Console Wars Page 5

  Kalinske tried to hold his tongue, but it was tough. There were, however, three employees whom Kalinske immediately deemed as highly promising. One of them was the enigmatic Shinobu Toyoda, and the other two, Paul Rioux and Al Nilsen, he knew from previous career stops.

  “Both of you, settle down,” Rioux said, controlling the room with poise, authority, and a hint of threat. Rioux was a stocky Vietnam vet with hollow eyes and a deep, silvery voice. “I’ll take care of giving us a little wiggle room, and then we’ll ship through Chicago to make up for some of the lost time.” Kalinske had briefly worked with Rioux at Mattel, where Rioux had held a management role in the electronics division and been hailed as the nuts-and-bolts guy of the operation. It was immediately clear that Rioux was the go-to guy at Sega of America, the one who made sure that everyone had at least a vague idea of what they were supposed to be doing. Throughout his life, from fighting in Vietnam to fighting for shelf space, he was an unapologetic gladiator who always got things done.

  “Hey, maybe we should create some big event to generate interest in the game,” said Nilsen, a large-bodied, larger-than-life marketing dynamo. Beneath round-rimmed spectacles, Nilsen’s face rarely depicted emotions. But when he spoke, a wonderfully boundless, kid-trapped-in-an-adult-body enthusiasm could not be contained. “Like maybe, I don’t know . . . a National Kid’s Day! Yeah, that might work. You know, like Mother’s Day and Father’s Day, but for kids. And we’ll make Atomic Robo-Kid the perfect gift for the occasion. What do you say, guys? Do we have a winner?” Nobody responded, and Nilsen sat back down. From their time at Mattel, Kalinske remembered Nilsen as someone who could and would lay golden eggs from time to time. Seeing Nilsen excitedly churning with ideas put Kalinske slightly at ease.

  After a lingering silence, Toyoda meekly spoke up. “If we delay the shipment as Al suggested, but not for such a reason, can we depreciate the R&D costs for the second quarter?” Nobody responded, but it was clear the financial guys in the room loved this idea, and they scribbled it down. Toyoda only spoke up a few times, each time asking a clever question or clarifying an important remark that had gotten lost in the perpetual shuffle.

  Kalinske gazed out the window of the conference room, once again attempting to accept that this was now his life. At least he had Rioux, Nilsen, and Toyoda. Kalinske took a deep breath. Everything would be okay. But just as Kalinske was starting to feel a little better about this motley crew, the meeting once again turned into a name-calling shouting match.

  “Who cares about depreciating the R&D costs? You can’t expect a Band-Aid to cover up a hole the size of the goddamn Grand Canyon.”

  “Yeah? Well we wouldn’t be in this hole if you didn’t convince us to overbid on trash like Dick Tracy and Spider-Man.”

  “What do you want from me? These are our only options. Everyone else is developing for Nintendo!”

  “So why don’t we get them to develop for us?” Kalinske said, before he even realized that he was speaking. His own words caught him off guard, but he’d already started, so he couldn’t stop now. “If they’ve already made the games for Nintendo, why don’t we offer them some money to put them on our system too?” Kalinske said, shining a spotlight of reason in a room full of nonsense. “Maybe we could even get them to make enhanced versions for the Genesis so they’ll stand out.” Kalinske looked around, expecting enthusiastic nods. Instead, he found a combination of discomfort, dismay, and maybe even some pity.

  Toyoda spoke up to fill the void. “Those are all strong ideas, Tom. Thank you for sharing. But unfortunately, at this moment, they will not be most efficient. Nintendo has taken measures to prevent anything like that. They are prepared.”

  Kalinske nodded, getting the message: Shut up until you know what you’re talking about. He thought about trying to compensate for his blunder by making some bold promise or guarantee of success, but realized that might make him appear even more out of his element. For now, there was nothing to do but sit there, listen, and wonder if he’d made the biggest mistake of his life.

