It’s nearly ten years since E3 2013. You’ll no doubt remember it. Microsoft, the market leader in the US, went into the show with its Xbox One, and fluffed its lines. The entire pitch of the console, particularly the decision to tie games to a single console, had been widely ridiculed even before E3 had begun.
Sony, meanwhile, after a disastrous PS3 generation where it lost almost half of its audience, came in and stole the show with PS4. It even gently mocked its competitor with a now infamous video on how you can 'share' PlayStation games.
I was at that E3. I’d been flown there by Microsoft, but the company had decided to cancel my interviews (for understandable reasons), and I spent a lot of time with its rivals instead. I remember vividly my big PlayStation exec interview. Once I’d finished our chat, I sat back in my seat and said: “What a crazy E3. Have you ever seen anything like it?” He pondered for a moment, raised a single finger and said: “Once.”
He is referring to E3 1995. The first ever E3, and one that had a number of parallels to the 2013 edition. Like 2013, it was a rare moment when two consoles were due to come out head-to-head with one another. One was from Sega, the market leader at the time, and the other was from Sony, who had it all to prove.
But before we relive the drama of that show, it’s worth going back a bit further.
Sega of America, under the leadership of Tom Kalinske, was riding high. In just three years it had gone from a business generating less than $100m to one that was delivering $1.5 billion. The Sega Genesis / Mega Drive had become the US’ biggest games console by 1993, ahead of the Super Nintendo.
Kalinske’s influence extended beyond Sega, however. In 1993, the games industry was under the spotlight in the US due to concerns about violent video games. The US Senate was worried that games like Mortal Kombat were damaging the minds of children, while the Government called for an age rating system to be introduced for video games.
Sega already had its own age rating system. It had started to implement it in 1992, and Kalinske turned to his peers and said that the whole industry needs to do this, and it needs an association to police it. The games industry didn’t have its own trade body as such back then. Many game companies were part of something called the Software Publishers Association – but the SPA was more interested in PC software than games. So the US games companies formed their own group: the Interactive Digital Software Association.
In 1991 they put us in a tent, and you had to walk past all the porn vendors to find us. You’d have to walk past porn to find Nintendo and ourselves and the third parties. It poured with rain that year, and because we were in a tent, the rain leaked right over our Genesis consoles. I was furious
The IDSA – or the ESA as it is known today – saw the games industry become organised. It was created out of the need for an age rating system, but it also led to the formation of the Electronics Entertainment Expo.
“During the early 1990s, we went to CES,” Kalinske tell me. “But CES used to stick the video games way in the back. In 1991 they put us in a tent, and you had to walk past all the porn vendors to find us. You’d have to walk past porn to find Nintendo and ourselves and the third parties. It poured with rain that year, and because we were in a tent, the rain leaked right over our Genesis consoles. I was furious. I hated the way that CES treated video games. We were a more important industry than they were giving us credit for.”
Sega started its own independent show at a golf club, some other companies joined it, and Kalinske even invited Nintendo along (it declined). But the rest of the games industry continued to tolerate CES. With the IDSA formed, the industry collectively went to CES to try and persuade it to treat video games better. The discussions didn’t go well, and the concept for E3 was formed. The CES made a last-ditch attempt to rectify the situation with its own games-focused show, but the damage was done. Slowly, then very quickly, the entire games industry got behind the creation of E3.
E3 1995 was a hardware-focused show. Yet, with the 3DO and Jaguar struggling and the Ultra / Nintendo 64 delayed until the following year, all eyes were on Sega Saturn and the Sony PlayStation.
PlayStation had the biggest point to prove. After its famous partnership with Nintendo soured, it had turned to Sega of America. Sega had been working with Sony for some time. It had co-financed two game developers (Imagesoft and Digital Pictures) and together came up with a concept for a Sega/Sony console. Kalinske spoke about it in a recent interview here on Time Extension and believed it was the best move for Sega.
