Short: The Death of Sega

28:17In 1983, right before the home video game console crash led by Atari, they do $214 million in revenue, Sega does, as a division within kind of Paramount. Then when the video game crash happens at the end of that year, Paramount, just like Warner Brothers and Atari, they want out of the business. So they want to divest Sega. And one of the original founders from back in the day, a guy named David Rosen, and a Japanese entrepreneur of a company Sega had acquired named Hayao Nakayama, they engineer a management buyout of Sega for the grand total price. I don't know if this is in PitchBook, of $38 million.

29:01This is the steal of the century. Yes, actually. There's a transaction in 1984. Looks like the investor name is CSK Holding. Yes, that's it. So CSK Holdings was a public Japanese company that Rosen and Nakayama knew the management of. They financed this buyout. They were like the PE shop. They were the sponsor of this transaction. Oh, interesting. And this is how Sega becomes an actual Japanese company, even though they were started by Americans to serve military bases back in the day. Right. Okay. So wholly bought out by Gulf and Western, then wholly spun out. Yes. They bought the whole thing for only $38 million.

29:42Like, this is ridiculous. This company, which is legendary in the arcade industry, did $214 million in the year ended six months before this. Why did they value it so little? This is the thing. Because of the home video game crash in America, video games in general just became this toxic asset that nobody wanted to own, especially, you know, Paramount and Warner Brothers was divesting Atari. So the arcade business, yeah, it got hit by the crash, but it actually was fine. And so this was just an amazing deal. Management bought the dip because they knew that they weren't actually really affected by this.

30:21Boy, did they ever. So then I think that was in 1984. They would go on to take it public, I think in 1988 on the Tokyo Stock Exchange. So now it's a publicly traded company. Yep. That makes sense because pretty quickly after the buyout, Sega gets back to their old tricks and they're crushing it. They're pumping out smash arcade hits like OutRun, people might have heard of. Very famous racing game, Shinobi, Afterburner, Altered Beast, which was a kind of beat -em -up brawler that we talked about on the Nintendo episodes. That was the original pack -in game before Sonic with the Genesis. So they're back to making hundreds of millions of dollars in their arcade business, both making the games and operating them in their own arcade centers.

31:06Nakayama, who was one of the two guys involved in the buyout. And Nakayama and Rosen had to get hugely wealthy from this because of how unbelievably little they paid for the equity that by the time they IPO'd it would have been very valuable. Yes. I don't know the details, but I'm sure they did. Nakayama, he starts pushing the company. He gets worried about what Nintendo's doing and what he sees with the NES and he says, we should also enter the home console business. So it's like a diversification bet. Exactly. Rosen, CSK, the rest of the board, they're not that supportive because they're like, we're doing great in arcades.

31:43Like, I don't really care that much, but sure, if you care about this, go do this. And that's when Nakayama goes and he recruits Tom Kalinsky to come in and run North America. It's kind of like a surprising success to everyone, the Genesis in North America. You know, there's the scene that we talked about in Nintendo Part 2 where Tom comes over and presents his four -point plan for dethroning Nintendo to the board in Japan. And the Japanese board is like, I don't know, like, I don't really like this. Now it all makes sense. They're not dumb. They're just like, why would we risk pouring all this capital into the home console business when we're killing it in the arcades?

32:23And on the one hand, it's an innovator's dilemma. On the other hand, I have to imagine arcade stayed a very good cash flow business for a long time. It's not like that was actually going away. Well, let's get into it. So Nintendo and the NES and the Super NES and the home console business turned out was never really a threat to the arcade business. Because the way arcade technology and hardware worked was very different than the console cycle. and the types of games were different. In the arcades, it was all iterative. It was constant iteration. Every game that came out was its own proprietary hardware cabinet and they were based on designs.

33:07They're called boards. They're arcade boards, but you could tweak it each time. You think about what Sega's pushing with all their add -ons to the home console. Of course, that would make sense to them. That's the way their R &D team worked. They'd have like a core base, you know, call it the System 16, which was Sega's kind of base 16 -bit arcade platform that they based the Genesis on. Yeah, all these games I was just talking about, Shinobi, Outrun, etc., they ran on that. But each new game, they tweaked the hardware a little bit. It was iterative. So they didn't actually have to think about, we need to create a standard platform for developers to target for the next five years, because every cabinet was its own self -contained system.

