History

 

In the early 1980s, Sega Enterprises, Inc., then a subsidiary of Gulf and Western, was one of the top five arcade game manufacturers active in the United States, as company revenues rose to $214 million. A downturn in the arcade business starting in 1982 seriously hurt the company, leading Gulf & Western to sell its North American arcade manufacturing organization and the licensing rights for its arcade games to Bally Manufacturing. The company retained Sega's North American R&D operation, as well as its Japanese subsidiary, Sega of Japan. With its arcade business in decline, Gulf & Western executives turned to Sega of Japan's president, Hayao Nakayama, for advice on how to proceed. Nakayama advocated that the company leverage its hardware expertise gained through years working in the arcade industry to move into the home console market in Japan, which was in its infancy at the time. Nakayama received permission to proceed with this project, leading to the release of Sega's first home video game system, the SG-1000.

 

The SG-1000 was first released in Japan on July 15, 1983, at a price of JP¥15,000. It released on the same day as Nintendo launched the Famicom in Japan. Shortly after the launch of the SG-1000, Gulf & Western began to divest itself of its non-core businesses after the death of company founder Charles Bludhorn, so Nakayama and former Sega CEO David Rosen arranged a management buyout of the Japanese subsidiary in 1984 with financial backing from CSK Corporation, a prominent Japanese software company. Nakayama was then installed as CEO of the new Sega Enterprises, Ltd. Following the buyout, Sega released another video game console, the SG-1000 Mark II,at a price of ¥15,000. It featured a few hardware tweaks from the original model, including detachable controllers and the ability to play Sega Card games. The Mark II did not sell well, however, leading to Sega's decision to continue work on its video game hardware. This would result in the release of the Sega Mark III in Japan in 1985.

 

Launch

 

Sega released the Mark III in Japan in October 1985, at a price of JP¥15,000. Despite featuring technically more powerful hardware than its chief competition, the Famicom, the Mark III did not prove to be successful after its launch. Difficulties arose from Nintendo's licensing practices with third-party developers at the time, whereby Nintendo required that titles for the Famicom not be published on other consoles. To overcome this, Sega developed its own titles as well as obtained the rights to reprogram games from other developers, albeit with little success. NEC would later use the same strategy on some of Sega's titles when developing games for the PC Engine.

 

Before launching the console in North America, Sega decided to restyle and rebrand the Mark III under the name Master System, similar to Nintendo's own rebranding and restyling of the Famicom into the Nintendo Entertainment System. The Master System was released in North America in 1986, at a price of US$200, and was packed in with Hang-On/Safari Hunt. However, as in Japan, the Master System in North America also suffered from a poor game library when compared to its competition. Against Nintendo's licensing practices, Sega had only managed to gain two third-party developers to their side: Activision and Parker Brothers. By 1988, Nintendo commanded 83% of the North American video game market share. At this time, Sega sold the distribution rights for the Master System in the United States to Tonka, which did not have any previous experience with electronic entertainment systems. Some of Tonka's decisions with the Master System included blocking localization of several popular video game titles. Though the distributor of the console had changed, the Master System continued to perform poorly. A re-release of the console, as the Master System, also occurred in Japan in October 1987 at a price of JP¥16,800, but, similar to the Mark III, was not successful.Neither the Mark III nor the Master System posed a serious challenge to Nintendo in Japan.

 

The European launch of the Master System occurred in 1987, in time for Christmas that year. Distributed by Mastertronic, the Master System was advertised as "an arcade in the home", and was launched at GB₤99. Within a short amount of time, Mastertronic was so successful with distribution of the Master System that Virgin Media, led by Richard Branson, purchased the distributor and formed Virgin Mastertronic, including its rights to distribute Sega hardware and software in European territories. The Master System held a significant part of the video game console market in Europe through the release of Sega's succeeding console, the Sega Genesis(known as Mega Drive in territories outside of North America). Brazil was also a successful market for the Master System, where the console was released in 1989 and distributed by Tectoy.

 

Transition to Sega Genesis and decline

 

Sega released the Mega Drive, a 16-bit video game console, in Japan on October 29, 1988. In 1989, Sega was preparing to release the new Mega Drive, relabeled as Genesis, in North America. Displeased with Tonka's handling of the Master System, Sega reacquired the marketing and distribution rights to the Master System in the United States. In 1990, Sega released the remodeled Master System II, designed to be a lower-cost version of the console which also removed the Sega Card slot. Sega promoted it themselves, but still sold poorly in the region. In 1991, Nintendo was found guilty of violating United States antitrust law and forced to abandon some of its licensing practices, but the Master System had already been in decline long before. By early 1992, Master System production ceased in North America. At the time of its discontinuation, Master System had sold 2 million units in the United States. The last licensed release in North America was Sonic the Hedgehog in 1991.

 

Contrary to its performance in Japan and North America, the Master System was eventually a success in Europe, where it outsold the NES by a considerable margin. As late as 1993, the Master System's activeinstalled user base in Europe was 6.25 million units, larger than that of the Mega Drive's 5.73 million base that year. Combined with the Mega Drive, Sega represented the majority of the console user base in Europe that year. The Master System's largest markets in the region were France and the United Kingdom, which had active user bases of 1.6 million and 1.35 million, respectively, in 1993. The remodeled Master System II also proved to be successful and helped Sega to sustain the Master System's market share in Europe. More new releases would continue into the 1990s in Europe, including Sonic the Hedgehog 2, Streets of Rage II, and Mercs.

 

The Master System has had continued success in Brazil, where new variations have continued to be released long after the console was discontinued elsewhere. These include the Master System Compact, as well as the Master System 3. By 2012, the Master System had sold 5 million units in Brazil.

 

Sega Game Gear

 

Developed under the name "Project Mercury" and designed based on the Master System's hardware, the Game Gear was first released in Japan on October 6, 1990, in North America and Europe in 1991, and in Australia in 1992. Originally retailing at JP¥19,800 in Japan, US$149.99 in North America, and GB£99.99 in Europe, the Game Gear was designed to compete with the Game Boy, which Nintendo had released in 1989. Despite the similarities the Game Gear shared with the Master System, the games of the latter were not directly playable on the Game Gear, and were only able to be played on the handheld by the use of an accessory called the Master System Converter. A large part of the Game Gear's game library consists of Master System ports. Because of the landscape orientation of the Game Gear's screen and the similarities in hardware between the handheld console and the Master System, it was easy for developers to port Master System games to the Game Gear.