The idea of video games on demand is something we're all quite familiar with today thanks to subscription services like Xbox Game Pass and PlayStation Plus, but what you might not know - and might even struggle to believe - is that Sega attempted its own version of this business model back in the 1990s.
Sega Channel, as the service was called, launched on December 14th, 1994, and was a partnership between Sega of America and the cable companies Tele-Communications, Inc. (TCI) and Time Warner. It took advantage of a special adaptor, which connected to your cable box and plugged into your Genesis, to decode a signal that was zapped to your machine.
It was a revolutionary concept for the time, but one that failed to achieve the mainstream success that Sega had initially anticipated for it. So we wanted to take a closer look at this innovative service, the thought process behind it, and why it failed to catch on. To do this, we interviewed those involved with the project and searched through countless magazines from the period for any reference we could find.
This journey took us all the way back to 1993.
The Birth Of The Sega Channel
In 1993, Sega of America was riding high after reducing Nintendo's share of the video game market in North America. This was a market that Nintendo had previously dominated, but Sega was able to penetrate thanks to flashy marketing campaigns targeting teenagers. Everyone at the company, including Sega president Tom Kalinske, wanted to keep up this extraordinary momentum, so Sega tasked its vice president Doug Glen with finding a way to make the company look more "cutting edge" than its competition.
Glen went in search of some potential new technologies for Sega to invest in, and as luck would have it, the New York-based Time Warner was looking for a potential platform partner for an updated version of its Delta Box. This was a short-lived piece of technology, which had allowed users to download Atari 2600 games as part of their Time Warner cable subscription in the early 80s.
"The idea was cooked up pretty much simultaneously around Sega and Time Warner," says Glen. "And Tom Kalinske who was the head of Sega of America told me, ‘Doug, make it happen, and make sure it’s something reasonable and let’s do it because it’s kind of cool.
"Back in the early 90s, the conventional money was on interactive television," he tells us. "Time Warner had just completed an impressive trial in Orlando Florida with a true interactive television technology that was a precursor of what’s happening now but with a lot of technical differences. [...] It wasn’t as easy Little Caesar’s and telling them to hustle on over with a double-pepperoni, but the novelty was enough to get people interested."
Sega entered into negotiations with Time Warner as well as the Colorado-based cable company TCI, who also wanted to get in on the video game action. However, a deal wasn't exactly forthcoming. The three companies had initially tried to carve out a deal by courier, but no one could agree on the terms, so it was decided to take a slightly different approach.
Glen recalls, "I spoke with Geoff Holmes, our counterpart at TCI, and said, 'The only way we're going to do this is if we lock ourselves in a room. And we both happened to be in New York, so we said, 'We're not going to go home until we finally put pen to paper,' and it worked. We had the three sets of lawyers, we had the business leads from the company, and we came out of it holding this signed agreement high like the flag of Iwo Jima."
On 14th April 1993, the three companies announced Sega Channel to the world in a press statement. This statement claimed that the service would be launched in test markets the following fall and suggested that it could be available to US cable operators by early 1994.
At the time, Tom Kalinske, the former Sega of America president and chief executive officer, said of the service, "Everybody comes out ahead with the Sega Channel. The consumer gets an extraordinary value a (sic) well-stocked and constantly updated library of games for a low monthly fee. Once subscribers and their friends enjoy a game or preview, they'll be more likely to buy the packaged version so retail sales will increase. Our intellectual property licensors, developers, and third-party publishers will gain a new source of revenue. And Sega, Time Warner, and TCI will have begun working together on new ways to deliver mass market interactive entertainment in the radically evolving telecommunications infrastructure of tomorrow."
A Technological Bump In The Road
When this announcement was initially made, a leader for the joint venture had yet to be decided on, but only one month later, on May 20th, 1994, an individual named Stan Thomas was given the role of Sega Channel president.
Thomas, a Yale graduate, had been with HBO for 11 years before becoming a senior vice president at Time Warner and was a popular choice for president. He was one of the few black senior executives working in emerging technologies at that time and was known for his hands-off style of management, as well as for his incredible charm and charisma.