Sega never made money on hardware, but it did with games like Sonic The Hedgehog. If Sega shared the hardware costs with Sony, it could reduce the loss there but still make considerable money through the sale of games – but Sega’s board simply wasn’t interested. What did Sony know about making game consoles?
Ultimately, Kalinske was not a fan of the Sega Saturn. “I tried and tried to get the launch pushed back so that we had some actual software to support it,” he says. “I was not successful. I had four glorious years where Sega Japan pretty much let me do whatever I felt was right, and then that stopped.”
Despite this, Kalinske went out to try and improve the console itself. “Sega of America was never meant to get involved with hardware, we focused on the games. But I was so concerned about the Saturn and tried to get the specs revised. I had this meeting with the head of a company called Silicon Graphics, and he showed me a new chipset that I thought was perfect. I called the hardware group in Japan, and they said it was too big and would cost too much. Silicon Graphics was worried and asked: 'What do we do?' and I said: 'Well, there is this other company in Seattle you might want to call.' And, of course, that chipset ended up in the N64.”
Sega Saturn could have been the Sega/Sony PlayStation. It could have had the chipset of the N64. But it wasn’t and it didn’t, and to make matters worse, Sega of America was losing staff. Sony had decided to go it alone, it built an entire business unit dedicated to launching the PlayStation, and it was poaching staff from its competitors. This included Kalinske's right-hand man: Steve Race.
Sega of America was never meant to get involved with hardware, we focused on the games. But I was so concerned about the Saturn and tried to get the specs revised
"Steve knew all our secrets," says Kalinske. "He knew what we were up to, and we didn’t know what he was planning. And we were in this uncomfortable position of trying to launch this new system that I didn’t believe in and didn’t like.”
Race remembers: “I had some insight, and Sony were able to capitalise on that. I knew the Sega Saturn was slapdash. I knew that the US team weren’t committed to it. Their heart and soul wasn’t in it. In many ways, Sega Japan was forcing products on them. People in the industry just felt the Saturn was a move of desperation. It was not something we thought was terribly compelling. We just needed to let the consumer know that the PlayStation was going to be substantially better. 3DO was in real trouble, Sega was making mistakes, and Nintendo was just asleep at the wheel. The stage was ours.”
Sega held its E3 conference first. It showcased Saturn and its games, including Virtua Fighter, Daytona USA and Panzer Dragoon, it revealed the console’s features and its launch price of $399. But the big surprise was that the console would not be released in September as planned. In fact, Kalinske told the crowd that the machine was available – in limited quantities – right now at selected retailers, including Toys 'R' Us and Electronic Boutique.
Kalinske may have made the announcement, but he didn’t want to. The Sega board forced him to do it because Sony was launching later in the year, and they were concerned. “This was the same board that felt Sony didn’t know what they were doing, remember,” sighs Kalinske. “We didn’t have enough stock and we didn’t have enough games. I had to make an awful decision, because I couldn’t give every retailer stock. So we picked a couple of retailers, and we launched with them immediately that day at E3… with just a couple of bits of software. That was the Saturn launch. That’s not how you launch a system. You need games and big marketing… I believe the story may have been a little different if we had not done that.”
That was just the beginning, because Sony had a shock reveal of its own. Later that same day, Steve Race approached the podium to share some more details about PlayStation. He simply said '$299' and sat back down. It was a mic drop before mic drops were a thing; the PlayStation would be $100 cheaper than the Saturn.
“Right up until that morning, we were debating the price. It was either going to be $299 or $399. And myself, Tom (Krause, CFO) and Olaf [Olafsson, CEO] were wrestling with the Japanese to try and get that magic $299 price point. We started discussing it in the afternoon before I had to deliver that speech, and even by the morning, it was still to be decided. I have no idea what I’d have said if they’d insisted on $399. You could probably tell that I didn’t have a speech prepared for that situation.”