33:51So like do a once every five plus year. This is the standard thing and we promise not to change it and we will create a bedrock platform for you developers. That's not really a thing. And so that means a couple things for the market that keep the arcade market not just viable, but thriving. The arcades are where the most technologically advanced games are during this era because the hardware cycle is so iterative. The home systems, even the NES, as amazingly groundbreaking as it was, because the console cycles have to be designed to last so long, that's not where the latest cutting edge stuff is.

34:32And so those games, the Nintendo games that they're making, you know, the way Sega counter positioned against them with the Genesis, they're slow, they're not exciting, but that's what home console games became. They became these long adventures, these fantasy lands, a very different thing than you would do in the arcades. Makes sense. So coming out of this era and then into the early and mid 90s, Sega's arcade unit is just killing it. They'd had those hits in the 80s. Everybody got super wealthy. And then they start really pushing the envelope on technology. There was a ton of innovation coming out of Sega.

35:09They developed the first real modern great 3D games. We all think now of Super Mario 64 as being the first 3D video game that consumers used and loved. Actually, years before, Sega put out the Virtua series in the arcades. So this was Virtua Racing, Virtua Cop, and most importantly, Virtua Fighter. Now this game, Virtua Fighter, which was a fighting game, it used 3D polygonal technology. If you think back to 16 -bit Super Nintendo games, they're flat. They're 2D. 3D games like think Mario 64, you're running around in a 3D world. All of the environments and characters are built using polygonal math.

35:57We talked about this a lot on the NVIDIA episode. Right. Triangles. Triangles. This is new. Sega is the one that actually brought really good games to market with this, and it was all in the arcades. So Virtua Fighter, when it comes out in 1993, is so popular. Sega sells over 40 ,000 Virtua Fighter cabinets worldwide at a price of like $10 ,000 plus per cabinet. So that's half a billion dollars in revenue on Virtua Fighter. Wow. So it's a huge win financially for the company. Even more so, though, it's so impactful on the video game industry. Once Virtua Fighter comes out, everybody realizes, hey, 3D polygonal games are the future.

36:42And what year was this? This was 1993, right as Ken Kutaragi and the team over at Sony are working on their standalone PlayStation. They've broken up with Nintendo. They're going to come to market with their own console. And this is pivotal. So I want to read now from the Wikipedia page for the PlayStation 1 console. After Sony witnessed the success of Sega's Virtua Fighter in 1993 in Japanese arcades, the direction of the PlayStation became, quote, instantly clear, and 3D polygon graphics became the console's primary focus. Sony Computer Entertainment president expressed gratitude for Sega's timely release of Virtua fighter as it proved quote just at the right time that making games with 3d imagery was possible and that this was the direction the playstation should focus so the impact of this is huge arcades remained viable through the 90s because they had the technological edge But now Sony is going to come enter the market and they don't care about arcades.

37:58They're going to bring their technology and financial firepower all to the home market. And their goal now is to make a machine that can rival the arcade technology in the home market. And they have the balance sheet to subsidize it. So they can take a strategy of coming into the home with very, very good technology at a price point that consumers could afford. Yep. So here we are now, the end of 1993 into 1994. Sony has announced that they're coming out with the PlayStation. They're all in on entering the video game market. They start going around and talking to all of the non -Sega arcade manufacturers.

38:40Namco, Midway in the US, Konami. and they start convincing them to bring all of their new arcade games directly to the PlayStation. When it first comes out in end of 1994 in Japan and then 1995 in the US, it's an arcade killer. That's what it is billed as. It becomes so much more than that over time. It's Grand Theft Auto, it's Final Fantasy, it's all that. But in the beginning, the vision for the PlayStation was, we're going to take the technological firepower of the arcades and we are going to bring that in a way that Nintendo can't and Sega won't into the home market. And of course, all the other arcade manufacturers love this strategy.

39:25Right. We can benefit from riding the Sony platform into the living room, but Sega is going to get caught in the wind here. Because they have a home console that's making it so that they can't go align with another home console. Namco doesn't have a home console. Konami doesn't have a home console. Midway doesn't have a home console. So before the PlayStation launched, the arcade industry was back up to about $7 billion a year globally. And a huge portion of that was controlled by Sega. After the PlayStation launches, by the end of the decade, it's down to $2 billion. So it drops by 60 % in just a few short years, and it's all due to the PlayStation.