With the pieces falling into place, the remainder of that year was spent designing the adaptor and putting in place the infrastructure required to deliver Sega Channel.
"We got Time Warner's technology lead Andy Rifkin on board and we all met up in Redwood city where Sega headquarters was and we drew up a game plan," says Glen. "We had a couple of the engineers from Tokyo come over, because, in order for a set-top box to talk to a Sega Genesis, the box had to understand how the handshake occurred between the Sega Genesis and the cartridges. And if you’ve done much with Japanese technology companies, you’ll know they’re very secretive about how the technology works."
Andy Rifkin adds, "Everybody inside Sega US was incredibly cooperative, but when it came to Sega of Japan, they were kind of reluctant to share things with us. So sometimes we had to back-engineer things. They kept a lot of things very, very close. And they didn’t want to share. It was a challenge, but mostly it was a challenge because there were very many versions of the same unit that had different technical features that we had to emulate, so the box needed to work on a wide variety of platforms so we wouldn’t have to worry about which version it plugged into."
One employee we spoke to, however, contested that the Japanese engineers held anything back, calling it a "stereotype of Japan that needs to be dissuaded".
Regardless, the technological aspect of Sega Channel took longer than expected to get right. And because of these setbacks, what the team had originally expected to take six months ended up taking up to a year, leading to the fall deadline being pushed back. Nevertheless, the team eventually managed to set in place the technology and the distribution method for delivering this ambitious service over cable in the US.
This involved burning a new CD every month with the latest selections of games and any additional content and then delivering that by hand to the TCI satellite station in Denver, Colorado. The signal would then be fired up to the Galaxy 7 satellite, and then sent back down to a headend, before being re-transmitted to your adaptor that acted as a decoder. In some cases, the satellite portion of delivery would be skipped out, with the CDs simply being passed on to the cable provider itself to put in their system. The company responsible for manufacturing the adaptors and the headend equipment was Scientific-Atlanta.
Video Games On Demand
As for what Sega Channel would actually offer and what it would be like to use, that was the department of the former vice president of programming Shorrock and the rest of his team, who were responsible for content. While the service was bound to receive some first-party titles from Sega, the programming team also approached other third-party companies to provide games for the service. Any companies that had their game on the Sega Channel would receive a one-off flat fee.
Some big companies, like Konami, were reluctant to feature their games, due to fears over how this may interfere with retail sales. This is something Shorrock argues never happened.
"It didn’t eat into retail sales at all," says Shorrock. "There were windows where if a game came out we could not put the game on the Sega Channel for X number of months, so it wouldn’t impact retail sales at all. So there were concerns from publishers in that regard, but it didn’t ever really pan out that it took sales away, as far as I recall."
Other publishers, meanwhile, were incredibly enthusiastic, wanting a guarantee that a certain number of games would appear each month. As Shorrock tells me, "The interesting thing was the strong publishers, they required that we carried X numbers of games on the channel. Major companies, particularly Electronic Arts, were savvy. Electronic Arts had 10 slots, so we guaranteed Electronic Arts 10 slots every month. Landing Electronic Arts and Activision at the time, that was big at the time."
In total, Sega Channel was to offer 50 games every month, with 75% of the games changing every month. This was a number decided on due to payload sizes and download speeds.
The games were divided into the following sections:
- Test Drives - Previews of new games
- Sports Arena - Sports games
- The Arcade - Action titles
- Swords and Spells - Role-Playing Games
- Wings and Wheels - Driving and Flying Sims
- The Think Tank - Puzzle and Strategy Games
- The Family Room - Games for all the family
- And Classics - A collection of the best Genesis Titles
There were also two other sections included as part of the service too, which didn't contain any playable titles: Game Guide, featuring hints and tips; and Newslink, a video game newsletter. For parents concerned about what their children were playing, there was even a parental password program, allowing parents to lock out certain games. Though you might be tempted to think that this was a reaction to the 1993 United States Senate Hearings on Video Games, this apparently had more to do with the concerns of the cable companies at the time.
