Short: The Death of Sega

**Ben Gilbert** (0:00)
Okay, let's hear your best Sega Scream impression.

**David Rosenthal** (0:03)
Sega!

**Ben Gilbert** (0:06)
Is the emphasis more on the se-

**David Rosenthal** (0:07)
Sega! They talk about it in Console Wars.

**Ben Gilbert** (0:10)
Yeah, the voice actor.

**David Rosenthal** (0:12)
And he was sick. I think he had thrown up earlier in the day, and he was just in such a bad physical and mental state that he could do this insane scream.

**Ben Gilbert** (0:20)
It was perfect.

**David Rosenthal** (0:21)
The cost you pay for great art.

**Ben Gilbert** (0:40)
Welcome to this episode of acquired, the podcast about great technology companies and the stories and playbooks behind them. I'm Ben Gilbert.

**David Rosenthal** (0:47)
I'm David Rosenthal.

**Ben Gilbert** (0:49)
And we are your hosts.
Today, we have for you our first acquired Short. There are some stories that deserve three or more hours to chronicle the entire company history start to finish. But there are also some stories, or perhaps chapters of stories, that can be told in an hour or so. Now, in Nintendo Part 2, I asked David a question. How exactly did Sega manage to go from having over half the video game console market in the US with the Sega Genesis, to abandoning the console business entirely after Dreamcast in a few short years? And David, you gave us a quick short answer, but we were both sort of looking at each other afterwards, thinking there is so much more to this story. It really does deserve its own episode. And frankly, it's a nice opportunity for us here at acquired to take a look at a company that didn't become hugely successful and what the lessons we can learn from that one are. So we bring you today, The Death of Sega.

**David Rosenthal** (1:49)
This is going to be a really fun experiment. We get to tell this story, right? Listeners, let us know if you like this and we might do more of them.

**Ben Gilbert** (1:57)
Yep. Let us know in the Slack, acquired.fm slash Slack. It is the best place to discuss episodes after we release them. Tons of folks joined after the Nintendo episodes. There's a lot of great video game discussion right now. Check out ACQ2, our second show with interviews. The most recent interview is with David Shue, the founder and CEO of Retool. And with that, this show is not investment advice. David and I may have investments in the companies we discuss, and this show is for informational and entertainment purposes only.

**David Rosenthal** (2:26)
We could technically still invest in Sega today.

**Ben Gilbert** (2:30)
Sega Sammy Holdings.

**David Rosenthal** (2:31)
Not quite sure we'd want to, but let's get into it.

**Ben Gilbert** (2:34)
Spoilers!

**David Rosenthal** (2:35)
So, we start our story in around, call it 1992, 1993 Sega and its Genesis, as it was known in North America, has battled Nintendo and the Super NES to basically a tie in the US home console market, which really in practice, if you go listen to our Nintendo series, was beating the pants off of Nintendo. Sega had no right to get to 50%, maybe even 50% plus market share, given how far behind they came from.

**Ben Gilbert** (3:07)
Imagine you're a startup and you're fighting some big incumbent, and within three years, you get to a basically 50-50 market share.

**David Rosenthal** (3:14)
It's totally nuts. The Genesis, it was the cool console in the 90s. It had Sonic, they've got John Madden Football, they've got great sports franchises, they've got the Mortal Kombat version with the blood.

**Ben Gilbert** (3:27)
Oh, the real red blood, not the Nintendo toned down gray blood.

**David Rosenthal** (3:32)
And they have about a 30 million total unit install base of the Sega Genesis around the world, the vast majority of which, about 20 million, is in the United States.

**Ben Gilbert** (3:43)
Yeah, and this is basically the best video game consoles we're doing at the time. Years later, the PlayStation 2 with 150 million, but no one was doing 100 million plus units sold game systems at this point in history. So 30 million, rock solid, huge player in the market.

**David Rosenthal** (3:59)
A great base to build on.

**Ben Gilbert** (4:01)
Yes.

**David Rosenthal** (4:01)
Now, also at this time in, call it 1992, 1993, it has become clear that compact discs are the future. Not just for the video game industry, but for everything. CD album sales and CD players are on their meteoric rise at this point. It is a huge driver of business for companies like Sony. In the personal computer industry, neighboring to the gaming industry, CD-ROM drives are now becoming standard in PCs. This is how software is shipping. This is how games are shipping in the PC industry.