40:10So the PlayStation basically killed Sega's arcade business and their console business. Yep, that's what happened. Wow. So now let's go look at this kind of original console wars book type narrative about what happened. We have a whole different perspective now. All this crazy hardware schizophrenic add -ons, these are like panicked responses to the coming tsunami of Sony. Not just worrying about the home market, but worried about their arcade dominance as well. Huh. And I have to imagine at some point, Sega of Japan lost their desire to make a great competitive home console because that was the thing that was preventing them from being able to be in business with Sony.

40:56Now, it doesn't mean that they're going to stop making consoles right away, but it does sort of plant this seed of, huh, we have a little bit of a strategy conflict here where we either have to be all in and winning in consoles or we just need to make games. But we can't really be on a seesaw kind of trying to do both and have a foot in both worlds. So here's what happened. In September 1994, right before this crazy 32X thing comes out, Sony and Namco, when now Namco was Sega's biggest rival in the arcade business, they come out with a pretty huge industry changing announcement they're gonna partner together to release a quote -unquote virtual fighter killer arcade game called tekken folks might recognize the tekken series well i had no idea tekken is so much more than tekken the game is gonna come to the playstation when it launches it's not out yet but yeah like great okay we all remember Tekken, you play it on the PlayStation.

41:58I think it was an exclusive, etc. But it's also coming out right now in September 1994 in the arcades. And in fact, it's going to be running on Namco's awesome new System 11 arcade board platform that they have developed together with Sony. And guess what? Further surprise, this System 11 arcade board developed with Sony is the PlayStation. Whoa. So this is just the ultimate knife in Sega's back. They're just basically shipping PlayStations inside of these arcade cabinets? Yeah, it was the PlayStation hardware. There was some buffs to it and whatnot, but Namco, and now pretty soon, all the other arcade guys, they're gonna be like, oh, great, we're moving all of our development platform for the arcade industry to the PlayStation platform.

42:50The technological bleeding edge is now gonna be, Yeah, also in the arcades, powered by the PlayStation, but in the home, powered by the PlayStation. Wow. What a Trojan horse. So now Sega is like, oh, shoot, we are screwed. We need to scramble the jets and just do anything we can to try and stave off this apocalypse. So they launched the 32X. Seems really dumb, but they got to do something like, okay, we need to get into market right now with a 32 -bit system to just try and preempt Sony here and the PlayStation launch. Then they massively accelerate the Saturn launch. Why did they do that? The same thing.

43:36They're just trying to do anything they can think of to steal some of Sony's thunder here. Yeah, makes sense. The Barbarian is already through the gates on the arcade side of the business because Namco is shipping these System 11 arcade cabinets today. and it's right at the gates coming next year with the PlayStation. It's funny how much in our Nintendo episode, the conflict was Sega versus Nintendo, but the death of Sega really is against Sony. Yes. So that brings us to the very famous E3 conference in May of 1995. And this is maybe the most incredible video game industry event of all time. We referenced it earlier in the show, but we're heading into the conference.

44:25Sony is expected to announce the U .S. release date and pricing of the PlayStation at this conference. People expect it's going to be in the fall. You don't kind of know what's going to happen. Sega, they need to do something. And so this is when Sega of Japan tells Kalinsky and Sega of America, do the surprise launch. Get up there, announce the Saturn. Just do it. Even though the ecosystem isn't ready, the hardware is ready, so we're shipping it. We're shipping it. So Tom does that. He dutifully goes up. He announces, oh, forget Saturn Day. You can buy the console now. It's in limited quantities at select retailers for a price of $399.

45:03And he's basically doing this because Japan has said, either you are doing this or we will find a new CEO for Sega of America who can do this. Yes. $399. That is the Sega Saturn price point. Available today, May 11th, 1995. So Kalinsky finishes his speech. He walks off stage. They usher everybody out of the room. They turn it over. They get ready for the next keynote of the day, which is going to be Sony. Sony keynote starts a couple hours later. Olaf Olofsson, who's the president and head of all of Sony America. So like not just the PlayStation, all of Sony's businesses. He gets on stage. He starts giving his presentation.