"Parental controls and handling of children under 12 was always a particular concern of cable companies," says Shorrock. "So it had more to do with the precedent of the video/TV industry rather than games. Though, of course, since there was [now] a rating system for games, it was not a difficult matter to set an age limit for certain games. We did have to test for that every month and make sure that if a game was for an older age that we did in fact lock out users who were younger. [Our lead programmer] PsychoCat and her QA team did that use case as a matter of routine."
According to the magazine Game Players in February 1994, the first ever group of players to test Sega Channel was not based in America, but in Japan, with 500 homes getting access to the system that year. In fact, it wasn't until June 1994, that Sega Channel was tested in 12 US cities.
These cities were Hoover, Alabama, Walnut Creek, California; East Lansing, Michigan; St. Louis; Nashua, New Hampshire; Buffalo, New York; Gastonia, North Carolina; Portland, Oregon; Reston, Virginia; Beaumont, Texas; Charleston, West Virginia; and Cheyenne, Wyoming.
The reaction to the Sega Channel during these tests was overwhelmingly positive, with more cable companies signing up to provide Sega Channel to their customers and the editors of Popular Science magazine citing Sega Channel "as one of 1994’s innovative products and achievements in science and technology". In a statement to the press on 30th November 1994, Sega Channel Stan Thomas gave an update on how the trials had gone, claiming it had performed "even better than our expectations".
An internal poll, for instance, found that 99% of Sega Channel subscribers positively rated the convenience of the service and that 91% agreed that it was "very good" value for money.
On December 12th, 1994, Sega Channel officially launched in the US, with the service also launching in Japan around the same time. For the US launch, the company marked the occasion with a special event at the home of the first American SEGA Channel customer, the Hout family of Scott Township. The Pittsburgh Penguins player Mario Lemieux was in attendance at the event and even played a few games of Mario Lemieux Hockey with the (then) 12-year-old Michael Hout.
Depending on the provider, Sega Channel cost roughly $13 a month to access, with a one-time $25 activation fee, making it a more cost-effective way for many people to play games.
As new year bells rang for 1995, it looked like Sega Channel was on track for success, but the next year would prove difficult for the service. In January, the company held its first promotion, for the video game Earthworm Jim, starting things off on a positive note. But then, in early 1995, Sega CEO Hayao Nakayama made it clear that the company would be ending development for the Sega Genesis, as well as its add-ons, the Sega CD and the 32X, to focus on the Sega Saturn, which had already been released in Japan at the end of '94. This decision put Sega Channel in the weird position of carrying the baton for a console that Sega of Japan had already confined to the past. Though it was nothing compared to the devastating news that followed.
On April 15th, 1995, the Sega Channel president Stan Thomas passed away from non-Hodgkin's lymphoma, a rare type of cancer affecting the lymphatic system. He was 52. According to those who worked alongside him at the Sega Channel, the time between diagnosis and death was only about 30-45 days, making it a huge shock to most that knew him.
Michael Shorrock says, "He was an amazing human being. An absolutely amazing mentor to me. And an absolutely amazing president. The people at Sega Channel were the best people I’ve ever worked with in the industry. They were so talented. They were a well-oiled machine, and a lot of them came from HBO, which is where Stan Thomas had come from."
Nick Fiore, the former managing director of Sega Channel International, adds, "Stan Thomas was the original gentleman. He was one of those guys where the cliché ‘When they made him, they threw away the mold’ really applied. He was incredibly erudite, well-educated, unfailingly polite, and was the type of leader who knew that all you needed to do was get the best-qualified people and get out of their way and make sure they got all the credit and not him."
Following Stan Thomas's death, Sega Channel's senior vice president of sales and marketing Mark Hess took over from the late president. It was his responsibility to lead the service into the future and continue its planned expansion in other territories. Despite the profound loss the team had experienced, everyone pulled together to grow and evolve the Sega Channel over the next year.