They clearly lost money at that [$299] price for quite a while. But it was a brilliant competitive move. We didn’t know they were going to do it, and when they did, we were like: 'We are screwed here.' We weren’t making money at $399, so we had a problem
Kalinske adds: “We thought PlayStation was going to be $399. We were sure of it. They clearly lost money at that [$299] price for quite a while. But it was a brilliant competitive move. We didn’t know they were going to do it, and when they did, we were like: 'We are screwed here.' We weren’t making money at $399, so we had a problem.”
Back to Race: ”Going into E3 we had a lot of sleepless nights. Japan gave us very little freedom. They were changing things and there were a lot of arguments. I was the sixth US employee of PlayStation, and from the time that I joined to the time of E3 was about nine months. We put everything together in that time. We did the third-party dev deals, we put together the structure, we hired people, we delivered E3. So we were just completely exhausted, and I am not quite sure what would have happened if we had gone over with a resounding thud. I am not sure how we would have taken it. But we won 'booth of the show'. We had a huge booth, 100 by 120 feet. We had this spectacular party at the Sony studio in Culver City. Michael Jackson came. We certainly made our presence known. Not only did we win the show, we won it by head and shoulders."
Sony's E3 showing set the tone for the PlayStation's launch. “Any momentum that we had built was magnified coming out of E3," Race says. "The proof was still going to be in the pudding. But I got to tell you… it was a lot easier with retailers post-E3 than it was prior to E3. After E3, everyone increased their orders, and that was when the demand outstripped supply.”
The E3 excitement also brought around a change within Sony’s upper management. The company had been nervous about launching a games console, but after E3, that trepidation had gone. “E3 significantly exceeded our wildest expectations, but it was ultimately consistent with what we thought was going to happen,” Race admits.
However, he adds that Sony's Japanese bosses weren't so sure. “For our Japanese counterparts, it was so important to come to the US and feel the vibe towards PlayStation. In 1995… outside of a very small thing on the back… [our bosses] didn’t let us put the Sony name on the box. They weren’t convinced this was something that was going to work and they didn't want to sully the brand. So we couldn’t really feature one of our biggest selling points, which was the Sony brand name. I made a presentation to the senior management where I said that PlayStation — although we wanted to call it PSX — was a great opportunity to expand the Sony brand. Sony didn’t have much credibility with the 16 to 21-year-old audience back in those days. That presentation clearly fell on deaf ears. But after E3, Sony became more prominent on the boxes with the second wave of consoles."
In previous events against Nintendo, I used to put flyers and leaflets under the doors of retailers’ rooms the night before. I would announce our new products and pricing so that Nintendo didn’t have time to react
E3 1995 took place during a very different time. Today, if you talk to PlayStation, Xbox or Nintendo about their competitors, they will speak (mostly) in respectful tones. It’s one of the reasons the recent public argument between Microsoft and Sony over Activision Blizzard is generating so many headlines. It’s simply not common anymore to see that level of hostility play out in the open. Yet in the mid-1990s, Sega and Sony really went for each other.
“For me, E3 was really fun,” remembers Kalinske. “Sony played a lot of pranks on us. They deflated my inflatable Sonic character that we brought to the show. In previous events against Nintendo, I used to put flyers and leaflets under the doors of retailers’ rooms the night before. I would announce our new products and pricing so that Nintendo didn’t have time to react. Steve Race was with me at Sega back then. But when it came to E3 1995, he did the same thing, pretty much, to me. It was very enjoyable.”
Race smiles: “We knew Sega was about to launch the Saturn. So we had run a series of in-trade promotions and posters saying that 'If you bought a Saturn, your head was in Uranus.'"
Race and Kalinske moved on after that E3. Race went to head up Microprose, while Kalinske, frustrated with Sega Japan, walked away from the industry altogether. But from time-to-time, you’ll find them at E3, reminiscing about the old days and keeping an eye on the latest developments. “Video games is an exciting, difficult, stressful, frustrating industry in many ways,” Race concludes. “But it is also a lot of fun. I am glad to have been part of it.”