Flashback Sega And Sony Almost Joined Forces To Battle Nintendo In The '90s

Sony might be a major player in the world of video games today, but once upon a time, the company struggled to get its foot in the door.

It supported the MSX platform in a big way, but that failed to have the impact that was expected and flopped in the face of competition from more established personal computer systems. Then it launched its Sony Imagesoft label, which published some half-decent efforts (Skyblazer, Solstice) but a lot of dross (Cliffhanger, Last Action Hero). Most famously of all, it was jilted by Nintendo when it came to producing the CD-ROM add-on for the SNES (a combined unit was also planned, which was the precursor to the Sony PlayStation).

As we all know, the PlayStation we eventually got in 1994 became wildly successful, establishing a gaming brand which, even to this day, dominates the interactive entertainment landscape. However, did you know that at one point, Sega and Sony discussed joining forces to create a 32-bit system that would take on the might of Nintendo, the world's leading maker of video game hardware at that point?

The origins of this proposed agreement came when Sony, via its ImageSoft video game publishing label, partnered with Sega to produce games for its consoles. Speaking to us as part of a brand-new and exclusive interview about his career in gaming, former President and CEO of Sega of America Tom Kalinske explains how it all got started:

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.

Nobody really knew how to do great CD-ROM development at the time, because it was a whole different format/different platform and there were little tricks to it. But anyway, that was the relationship we had and Sony agreed to do three titles and we were doing three titles that were going to be the first titles on the Sega CD. And we also worked with an outside company called Digital Pictures and we both worked with that outside provider as well, and that was the start of the Sony/Sega relationship.

The next logical step, according to Kalinske, was for Sega and Sony to partner up on hardware:

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.

I think [Sega Enterprises Ltd. president Hayao] 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.

A reminder of this failed allegiance came recently when Rain Games' Ole Ivar Rudi dug up a Reddit AMA from a few years back which featured contributions from former Sega executives Tom Kalinske and Al Nilsen, who were both instrumental in the success of the Sega Genesis in North America.

Kalinske, who joined Sega in October 1990 and departed in September 1996, has cited the fumbled deal as one of the key reasons he left in an interview with Sega-16:

One of the key reasons why I left Sega is when we had the opportunity to work with Sony... Sega saidnot a chance. Why would it want to share a platform with Sony?

I thought [this] was the stupidest decision ever made in the history of business. And from that moment on, I didn’t feel they were capable of making the correct decisions in Japan any longer.

As it turns out, Kalinske wasn't the first to think of such an alliance. John Harrison of MD Shock cites a 2018 interview with former Sega head of R&D Hideki Sato, in which he explains that Isao Okawa, founder of CSK Holdings and chairman of Sega, mentioned to him the idea of partnering with Sony on new hardware. Harrison believes this conversion took place around the end of 1992, after Sony and Nintendo's deal had gone sour.

According to Sato:

Okawa had a close friendship with [Sony president] Norio Ohga. They met together, and Okawa said to Ohga, ‘We’re doing well, but we just can’t seem to beat Nintendo. How about Sega and Sony work together?’ The suggestion was then passed along to [Sega Enterprises Ltd. president] Nakayama.

Sato was having his own conversations with Sony, too:

I met with [PlayStation creator] Ken Kutaragi, my counterpart at Sony on the technical side, and we talked about various things. We discussed how we might proceed if we decided to partner up and that sort of thing.

A meeting between the two companies was arranged at the Sony reception hall in Shinagawa, with Sony bringing along Norio Ohga, Ken Kutaragi and Kutaragi’s boss, Tamotsu Iba. On the 'other side' was Sega Enterprises Ltd. president Hayao Nakayama, Sato, "and one other guy from IBM, who we were working with on a computer at the time," Sato explains. During the meal, Ohga dropped a bombshell: Sony had almost bought Sega from its previous owner Paramount a decade ago.

Sato recalls:

While eating, Ohga revealed to us that Paramount had almost sold Sega to Sony [in the early 80s]. It was the first time that I had ever heard of this, and I think the same was true for Nakayama. Sony was located in Shinagawa, and Sega was in Otorii, not too far away. When Sega entered the home consumer market [in 1983], Ohga became quite interested in the company. He himself said it: he was very interested. He was negotiating with a representative from Paramount to buy Sega, and they agreed that the next time the representative came to Japan, they would finalize the deal. However, on the flight back to America, the representative suffered a heart attack and died. He died, and the deal never came about. After that, Nakayama found a sponsor in Okawa and successfully negotiated with Paramount to buy Sega.

