March 31, 2003
Steve Jobs took a few moments to study the sheet of paper that had been placed before him. He looked up at Hisao Oguchi, then briefly turned to the Apple executives seated behind him. He looked down at the paper again.
"This is the best you can do?" asked Jobs, adjusting his glasses for a moment and glancing skeptically at Oguchi.
"This is a fair price," Oguchi replied. Jobs looked down at the paper again.
"I think.... you can come down just a bit more," said Jobs, and wrote something on the paper. He slid the paper to Oguchi, who shook his head.
"Sonic the Hedgehog... Ecco the Dolphin... Shenmue....Virtua Fighter...these are lucrative franchises. We cannot sell them for less than this price. We have already come down so much from our initial offer."
Jobs knew that Toshiba was wavering, but he also knew that other companies were starting to probe Sega, and stabilizing Katana sales were starting to make Sega's valuation creep up. This price was a bargain, and once other companies began making their own offers, this price may not last. Jobs looked down at the paper again.
"It will take us a lot of work to move into this business," said Jobs. "We're taking an enormous risk."
"So did we. It paid off. It isn't the easiest business, but someone with the right mindset and the willingness to break the rules can accomplish many things."
Jobs knew Oguchi was trying to flatter him, but flattery wouldn't make him take a bad deal. He looked down at the sheet of paper again. One of the Apple executives whispered something into Jobs' ear. Jobs nodded, then looked down at the paper a fourth time. He picked it up. He held it in his hands. He showed it to the other executives, who nodded in affirmation. They weren't nodding to signal that Jobs should take the deal, but that it was his decision whether or not to do so.
"This IS a fair price," thought Jobs. "The question is, do I really want to do this?"
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"Woz, what are you playing?" asked Jobs. It was 1990, and Jobs was in preparations to launch his new venture, the NeXT computer. He was spending time at the home of his former business partner and longtime friend Steve Wozniak, and as he was coming back from the kitchen with a glass of orange juice, he saw Wozniak playing a Gameboy.
"Tetris," Wozniak replied, his eyes focused on the screen.
"Oh yeah, that Russian game."
"It's addictive."
Jobs walked over to look at the screen as Wozniak was playing. It was a simple game, perfect for the monochromatic screen of the Gameboy. Nothing like the colorful, vivid game cabinets still guzzling quarters at arcades and pizza parlors everywhere, but something about this game was more engrossing than all the fancy arcade titles put together.
"How are those things doing, by the way? The Gameboys?"
"Beats me," said Wozniak, continuing to play his game. "I'm not a Nintendo shareholder."
"Well I'm gonna find out," Jobs replied. "If people are as into that game as you are I bet they're selling a ton of them."
"Probably," said Wozniak, clearing his 250th line.
"...we could do something like that. The Gameboy. There can't be a very powerful chip in there. ....maybe after this NeXT thing rolls out, we could do something like this. But make it even better, with a color screen."
Wozniak and Jobs had worked on games together, back in the day. The two had cut their teeth on video games before starting Apple. Jobs had always wanted to get back into the industry, but by the time he'd left Apple, Nintendo was just starting to tighten its grip, and there didn't seem to be room for any competitors. Maybe, just maybe, there was room for something else like this.
But it was just a passing fancy. NeXT took off, then Sega rolled out their Game Gear. Jobs focused on NeXT, passed up the deal with Bandai, and finally returned to Apple after they'd bought out his new venture.
13 years after that brief flicker of inspiration in Steve Wozniak's living room, things had come full circle.
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Steve Jobs set the piece of paper back down on Hisao Oguchi's desk.
"Mr. Oguchi..."
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"I remember being shocked when I heard the news: Apple had bought us out for $986 million. I knew about the rumors, obviously, but just hearing that it had actually happened was really mindblowing. All of a sudden, my colleagues and I had a new boss, and nothing would ever be the same. And soon afterward, I was one of the first people Steve Jobs wanted to talk to. Of course I was nervous, I thought he was planning to fire me. But instead, the two of us had a long conversation. I remember it being almost three hours. We talked about family, we talked about our careers, and of course, we talked about video games. He ran a number of ideas past me, ideas to really shake things up, ideas to come after both Microsoft and Nintendo. I thought most of them were good, the ones that weren't, I told him what I thought. He told me he wanted me to be the number one guy on his team. I agreed, of course, and that was the start of the long, sometimes bumpy, but mostly positive relationship between myself and Steve Jobs. We both knew we had an uphill battle. The thing is, even though he'd come on only recently, I think he had a better grasp of just how tough it would be than even I did."
-Reggie Fils-Aime, in a 2015 interview with Kotaku.com
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Even after Sega and Apple agreed to terms on the purchase of Sega's games division, the two companies still had a number of hurdles to jump, some legal, some financial. The two companies had to negotiate just what sort of relationship Apple and Sega would now have. Sega, of course, would now be primarily a toy company, though they would continue to operate their arcades in Japan. They would also continue to operate the Sega Gameverse arcades in North America, at least for the time being. Those were in a slow decline, a number of locations had closed, though most still remained. Apple would eventually introduce some brand synergy to those facilities, pairing some of them up with Apple Stores adjacent to the arcades. Sega also held the exclusive rights to produce toys based on their game properties, though Apple would receive a cut of this. For the most part, however, Sega had exited the game business completely. They invested the nearly $1 billion from Apple into promotion, research, and development for their toy lines and used a small fraction of it to bolster some of their more popular arcade facilities. The injection of funds would pay dividends for Sega in the years to come, cementing them as one of the world's premier toy companies and joining Hasbro and Mattel in what would be known as the "toy triumvirate".