45:44He says that the PlayStation will release in the U .S. on September 9th, 1995. So Sega's like, whew, great. They're not moving it up. We're going to beat them to the punch. We're live today. We got a four -month head start. Let's go. And then Olaf invites the new head of Sony Computer Entertainment America, one Steve Race, formerly of Sega of America, up to the podium to give a quote -unquote brief presentation. He walks slowly up to the podium. He's got a large stack of notes. He places them down on the lectern. He shuffles them around. He waits a beat. He's ready to give his big speech. he looks up he looks at the audience and he says $2 .99 and then he picks up his notes and he walks off stage and this is I think most people in the industry I think would agree that this is the greatest moment in all of video game industry history right of industry announcement type things.

46:52Yes. All right. So that's Sony PlayStation one, two 99 for by far the most sophisticated system on the market. We will link to the video of this in the show notes. It's on YouTube. I mean, people still watch this to this day. The reaction is amazing. At first there's silence because people like, what did he just say? What does this mean? What's going on? And then the crowd starts cheering. And then you can hear after about like 20 seconds or so when this really sinks in of what this means, people go nuts. There's like another wave of cheering. It's unbelievable. It's like that last wave is all the developers realizing, oh my God, we are going to print money because there's going to be so many people buying this thing.

47:34This exact moment in the afternoon of May 11th, 1995 is the death of Sega. Because let's go back and think about the three key constituencies in the video game home console business kind of flywheel. You've got the consumers. Why on earth would any consumer go buy a Sega Saturn today on May 11th on its launch day that has no Sonic game, has only six games total, and it costs $399? When you now know that the PlayStation, which is far superior, is going to come out just four months later, they're going to have perfect ports of all the latest and greatest arcade technology video games, and it's going to cost less.

48:23You're not going to buy a Saturn. So that's the consumers. Then the retailers. The retailers are so mad at Sega. Sega just completely ruined all of their holiday season planning because for retailers, Q4 is everything. And why are these consoles launching in the fall in the US so that it can be ready for the holidays. Sega just screwed all this up. And now more importantly, they've got units on trucks en route to their stores that they know they're not going to be able to sell now. So they are so mad at Sega. I think it was KB Toys, which then was a big franchise in America. They drop Sega entirely.

49:03They're like, we're not carrying your stuff anymore. Goodbye. You're gone. And then you've got the most important piece, the developers, all the third party developers who are sitting there at E3 watching these keynotes, they're like, wow, we're going to make a ton of money on Sony. And Saturn has no chance of building a meaningful install base. So like if I was planning on developing games for the Saturn, I am now canceling those plans. This is just the worst thing that could possibly happen to Sega and the Saturn and the arcade business. Now, listeners, as you can imagine, there is a tough path that they have to now traverse to get to the 2023 Sega that we're going to talk about and what they look like as a games business today.

49:46David, I have a couple of stories that I don't think you know about how they made that transition. So I'm curious to know if I will stump you with that or not. Now is a great time to thank good friend of the show, ServiceNow. We have talked to listeners about ServiceNow's amazing origin story and how they've been one of the best performing companies the last decade. But we've gotten some questions from listeners about what ServiceNow actually does. So today, we are going to answer that question. Well, to start, a phrase that has been used often here recently in the press is that ServiceNow is the quote unquote AI operating system for the enterprise.

50:27But to make that more concrete, ServiceNow started 22 years ago focused simply on automation. They turned physical paperwork into software workflows, initially for the IT department within enterprises. That was it. And over time, they built on this platform going to more powerful and complex tasks. They were expanding from serving just IT to other departments like HR, finance, customer service, field operations, and more. And in the process over the last two decades, ServiceNow has laid all the tedious groundwork necessary to connect every corner of the enterprise and enable automation to happen.

51:06So when AI arrived, well, AI kind of just by definition is massively sophisticated task automation. And who had already built the platform and the connective tissue within enterprises to enable that automation? ServiceNow. So to answer the question, what does ServiceNow do today? We mean it when they say they connect and power every department. IT and HR use it to manage people, devices, software licenses across the company. Customer Service uses ServiceNow for things like detecting payment failures and routing to the right team or process internally to solve it. Or the Supply Chain Org uses it for capacity planning, integrating with data and plans from other departments to ensure that everybody's on the same page.