In June of 1995, Sega Channel held a promotion for the EA's baseball title Triple Play Baseball '96. This was then followed in September with another promotion for Atari Games' Primal Rage. In the case of the Primal Rage 'Show Down' promotion, it's estimated that 24% of the subscriber base participated.
Up until this point, Sega Channel had only been available in the US and Japan, but in late 1995, the service eventually came to Taiwan and Canada too. More regions were then announced in February 1996, including Western Europe, New Zealand, Australia, and Israel. The subsidiary of TCI, Telewest, even tried bringing the service to the UK, but only for a limited time.
The plan for Sega Channel was obvious: to get it into as many countries as possible. But there were numerous challenges that made this frustratingly difficult to pull off. According to Fiore, who was charged with handling international distribution, the biggest of these was regulation.
Every time the company wanted to introduce Sega Channel into a new country, there were a ton of regulatory hoops that the joint venture would have to jump through that were specific to that region. This meant a ton of bureaucracy to launch the product into more markets.
As Fiore tells Time Extension, "The regulatory hurdles were generally the same from country to country, but [also] quite different country to country. So each pitch and the supporting effort would require just hours of time with engineers and lawyers, both local to that market and inside Sega Channel."
To add to this problem, Sega Channel also overestimated what the quality of cable distribution was like in other countries, compared to North America. As it began expanding, the team quickly realized a lot of the cable companies in western Europe were made up of tiny providers, who didn't take particularly good care of their equipment.
As Andy Rifkin explains. "Even though a company could be a big provider, it was basically made up of a bunch of very, very small operators that didn’t invest a lot of money into their infrastructure. So something that we thought would be very easy to deploy in a market, we found out later when we went to market that they were using equipment that was very old, and the people who were running the systems didn’t invest any time or money into upgrading them, because it was an acquisition. As long as it worked, they left it alone."
As a result of these problems, it was far harder to bring Sega Channel to consumers than initially anticipated. Nevertheless, those that did receive it seemed to enjoy the novelty of playing games via cable. Sega Channel was constantly inundated with letters from parents talking about how much their kids loved the service, as well as artwork drawn by its youngest subscribers. So much so, Sega Channel eventually decided to scan this artwork into Sega Channel, giving players the chance to see their drawings on screen.
As Fiore states, "As someone with a marketing emphasis, it was the ultimate frustrating scenario because people [...] f*****g loved the Sega Channel. And even people who weren’t gamers per se could immediately see that if you put this in front of the right people it would just go gangbusters. So there was a certain level of frustration because I don’t remember anyone, either in the distribution of games or in the end consumer, who didn’t see it and immediately love it. Literally."
The enthusiasm around Sega Channel wasn't enough to save it, however. When Sega Channel launched, all three companies had expected it to reach one million subscribers by the end of the first year, but it never reached that number. And by 1997, subscribers had begun to fall, thanks in no small part to the rise of 32-bit systems, like the PlayStation 1. In November 1997, Sega Channel announced the service would be discontinued the following year, and it was finally put to rest on July 31st, 1998.
Ahead of Its Time?
Today it is very easy to paint Sega Channel as another one of Sega's miscalculations from the era, but those who worked at the joint venture don't view it as a failure. It did exactly what it set out to do, giving a bump to the stock and proving Sega was looking ahead at new technology.
"It was a very good platform to get Tom and sometimes myself out to conferences and talking about this bold initiative that Sega had taken," says Glen. "But the real profits came from the share price impact. It really got the attention of the analysts; that Sega was a company that was forward-looking, was willing to try new things, and my god, they worked. That alone was worth the adventure."
As for the programming team, it was all about the players.
"One Mom wrote me saying how it really helped her son and friends stay off the streets and out of trouble," says Shorrock. "One never knows the impact of what one does in the world when it is done with good intentions. If we helped one person, then it was not a failure. Money isn’t the measure of all things."
Funnily enough, while writing this article, we came across a group of ROM hackers, including @BillyTime!Games, who are resurrecting the service in an offline format; no headends necessary. 27 years later, it seems Sega Channel lives again!
Did you have Sega Channel? What are your memories of the service? Let us know below.