Understandably, the story didn't go down well with Nakayama. Sato, however, made light of the news while chatting with Kutaragi:

When I talked with Kutaragi, we discussed how even though he was in Shinagawa and I was in Ota, both companies started with ‘S’ and our shared enemy Nintendo was on the other side of Mt. Hakone, so maybe it would be OK if we worked together…

Sato's superior wasn't so keen on small talk, it's fair to say:

Nakayama was a straight-talker. He very directly asked Ohga, ‘Do you want to partner with Sega or not?’ Ohga listened, seemed about to respond, and then launched into an unrelated story. This happened over and over. He was beating around the bush, and Nakayama got very impatient. Nakayama would basically say, ‘Are we doing it or not? Give me a clear answer,’ and Ohga would reply, ‘Well, recently, I went on a trip to Sweden, and…’ Ohga started talking about seeing the aurora borealis, and then about how to conduct an orchestra.

Basically, he didn’t respond to any of Nakayama’s questions.

Sato wisely took this as a sign that Sony wouldn't commit to such a partnership and told Nakayama as much:

The next day, Nakayama came and asked me how I thought it went. I responded, ‘Well, I don’t quite think it’s going to work.’ Nakayama liked to run things his way, and with a person like Ohga, I could see that Ohga would gain the upper hand in any partnership. At the time, Sony had sales of two or three trillion yen, while Sega only had sales of 400 billion yen. If we decided to work together, Sony was definitely going to get the upper hand. We couldn’t be sure of who was going to be responsible for what in such a partnership. So I told Nakayama that it was going to be difficult. He replied, ‘I also think it’s going to be difficult. Alright, let’s not do it then.’ And we decided not to pursue anything with Sony.

As it turns out, it was Kutaragi himself who nixed the idea on Sony's side. Speaking to Polygon, Shuji Utsumi, former vice president of product acquisition for SCEA, said that Kutaragi would often come back from meetings with Sato and Sega of America staff and tell his Sony coworkers that he wasn't planning to take up Sega's offer. So, as it turns out, neither party was really all that invested in the idea.

Comparisons can clearly be drawn between this situation and the way in which the agreement between Nintendo and Sony broke down; Sony wanted to retain the rights to the software format that would have been used by the SNES CD-ROM system, which effectively would have allowed it to profit on sales of all SNES CD games – even those created by Nintendo itself. Despite two years of development going into the project, Nintendo turned its back on Sony and instead entered a deal with Philips, which would ultimately result in no new hardware but a series of poorly-received Mario and Zelda titles on the Philips CD-i platform.

Harrison feels that the main reason Sony courted Sega in 1992 – even if it were only briefly – was to find suitable partners for its console. With the Nintendo deal dead in the water, Kutaragi famously convinced his superiors at Sony to bankroll the continued development of the PlayStation system, thereby enacting revenge against Nintendo for leaving Sony at the altar. Lacking Sega and Nintendo's experience in game development, Sony would need partners to help it create AAA games – and that role was ultimately filled by Namco, which ported many of its coin-ops to PlayStation, including Ridge Racer, Tekken, Soul Blade and Time Crisis. Could Sega have filled the same role?

After the decision was made to abandon the idea of a hardware partnership, Sato and Kutaragi remained in touch. Sato explains:

I would have a polite dinner with Kutaragi about once every three months… Once when I was talking with [him], he said ‘Hideki-chan’—he refers to me using the ‘chan’ diminutive—‘Hideki-chan, there’s no way you can beat me. Where are you buying your processors? From Hitachi. From Yamaha. What about your CD-ROM drives? You’re buying everything. By buying from Hitachi, Hitachi is profiting. You can’t make anything yourselves. We can make everything ourselves, including custom parts. We have our own factories.’ Near Nakashinden, they had a huge factory where they made audio equipment that they were using for the PlayStation. Their cost structure was completely different.

‘That’s the way it is, Hideki-chan,’ Kutaragi told me. ‘So quit the hardware business. Why not just do software? We’ll give you favorable treatment.’ He wanted us to go third party. We had been going for so long in the hardware business, for better or worse, and to go third party now? We had been half-heartedly successful in America once, and this made it impossible to quit the hardware business. Maybe if the Mega Drive, the Genesis, had been a failure, things would have been different. But we had a strange taste of success.

Like so many things in the history of business, Sega and Sony's potential partnership remains a tantalising 'what if' moment; had the pair combined their might and delivered a system that could host Sega's coin-op titles as well as a wide range of third-party games, we could have witnessed a console that would have been even more successful than the original PlayStation was.

However, as Sato hints, Sega had just come out of its most successful hardware generation yet and would rightly have seen itself as the partner which brought more to the table – certainly more than Sony at that point, which, despite its hardware experience and resources, hadn't yet made a hit video game.