the release of the taikan games. There was a wider variety of commercial products too. Crane games took off during this period. They were originally from Italy, but had been imported into Japan around the mid-1960s. After that, prize machines were created, and Sega too got in on the act with a vertical crane cabinet. People were hooked on those, and they debuted in the taikan era as “UFO Catchers.”

In the latter half of the 80s, you had medal games, prize machines, video games, and taikan games—a nice breadth of commercial products. At the same time, the game centers themselves became cleaner and brighter places to visit. All that accounts for the growth of the market in the 10-year period from 1985 to 1995.

This was also the time that console game machines came out. Sega pursued that market aggressively, as did Nintendo with the Famicom. Console games probably had the biggest influence on the sales of arcade video games, which started to slump in comparison to medal games and prize games. Before that, 40-50% of the game center was taken up by video games. Today with Virtua Fighter 4 (and Tekken 4 and Capcom vs SNK 2, from other companies), video game sales are rising again. Our current strategy is to develop more games that offer an experience you can only get at the arcade, with features like networked play and the card memory system.

—As you look back on the 90s, how do you think game centers and arcades are going to change in the future?

Nagai: Right now the number of game centers in Japan has shrunk to ~500 locations. But when you consider that many of these have consolidated into larger spaces, in terms of sales floor area, its only about a 20-30% reduction.

Today suburban game centers are about 18000 sq ft. For the smaller centers, they have to be at least 3500 sq ft for us to make full use of the space, otherwise we can’t install the full gamut of medal, prize, video, and taikan games.

If game centers continue as they are today, the market will probably be sustained, but I think it will be difficult to expand. While the Laws Regulating Adult Businesses certainly impose a variety of restrictions on us, if we just give up, the amusement business will stagnate. What is it that you can only experience at the arcade?—that’s the important question, I think. For example, if we can create more game-changing experiences like Derby Owners Club, I think there’s a future for this industry.

—Lastly, from the perspective of game center sales, what has been Sega’s best arcade title?

Nagai: Purely looking at the numbers, it would have to be Virtua Fighter and Virtua Fighter 2. Out Run was amazing too, and had a very long run. Recently I would have to say Derby Owner’s Club. I’m happy so many people have backed that one. For me personally, Hang-On and Out Run are my most memorable titles. They helped lift the arcade industry out of its slump, and created entirely new genres.

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