  When the meeting ended, everyone quickly exited the conference room, except for Paul Rioux, who lumbered toward Kalinske with a thick, Hemingwayesque grin. “I know how you’re feeling,” he said. “It’s how I felt my first day on the job. To come from a place like Mattel to . . . this?”

  “Yeah, it’s a little different from what I expected,” Kalinske said.

  “It is. And it took me a little while to figure out that different is good,” Rioux said, reflecting. “Anyway, I wanted to come over and say that I was very, very pleased when I heard that you were coming here. You’re going to do a hell of a job.”

  “We shall see . . .”

  “We shall. And to help you get there I’ve put together a dossier of information so that you can familiarize yourself with Nintendo. They’re a real beast, and their financials are just . . . I don’t even know how to describe it. I’ve got all kinds of articles, reports, presentations, and things of that nature. It’s yours, if you want it.”

  Kalinske was so grateful that for a moment he considered enveloping Rioux with a giant bear hug. Instead, he took a moment to gather himself and simply say thank you, before setting out to learn everything there was to know about Nintendo.

  5.

  THE HISTORY OF NOA

  (A STORY TOLD IN 8 BITS)

  On September 23, 1889, just weeks before his thirtieth birthday, an entrepreneur named Fusajiro Yamauchi opened a small, rickety-looking shop in the heart of Kyoto. To attract the attention of passing rickshaws and wealthy denizens, he inscribed the name of his new enterprise on the storefront window: Nintendo, which had been selected by combining the kanji characters nin, ten, and do. Taken together, they meant roughly “leave luck to heaven”—though, like most successful entrepreneurs, Yamauchi found success by making his own luck. In an era where most businessmen were content to survive off the modest returns of regional mainstays such as sake, silk, and tea, he decided it was time to try something new. So instead of selling a conventional product, Fusajiro Yamauchi opted for a controversial one, a product that the Japanese government had legalized only five years earlier: playing cards.

  The history of Japan’s relationship with playing cards is as noble as it is bizarre. It began in the late sixteenth century, when visiting Portuguese sailors first introduced card games. This popular Western pastime quickly spread throughout Japan. At the same time as this frenzy was overtaking the nation, Japan’s military commanders were growing increasingly incensed by the rapid influx of European missionaries. To ward off this flood of Christianity, the Japanese government issued a series of edicts that effectively closed the country’s borders and banned many Western items, including clocks, eyeglasses, and, of course, playing cards.

  As a means to circumvent the ban on cards, the Japanese obediently stopped producing Western cards with four suits and twelve numbers and instead constructed cards with the seasons (also four) and months of the year (also twelve). These new playing cards, which also featured altered illustrations and were intended for games with modified rules, became known as hanafuda cards and lent themselves to more complex games like bridge and mah-jongg. Eventually the government caught on and banned these as well, but even that wasn’t enough to deter the popularity of hanafuda cards, which survived into the nineteenth century by being played behind closed doors.

  That all changed in 1885, when a more open-minded Japanese government withdrew several restrictions that had been imposed on gambling and the manufacturing of hanafuda cards. For the first time in centuries, people who had been playing this game illegally, like twenty-six-year-old Fusajiro Yamauchi, were finally able to do so out in the open. This led Yamauchi to spend more time playing the game, which led to a series of entrepreneurial ideas and eventually to the opening of that fateful Nintendo shop on September 23, 1889.

  There, in the heart of Kyoto, he and a small team of employees crafted paper from the bark of mulberry trees, mixed these thin slits with s
oft clay, and then added the hanafuda card designs with inks made from berries and flower petals. Nintendo’s cards, particularly a series called Daitoryo (which featured an outline of Napoleon Bonaparte on the package), became the most successful in all of Kyoto. The fate of Nintendo looked very promising, until future success was threatened by that of the past. Because those early years had gone so well, all the region’s households seemed to already have a deck of hanafuda cards, and demand came to a halt. To overcome this issue, he set his sights on the one place where the demand never diminished: casinos.