51:46No more swivel chairing between apps to enter the same data multiple times in different places. And just recently, ServiceNow launched AI Agents so that anyone working in any job can spin up an AI agent to handle the tedious stuff, freeing up humans for bigger picture work. ServiceNow was named to Fortune's World's Most Admired Companies list last year and Fast Company's Best Workplace for Innovators last year. And it's because of this vision. If you want to take advantage of the scale and speed of ServiceNow in every corner of your business, go to servicenow .com slash acquired and just tell them that Ben and David sent you.

52:18Thanks, ServiceNow. Okay, so David, here are a few things that I was curious if you knew about. So I planted the seed earlier with the idea that some people personally accumulated a lot of wealth through Sega. One of these people was Aseo Okawa. Yes, the chairman of CSK, right? Yes, exactly. And then ultimately became the chairman of Sega. So in 1999, he had loaned Sega $500 million. I believe personally in 2001, the writing was on the wall. He was coming to the end of his life. He actually forgave Sega's debts to him ahead of his death and returned $695 million worth of Sega and CSK stock, which basically was the bridge that Sega needed to transition a massive shift from the Sega that we've been talking about this whole episode to just being the game creator that they are today.

53:18yeah because all of this r &d that was required to go into these new consoles the saturn and then we just talked about how the saturn basically got the floor wiped with it by sony and the playstation one sega would then turn around and pour a bunch of effort into the dreamcast the same story would happen but even worse the dreamcast sold less than the saturn and the ps2 of course goes on to become the best -selling console of all time it takes hundreds of millions if not billions of dollars in R &D to create these consoles. Right. They're just destroying their cash reserves. Yeah. You would think when the PlayStation comes out and basically creates a giant sucking sound that takes all of the business and players in the arcade industry and brings them into the home console with the PlayStation, that Sega would also get decimated in the arcade side of their business, which was the Golden Goose.

54:12They do, but they kind of get a stay of execution for a couple of years, thanks to this partnership that they do with the Japanese developer Altus to launch Purikura machines. So yes, the core gaming experience of the arcades does get totally gutted and Sega along with it, but almost like Nintendo and Pokemon, this Purikura thing, these are photo booth, like selfie booths. Oh, I did read about this. I just didn't know what it was called. Yeah. This kind of becomes sort of the origin of the selfie phenomenon that, of course, started in Asia and then like moved to the rest of the world. Sega was right there at the beginning of this.

54:53So the photo booths in the late 90s make over a billion dollars in revenue that Sega plugs into their quote unquote arcade business division. Now, this is not the arcades by any stretch of the imagination. It makes sense, though. It's the same distribution channel. It's kind of the same locations as arcades. Exactly. But unlike cutting edge technology in the arcade video game business, there is nothing defensible about this. It's a one -time cash grab. Exactly. So once both the fad subsides and competition springs up, by the end of the decade, Sega no longer can continue in the hardware business on any front.

55:35So what do they become? Well, they become a games publisher. You can get Sonic on Nintendo platforms and on the PlayStation and on Xbox, and that's great. They make mobile games. I remember in 2008, the very first iPhone game that I had was Super Monkey Ball, which was a Sega game. Yep, actually a really good game. Super fun puzzle game. Yeah, and it was perfect for the iPhone handheld device with accelerometers. Like it was this natural fit on mobile as people were trying to explore that form factor and figure out what it should be. In fact, it was, I believe, in one of the original Apple iPhone OS App Store keynotes to show off what games you could make, what types of experiences you could do on this device.

56:17And so we keep talking about the Sammy. What was the Sammy transaction and what was Sammy before Sega Sammy? Yeah, so Sammy was and is a pachinko machine manufacturer and operator in Japan beyond the scope of this episode. But pachinko is kind of like pinball used to be in the U .S. It's like gambling meets pinball, and it's like much smaller than pinball. It's like a small vertical type thing. Yeah. You know, on the one hand, it's sort of gaming -esque. On the other hand, it's also like a slot machine, just like pinball was back in the day in the US. So that's what Sammy was. They had made some video games in the past.

