The Nintendo 64 Was Nearly Sega’s Console

Twenty years ago today, the Nintendo 64 arrived on shelves. In many ways, the Nintendo 64 was a culmination of Nintendo’s dominance of the home console era. Even though the PlayStation, itself a console with roots in Nintendo’s history, eclipsed it in sales, the N64 saw Nintendo leap from the second dimension to the third with The Legend of Zelda: Ocarina of Time, Super Mario 64, and Goldeneye. But if things had gone a little differently, it might have been Sonic and Phantasy Star that defined 3D gaming. Sega had a chance to leap ahead, and the story of how that chance slipped through the company’s fingers changed the direction of gaming.

Sega’s Loss

The story begins not in Japan, but in Silicon Valley. Silicon Graphics, founded in 1981, was at the cutting edge of supercomputing and graphical firepower and grew into a billion dollar business as the defining company in the industry, driven by the Hollywood effects boom and industrial need for 3D visualizations. But in 1996, it found itself staring down the increasing dominance of Windows and Intel in a market they controlled all throughout the 1980s.

CEO Ed McCracken observed that video games were a growing market with an increasing need for more and more graphical oomph. So, he put his engineers to work on a chip that consumed less power and cost far less, only $40 compared to the $80 to $200 an SGI processor could sell for at the time. He assembled a pitch for a video game system, and took it to the most forward-thinking man in video games: Tom Kalinske, CEO of Sega’s American operations.

Sega was riding high and gunning for Nintendo in 1992. The Sega Genesis had been soundly beaten by its rival in Japan, but the Genesis had seen enormous success elsewhere in the world, thanks to Sega’s successful arcade brand and the Genesis getting into the 16-bit console wars early. It had just introduced CD-ROM gaming, still a novelty even to high-end PC users, with the Sega CD. Sega was edgy, more willing to take risks, and seemed a perfect fit.

And, at first, it was. Kalinske, in a far-ranging interview with Sega-16, remembers SGI’s pitch, and how impressive it was:

We told them that in the U.S., we don’t really design consoles; we do the software, but it sounded interesting and we would come over and take a look at it. We were quite impressed, and we called up Japan and told them to send over the hardware team because these guys really had something cool.

But console design wasn’t up to Sega of America and Kalinske: It was up to Japanese executives. More to the point, it was up to executives Kalinske later learned had spent years hearing how much better Kalinske was at their jobs than they were. This, while undeniably true, made them eager to assert their authority, and they took it out on SGI’s prototype.

At the end of the meeting, they basically said that it was kind of interesting, but the chip was too big (in manufacturing terms), the throw-off rate would be too high, and they had lots of little technical things that they didn’t like: the audio wasn’t good enough; the frame rate wasn’t quite good enough, as well as some other issues. So, the SGI guys went away and worked on these issues and then called us back up and asked that the same team be sent back over, because they had it all resolved. This time, Nakayama went with them. They reviewed the work, and there was sort of the same reaction: still not good enough.

SGI was stunned. Thousands of hours and dollars had been poured into this chip. Kalinske let them down as gently as possibly, and suggested that there were other video game companies out there. Unknowingly, Kalinske had just handed the hated rivals of his Japanese superiors the tools that would ultimately end Sega as a hardware company.

Nintendo’s Gain

Nintendo seemed like a terrible fit for Silicon Graphics’ pitch. Nintendo had saved an industry and built a multibillion dollar company out of a simple philosophy, pioneered by company legend Gunpei Yokoi, called Lateral Thinking with Withered Technology. Nintendo saw itself as a toy company using fully tested technology to build its consoles, not a cutting edge tech company that bought fancy processors.

But when SGI met with Nintendo in 1993, they found a surprisingly warm reception. Nintendo was impressed as Sega by the technology, but better appreciated SGI’s engineering and frugal nature. Later that year, they announced Project Reality, and, for years, teased everything about the N64. Nintendo returned to arcades with Killer Instinct and Crusin’ USA, essentially product demos that sat in every arcade in America, while making the company millions.

Sega, meanwhile, flailed. In 1994, it introduced Japanese gamers to the Sega Saturn, the console that the Japanese end of the company had been developing since 1992. It immediately began giving the company problems. With three different processors crammed into the box, the Saturn proved difficult for developers, a fact Kalinske brought up repeatedly to no avail. The launch was a surprise, leaving the Saturn with only Sega’s titles to promote it and alienating third-party developers.

Then, in 1995, as the Saturn was arriving in the U.S., Sony debuted the first PlayStation, selling more units in days than the Saturn could achieve in months. The Saturn’s struggle really boiled down to one simple problem: It didn’t have enough games. While Sega put out several top-notch, and highly popular, games on the Saturn, the PlayStation quickly became the console of choice for third-party developers. Nintendo, however, didn’t put the N64 out until 1996, which provided PlayStation with enough time to cement its number one status. When the N64 did arrive, its chunky construction seemed dated, and cartridge based games similarly alienated third-party developers, who could put out games on cheaper discs on the PlayStation. In the end, both Sega and Nintendo had been beaten by an upstart, and it became a race for second that Sega quickly lost.

It’s In The Game

In hindsight, it’s difficult to see rejecting Silicon Graphics as anything but the beginning of the end for Sega as a true force in video games. The PlayStation took off in large part because Sony achieved what neither Nintendo nor Sega had fully pulled off, delivering a console that catered to both the enormous Japanese market and the increasingly important international one. Sega had some of the pieces in place with the Saturn: A cheaper, disc-based system that cut costs for third parties, less interest in maintaining a “family-friendly” image, and a strong arcade business it could exploit for games that showed off the 64-bit architecture Nintendo made the N64’s selling point. Silicon Graphics offered a brand name that Westerners would recognize, indeed one of the most respected companies in Silicon Valley at the time, and technology unlike anything imaginable in gaming in 1992.

Ultimately, we did get a console that realized this promise: The Sega Dreamcast, which in its short lifespan became the most beloved console Sega ever put out. But by then it was too little, too late, and Sega left the hardware market permanently in 2001. Fans still love the Dreamcast, and wonder what could have been. It seems likely Sega’s executives looked at the Nintendo 64 back then, and wondered the same thing.