  In the smoky dens of Japan’s gambling parlors, the highest-stakes tables would open a new pack of cards for each game. Yamauchi recognized the incredible potential and signed contracts with nearly seventy gambling parlors. With each one going through hundreds of packs every week, Nintendo’s profits soared. Up until this point, Yamauchi had been selling his cards exclusively in Nintendo shops, but if he ever wanted to see Nintendo become a household name, he needed a way to reach more households. That path to pervasiveness came when he struck a deal with the Japan Tobacco and Salt Public Corporation, the state-run monopoly operated by the Japanese Ministry of Finance, which agreed to sell Nintendo cards in their many cigarette shops scattered throughout the nation.

  After several decades of staggering success, Fusajiro Yamauchi retired in 1929 and was succeeded by his son-in-law Sekiryo Yamauchi, who ran Nintendo efficiently for nineteen years, but in 1948 he had a stroke and was forced to retire. With no male children, he offered Nintendo’s presidency to his grandson, Hiroshi, who was twenty-one years old and studying law at Waseda University. It didn’t take long for Hiroshi Yamauchi to make his presence known, and he earned a reputation for quick thinking and a quicker temper. Unsurprisingly, he soon fired every manager that had been appointed by his grandfather and replaced them with young go-getters who he believed could usher Nintendo beyond its conservative past. Also unsurprisingly, his keen insights and rabid efforts to modernize Nintendo accomplished their goal. In 1951, he consolidated all Nintendo’s manufacturing plants in Kyoto to greatly speed up the production process. In 1953 he introduced the first plastic-coated playing cards in Japan. And in 1959 he led Nintendo into its first licensing agreement, a potentially game-changing deal with the Walt Disney Company. The Disney playing cards were a stunning success and helped Nintendo reach a new generation of Japanese boys and girls.

  Emboldened by this triumph, Yamauchi branched out into a number of other, less lucrative endeavors, including an instant-rice company and a pay-by-the-hour “love hotel.” These disappointments led Yamauchi to the conclusion that Nintendo’s greatest asset was the meticulous distribution system that it had built over decades of selling playing cards. With such an intricate and expansive pipeline already in place, he narrowed his entrepreneurial scope to products that could be sold in toy and department stores and settled upon a new product called “videogames.”

  Yamauchi wanted Nintendo to aggressively get into the videogame business, which was really two separate businesses: home consoles and coin-operated arcade games. Yamauchi saw the potential in these industries and took the necessary steps for Nintendo to enter both. In 1973 he established Nintendo Leisure System, a subsidiary devoted to making arcade games. Despite middling results from titles like Wild Gunman and Battle Shark, Yamauchi remained committed to his new vision of Nintendo and continued to allocate a vast amount of resources toward videogames. In 1977 Nintendo released a shoebox-sized orange console called the Color TV-Game 6, which played six slightly different versions of electronic tennis and was met with a mixed reception. Though the console managed to sell one million units, it ultimately lost money for Nintendo because of the exorbitant R&D costs. Nevertheless, Yamauchi remained undeterred. Nintendo continued to put out arcade games (striking out with duds like Monkey Magic and Block Fever) and also continued to release home consoles (like the Color TV-Game 15, which offered fifteen slightly different versions of electronic tennis).

  In the same way that, over seventy years earlier, Fusajiro Yamauchi had changed Nintendo’s fortunes by expanding its distribution network, Hiroshi Yamauchi saw the potential in a similar idea. By this point, Nintendo already had penetrated most of Japan, so the company would have to look overseas. With this logic, Yamauchi set his sights on the place where the videogame frenzy had started: America.

  1. Arakawa

  Yamauchi had already dipped a toe into this red, white, and blue pool of water a few years earlier and was encouraged by the results. In the late 1970s Nintendo had begun working with a trading company that would export arcade cabinets to American distributors, who would in turn sell these games to vendors in the United States. Though the profits from this arrangement were minimal, Yamauchi believed that if he could cut out the trading companies and send over someone he trusted to grow Nintendo’s business organically, then there was a lot of money to be made in the land of opportunity.