56:54They had a small video game division, and so they acquire Sega and merge that into their video game division. And it's fine. It's still a public company. You could say maybe at the bottom end of the majors or the top end of the sort of like mid -level game publishers out there. It's fine. Yeah. And PitchBook's got this around 2003 for the Sega and Sammy merger, and they've just been Sega Sammy publicly traded ever since. More stats from PitchBook. Today, they're a $4 .3 billion market cap company. If you back out their cash, they have an enterprise value of about $3 .6 billion. Last year, they did $2 .7 billion in revenue.

57:34So clearly, the market doesn't think much of them with a revenue multiple of 1 .3. It's a little bit of like a zombie company. Yeah. You know, this is a good spot to transition to analysis here. I think there's a couple interesting things to talk about in Playbook, and then we have a fun sort of way to end the episode. One of the things I want to talk about is, despite all of these machinations and mistakes, they do have some pretty great IP in the company. The Sonic movie, it's no Mario movie, but it did pretty well. People still love Sonic the Hedgehog. The Yakuza franchise is strong. There's lots of other franchises within Sega.

58:15Is there almost, I'm wondering, like a LVMH Bernard Arnault style takeover opportunity here? Like, could you come and acquire either the whole Sega Sammy company or the Sega IP out of it and like do it right? You know, there's so much more that could be done with this stuff. I don't think so. I mean, my take on this whole thing is that Sonic was a one trick pony and that they never really found an effective way to expand the franchise. They came out with a bunch more stuff that had Sonic on it, but I never wanted to play 3D Sonic the way that I wanted to play the original Sonic the Hedgehog side -scroller game.

58:52It feels to me like there's a lot of nostalgia to play with, but it didn't really create any durable, extensible IP or gameplay, frankly. Well, right. Back to the difference between Sega and Nintendo and the games and the difference between Miyamoto and Sonic Team. you know sega's dna this is the whole point of this episode it was the arcades the type of game you make for an arcade is very different than the type of game you make for a 60 packaged good home console sonic was the perfect arcade style game that first level in the first sonic was so good and even the subsequent 3d stuff like sonic adventure and beyond the first level of sonic adventure for the dreamcast is so good it really is like you play it and you're like wow this is 3d sonic this is everything i remember the first level is in like a island setting and you're like chasing a whale like running around at sonic speed and doing 3d loop -de -loops it's super fun but the problem with these games and with sonic is it's super fun for five minutes yeah and then you're like okay i'm done whereas mario and zelda it's not as fun in the first five minutes but you can play it for 50 hours and lose yourself in it.

1:00:10Since we did most of the kind of analysis commentary in the story, let's just ask the question, what could have saved Sega? And this is where it's probably worth sharing the Jim Clark story. Yes. So this is a great excerpt from Console Wars, and I had no idea. I mean, we have talked a few times about Netscape and Jim Clark and SGI and how the internet almost happened on N64s with Marc Andreessen and Jim Clark together. And you may know that the N64 was based on SGI's architecture. You needed an expensive SGI workstation to create the amazing graphics games. A big reason why the best N64 games were first party and there weren't a lot of third party games.

1:00:57Right. But the way that that came about is crazy. It was actually Tom Kalinsky, the CEO of Sega America, who wanted to do the partnership with SGI. He saw the potential in the cutting edge chips. And after the potential Sony partnership that we referenced earlier fell apart between Sega and Sony, he came back to Sega of Japan with a pitch saying, I just met with Jim Clark. I really think we should do something with SGI. I think our next generation console should be powered by SGI. And Sega of Japan got back to Kalinsky and said, no. And when Kalinsky pressed them and said, why? It's a no brainer.

1:01:43They said, the chip is too big. And Kalinsky was like, what? This doesn't make any sense. And they were like, that's our decision. And so he had to have this really hard phone call with Jim Clark saying, I'm sorry, man. I actually don't have a deal for you here. Japan is against it. And so Jim Clark goes, well, what am I supposed to do now? And Kalinsky, in this incredible moment of frustration where he seems half a foot out the door, looks in the phone book, looks up Howard Lincoln's phone number and says, you should call Nintendo of America, which I can't believe that actually happened. I know.

