The Ultimate History of Video Games: From Pong to Pokémon and Beyond—The Story Behind the Craze That Touched Our Lives and Changed the World (54 page)

Franchising led to some immediate profits but ultimately killed the business. Although Rosen was able to double his locations by licensing nearly one hundred operations, franchising invited competition. There was no patent on Photorama technology, so other companies were able to move in and imitate the booths. In the early 1960s, Rosen finally closed his Photorama business. By this time, however, he had managed to open several new ventures and move in a different direction.

Japan received a tremendous financial boost from the presence of the American military during the Korean War. The United States used Tokyo as a base throughout the war, and American procurement of goods and workers brought a rich infusion of dollars into the Japanese economy. As a result of that new prosperity, Rosen decided to import a limited number of “luxury” items in 1956. After considering his options, he decided to bring in some coin-operated electro-mechanical games.

According to Rosen, the U.S. amusements market was fairly stagnant when he arrived. The arcades that carried the games attracted a fairly rough clientele, and all of the games came from a few Chicago-based companies. With the exception of pinball, the amusement industry had gone flat, creating a buyers’ market in which many distributors were glad to sell used machines to Rosen at bargain rates. He paid approximately $200 per game, then had to pay nearly twice that price to the Japanese authorities in order to import them.

Most of the games Rosen imported, such as
Bear Gun
from Seeburg, involved shooting. These were big, heavy machines that required a lot of space. With
Bear Gun
, for example, the player stood nearly fifteen feet from the target. These games were also very solidly constructed and seldom broke down.

Due to the success of his Photorama operation, Rosen had more than one hundred locations in which he could place his machines. He charged 20 yen per game. At the time, the trade rate was 360 yen to the dollar, so Rosen was letting people play for less than the ten cents per game that was standard in the United States. Like his photomats, Rosen’s coin-operated games were a huge success. With shipping and duties, Rosen paid less than $1,000 to import each game. Even at 20 yen per game, it took less than two months for the games to earn back that investment. Within a year, the Ministry of International Trade and Industry approved Rosen’s request to return to the United States and purchase $200,000 worth of games.

Through the Photorama business, Rosen had developed strong relationships with the owners of the Toho and Shochiku movie theater chains and was able to place arcades in their lobbies or in adjoining spaces. While Namco founder Masaya Nakamura was still operating horse rides on the rooftops of Tokyo department stores, Rosen had at least one arcade in every city in Japan. His closest rivals were Service Games, which by this time had cornered the jukebox market with “Sega” jukeboxes, and Taito, the amusement company founded by Michael Kogan. Though they were all fiercely competitive, Rosen, Kogan, and the principles of Sega formed strong personal ties.

After the success of his arcades, Rosen searched for new ways to expand his business. He bought the rights to an indoor golf game, in which a computer read the speed and direction of a ball that players hit into a net, and set up a golf course franchise. The Japanese, however, considered golf an outdoor activity, and Rosen’s business did not flourish. Next, he tried building a business around slot cars. This idea touched off a brief fad. Then he was approached by AMF to help establish a bowling alley.

Rosen’s bowling alley was an unqualified success.

Ironically, it was the only bowling alley Rosen ever opened. Once again, his success paved the way for competitors. Before long, Brunswick opened several bowling alleys around Japan, with Sega or Taito arcades in their lobbies. Thanks to its theater arcades, Rosen Enterprises, Ltd., remained the biggest amusement game company in the business, but its closest rivals gained ground.

Smaller competitors started popping up around Tokyo toward the end of 1964, and Rosen began discussing a three-way merger with Michael Kogan of Taito and the three men who controlled Service Games—Marty Bromley, Dick Stewart, and Ray LaMaire. Kogan eventually decided against joining with the other companies; but Sega and Rosen Enterprises did join forces to form Sega Enterprises, Ltd.

Though Rosen Enterprises had a stronger hold on the amusement games market at the time of the merger, Service Games was a much larger company. Its assets included a thriving jukebox trade that at one point reached
approximately 6,000 locations, a considerable manufacturing facility, several bowling alley arcades, and more than thirty branch offices. Under the new agreement, Rosen became president and CEO of Sega. Within a year of his becoming president of the company, Rosen used Sega’s manufacturing plant to build its own games.

Nearly ten years had passed since Rosen imported his first
Bear Gun
and
Coon Hunt
games, and he felt that game quality had not changed much over that time. Due to increased competition, he switched from purchasing used games to buying new ones, driving the money he spent per game from $200 to as much as $695. The switch yielded little value to the consumer. The coin-operated amusement industry was so stagnant that the new games were almost identical to the used ones Rosen had imported earlier.

In 1966, Sega began manufacturing its first game,
Periscope
, which put a new spin on the shooting games Rosen had imported since 1956. The game was an attack submarine simulation. Players scanned a stretch of ocean through a periscope, then fired torpedoes at ships as they crossed the horizon. The ocean was a wide bed of plastic that looked like a windy, wave-tossed sea, and the torpedoes were really only strings of lights, but
Periscope
had great sound effects and the overall effect was very impressive for its time. The game was expensive to make and cost 30 yen to play—twice the price of earlier games.

Periscope
was so successful in Japan that distributors from the United States and Europe flew in to see it. The game had been designed for use in Sega arcades and was not built well for export; but when international orders came in, Sega engineers redesigned it so that it could be shipped elsewhere. Rosen gave the game a $1,295 price tag, making it far more expensive than games manufactured in the United States. When U.S. operators complained that Sega wanted too much money and that a $1,200 game would never pay for itself, Rosen responded that they should set
Periscope
at 25 cents per play instead of the usual 10 cents.
Periscope
became the first game to be set at that price.

With the success of
Periscope
, Sega suddenly became an exporter rather than an importer of games. Sega engineers began designing as many as ten new games each year—all of which were available for export. Within three years of the merger, Sega had become so successful that Rosen, Bromley, and the other principals began discussing a public offering on the Japanese market. That idea turned out to be too ambitious. Had they succeeded, Sega would have been the first foreign-owned company to enter the exchange since the end of World War II.

Rather than selling shares of their company, Rosen, Bromley, Stewart, and LaMaire ended up selling their company altogether. Approached by Kidder Peabody with the suggestion that several large American conglomerates would be interested in purchasing the company, they spoke with a few companies and finally sold to Gulf & Western in 1967.

Though the sale of Sega included a stipulation that required Rosen to remain as CEO and chairman through 1972, it allowed him to move his headquarters to the city of his choosing. After trying Hawaii for a few months, he established headquarters in Hong Kong and stayed there until 1976. It was during this time that he established a strong relationship with Charlie Bluhdorn and Jim Judelson, the chairman and president, respectively, of Gulf and Western. Bluhdorn offered Rosen the opportunity to go into partnership with G & W in establishing a Far East conglomerate similar to G & W. The
company was formed with Sega as a subsidiary. However at that time the market conditions in the Far East did not allow for an acquisition program of the type required to emulate G & W’s success in the United States. In 1974 Bluhdorn, recognizing Rosen’s restlessness and entrepreneurial spirit, offered to spin out Sega into a U.S. listed company, which Rosen as chairman, CEO, and second largest shareholder could use as a vehicle to grow Sega.

During this time, Sega acquired an established American arcade company called Gremlin as its manufacturing arm. Teamed up with Gremlin, Sega ended the 1970s as a major supplier of video games in the United States and Europe.