  The American market would be risky, tricky, and perpetually persnickety. There appeared to be only one man properly equipped for the challenge: Minoru Arakawa, a frustratingly shy but brilliant thirty-four-year-old MIT graduate. Not only did Arakawa possess the insight and intellect to open a U.S. division of Nintendo, but he came from good stock (his family had been running a prominent Kyoto-based textile company since 1886), he was already living in North America (he was selling condominiums for the Marubeni Corporation in Vancouver), and had an incalculable fondness for America (some of his most cherished memories had come from a post-college cross-country trip he’d taken in a used Volkswagen bus).

  In every way, Minoru Arakawa appeared to be the perfect candidate . . . except that he happened to be married to Yamauchi’s daughter, Yoko, who blamed Nintendo for turning her father callous. She simply refused to let her husband join Nintendo, as she did not want to watch history repeat itself.

  Yamauchi initially proposed the idea to Arakawa in early 1980. Following a pleasant family dinner, Yamauchi spent two hours discussing his plans for the expansion of Nintendo and concluded by stating that the success of his plan hinged on Arakawa. The unusual plea intrigued Arakawa, as did the unique potential of Nintendo’s upcoming products (including small, calculator-sized handheld games, and a new console that would play interchangeable cartridges). Lastly, anticipating his daughter’s reluctance, Yamauchi explained that this American division would be a completely independent subsidiary. Arakawa wrestled with the decision as well as with the objections of his wife, who cautioned him that no matter what he accomplished, he would always be perceived as nothing more than the son-in-law. Perhaps that would be the case, but Arakawa decided that the opportunity was too good to pass up, and in May 1980 he and his wife left Vancouver to start Nintendo of America (NOA).

  Despite her concerns, Yoko greatly loved and supported her husband. So after the family moved to New Jersey, she formally became NOA’s first employee and helped select a location for the new company’s office. Arakawa and his wife settled on a small space on the seventeenth floor of a Manhattan high-rise located in the center of the toy district at 25th Street and Broadway. They spent their days at the office and their nights observing games and players at local arcades. They learned a lot this way, but no amount of knowledge could make up for the fact that for Nintendo to gain a foothold in America, they needed to build a strong sales network. So Arakawa set up a meeting with a couple of guys who he thought might be able to help: Al Stone and Ron Judy.

  2. Stone and Judy

  Al Stone and Ron Judy were old friends from the University of Washington, where they had once lived in the same frat house and had been known to embark on promising get-rich-quick schemes together (like buying soon-to-be-discarded local wine cheaply and then reselling it to their college brethren with less sophisticated palates). After graduating, they each moved to separate coasts (Stone to the West, Judy to the East), but eventually the alchemy of their entrepreneurial relationship pulled them back together. Tired of working for other people, they starte
d a trucking business in Seattle, because they liked the changes that were occurring in the transportation industry as a result of deregulation. After founding a company, which they called Chase Express, Stone and Judy proceeded to buy a handful of small trucking companies with the goal of rolling them into one midsized trucking company. Shortly thereafter, they learned the true meaning of “easier said than done.” The trucking industry turned out to be too political, too insular, and not quite what these two guys wanted to do for the rest of their lives. So while they continued to invest in Chase Express and hope for a turnaround, they also began looking for alternative business opportunities, ones that did not include five axles and eighteen wheels.

  They eventually found their answer, though it still involved big rigs. But unlike their previous venture, this wasn’t about the trucks themselves, but rather about what they carried inside. Through a friend in Hawaii, Ron Judy had been informed that a Japanese trading company was seeking a distributor to sell some arcade games made by Nintendo Company Limited (NCL). Intrigued, he agreed to test the waters and received a crate containing a few arcade cabinets of Nintendo’s Space Wars. Though the game was little more than a shameless rip-off of Taito’s Space Invaders, Judy got his brother-in-law to place the games in some of the taverns he owned in south Seattle. Much to his delight, the machines were quickly overrun with quarters, which convinced him and Stone that this was their future. They formed a distribution company called Far East Video and used their assets from the trucking industry to travel around the country and sell Nintendo games to bars, arcades, hotel lounges, and pizza parlors.