1:02:20It's so crazy. But again, you know, understanding what we know now from the Sega story, it's not just that Sega of Japan was being really dumb and arrogant here. Right. That was a reasonable business decision. Because at that very same time that Tom was calling up Japan and being like, oh, we're going to do this thing with SGI, the Sony apocalypse was coming in the arcade business with the System 11 and Namco and the PlayStation. and I can totally understand Sega of Japan being like, look, doing this SGI thing, that's not what we have time for right now. Yeah, I also think there was probably some kind of like not invented here sentiment where it has to happen in Japan within Sega's walls in order to be a viable strategy.

1:03:06It is a little weird. You know, it's not like they already were thinking we should just be a software business because they did have the Dreamcast after this. to me it feels more like a lack of willing to partner than it does a sort of business model conflict had it happened a couple years later you would have been like okay clearly you should get out of the console business and so don't invest in new hardware partnerships but i think this is just a we don't know those guys we don't trust those guys so we're not working with them thing who knows if it could have saved sega but maybe that's probably the closest thing that i can think of too.

1:03:43Like had that happened, probably still wouldn't have saved Sega, but at least the Dreamcast might have had more of a chance of success. Maybe. We'll never know. Carveouts. Carveouts. Let's do quick carveouts. I have one funny story before giving my carveout. This is a thing that also got cut from both last episode, and I'm not letting it get cut from this episode. The Sonic origin story is hilarious. In an interview years later, Nayoto Oshima, who is one of the creators, I think he was the designer of Sonic. He was asked, how did you come up with Sonic, this blue hedgehog? Why does he look like that?

1:04:18And his answer, he just says, well, I put Felix the cat on the body of Mickey Mouse. That's right. And I was reading that. I couldn't believe it. And you look it up and you're looking at Felix the cat and you're looking at his eyes and his head shape. And you're like, oh, my God, it's Felix on Mickey dyed blue with sneakers. Yes. It's ridiculous. to your point about Sonic while being beloved isn't really like the super deep IP no Kalinsky and team gave it a good run but man it was thin all the way around it was all right what do you got on carve outs my carve out I want to re -carve out your carve out from a couple episodes of Daryl Morey on invest like the best I listened to it after you recommended it Daryl now the GM and president of basketball operations at the Sixers, formerly the GM of the Houston Rockets.

1:05:09He's just brilliant and so fun to listen to, whether you care about basketball or sports at all. I mean, he was a computer science major. He's very, very interesting. And Patrick is just such a good interviewer. He really is a master class in how to conduct a truly interesting, explorative, discovery -based interview. And I learned so much from it. I really enjoyed it. Yeah, so good. Okay, I have three. They're gonna be fast. One is my god, if you are not watching this season of succession, it's the best television I've ever seen. Just remarkable storytelling. Two, I'm keeping a close eye and I suspect many of you are as well in the next month, Starship is scheduled to launch.

1:05:51And so nice. Please. SpaceX launches always sort of our who knows on the date and Elon things always slip, but it is on the launch pad. They're doing lots of pre -launch inspections and tests, and it is going to be so freaking cool to watch that thing do its first launch. And then three, I said this to David. I don't know, David, have you watched it yet? Six days to air? I haven't yet. All right. If you like this and you like South Park, you will love that. if you like this and you like watching creativity in action, but you're not so sure on South Park, you may still love it. It is a documentary about the process of conceiving of a South Park episode idea on a Thursday and then having it air the following Wednesday.

1:06:37And the unbelievable six -day turnaround. There's just nothing more special than watching creativity in action. I think the documentary is like 10 years old at this point, but a pretty special view into their process. Nice. We could learn some stuff for Acquired. A lot we can learn. All right, listeners, that's it. Thank you so much for joining. You can become a deeper part of what we do here at Acquired by becoming an LP. You will gain access to our LP -only Zoom calls every couple months or so, and you will help us pick at least one episode per season. Our next episode is actually LP selected, so if you join now, you will get in on the next one.

1:07:14You can join at acquired .fm slash LP. Check out our interview show, ACQ2, available in the podcast player of your choice, free and public. Join the Slack. The Slack has been a critical part of our research recently since many of you are experts in the topics that we are covering. So lots of great gaming discussion going on there. And if we missed anything in this episode, let us know, acquired .fm slash Slack. And with that, listeners, we will see you next time. We'll see you next time. Who got the truth? Is it you? Is it you? Is it you? Who got the truth now?