Apple was about to enter the video game business in a big way. While all the i's were being dotted and all the t's crossed, the two companies would remain mum about the deal itself, though it was one of the worst-kept secrets in the gaming press, especially after Toshiba and the other potential suitors for Sega suddenly dropped out of the race. The first public announcement of the partnership would come at E3 2003, amidst all the glitz, glamour, and game announcements of that year's expo. Rather than launch into developing a new console immediately, Apple would bide their time and continue to push and promote the Katana. Apple began courting software companies to begin developing games for both the Katana and the Macintosh, which would be re-imagined as somewhat of a budget alternative to the Xbox and the Wave. Apple would begin to introduce elements of iTunes to the SegaNet service, starting with the introduction of classic Genesis games that could be downloaded to the system, a home console first (though the Sega Channel allowed the download of games to the Genesis via a cable line, SegaNet would be the first time that a consumer could purchase and permanently own downloadable games). While Apple did begin research into what the Katana's console successor would be, they didn't want to launch anything to early, so as not to be technologically behind whatever Nintendo and Microsoft had coming next. Instead, the company's immediate hardware focus would be on a project that Steve Jobs had been dreaming up for many years...an advanced handheld gaming device, bearing Apple's name and Sega's games. For now, it would largely be business as usual. First-party games would continue to carry the Sega label, and the Katana would continue to be marketed as the Sega Katana. It would be some time before Apple would truly begin to forge its own identity in the video game industry.
-”The History Of Console Gaming: Year-By-Year (Part 8)”, Wired.com, posted on July 3, 2012
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Mindy Kaling: And it has been confirmed that Steve Jobs will be appearing at E3. Not only will he be present on the show floor, but he'll also be giving a keynote speech at the event, fueling the continued rumors that Apple may have purchased Sega. Neither Apple nor Sega has commented on Jobs' appearance at E3.
Patrick Clark: Meanwhile, Sega has a full slate of games on tap for the upcoming event, including numerous Sonic announcements, a new Commander Keen game, and possibly a new Virtua Fighter as well. Katana sales have picked up in recent weeks, and they may pick up even more: many are speculating that Sega will announce a Katana price drop at the show.
Mindy: While Jobs has been confirmed to appear at the show, it's not been announced what he'll be discussing, so it's likely we'll have to wait until E3 itself before we know what the topic of Jobs' speech is going to be. And of course, we'll have all the coverage from the floor of E3, including live footage of Steve Jobs' keynote speech, here on G4.
Patrick: So, do you have any guesses about what Steve Jobs could be talking about at E3?
Mindy: Maybe he'll answer the burning question on everyone's minds: why are there hardly any good games on the Mac? I mean honestly, I go to the store, I pick up a PC game, and almost always it says on the box: not for Macintosh computers. My guess: he's going to come up to the podium, tell us all how much he hates video games, and that we should be doing something better with our lives, like buying the new model iPod for only $599.99.
Patrick: Now with 40 gigs of memory, or just enough to fit In-A-Gadda-Da-Vida!
-from the April 21, 2003 episode of G4 Weekly News
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"From the days of the SG-1000's launch against Nintendo's Famicom in 1983, Sega had been chasing Nintendo. Even after scrapping the SG-1000 for the technologically superior Master System, Sega struggled to achieve the kind of market share to challenge their rival, now a rapidly growing titan of the industry. With the Genesis, Sega had finally found its groove, and thanks to the clever marketing and savvy of executive Tom Kalinske, the company stood a fighting chance, even when Nintendo teamed up with Sony, making the odds decisively uneven. In 1997, with the Saturn going strong and the SNES-CD fading, Sega perhaps achieved its zenith: the one moment when its market share reached a majority, the one moment when it seemed that they might finally topple the giant once and for all. But the Ultra Nintendo exceeded even Nintendo's own lofty expectations, and like the tragic hero Icarus, brought Sega swiftly down to Earth. And yet, the chase continued. Sega continued to pump out great games, and even after the battle was joined by computer company Microsoft, the Katana seemed like it could be a contender. But with sales and fortunes slipping, and with Sega's toy division being held back by the continued failure of the Katana to achieve anything close to what its rivals were achieving, the company finally decided to cut its losses. The finalization of the sale of Sega's games division to Apple, on May 9th, 2003, marked the end of an era in the game industry. It marked a shift of the game industry from a strict focus on gaming to an approach incorporating computers, multimedia, and of course, the Internet, the most epochal technological development of the past 50 years. It marked the end of the industry's Japanese civil war and launched the battle of East vs. West, the one that Microsoft had fired the opening shot in with the launch of the Xbox, but which now had turned into Microsoft/Apple vs. Nintendo/Sony, even as the two American computer companies themselves competed as bitter rivals.
It was a new beginning...and the end of the chase. After 20 years, Nintendo had crossed the finish line first, just as the starting gun went off yet again. Sega, the game company, now Apple. Sega, the toy company, watching from the sidelines with both sadness and relief."
-The Chase: Sega's 20-Year Struggle To Take Down A Giant