The rise and fall of Sega

• Sega is the Japanese video game company behind Sonic the Hedgehog.
• In the '90s, it grew to immense fame by challenging Nintendo's dominance in the West.
• Sega has fallen out of popularity due to some self-inflicted wounds, but still produces games for other consoles.
• Visit Business Insider's homepage for more stories.

Following is a transcript of the video.

Manny Fidel: Among fans in the gaming industry, there's something called the "console wars." Today it's a battle between Nintendo, Sony, and Microsoft to see which gaming console makes fans wanna spend the most money. But before Microsoft entered the fray with the first iteration of the Xbox in 2001, there was another company that completed the holy trinity of gaming.

Sega is a Japanese video game company that exploded in popularity in the '90s. But it went from selling over 30 million Sega Genesis consoles at the height of its fame in 1993 to selling just 3 million units of its final console before pulling the plug on its hardware empire. So, what happened?

The year is 1988. "Man in the Mirror" by Michael Jackson is the No. 1 Billboard hit, and Sony's Disk-Jockey CD player was selling for $400. It's also the year that Sega released the Sega Mega Drive in Japan. At the time, the worldwide video game industry was being dominated by Nintendo, whose Nintendo Entertainment System was by far the biggest gaming console on the market. With an iconic mustached plumber as its mascot and a family-friendly ensemble of video games, there was virtually no competition. By the early '90s in the United States, Nintendo held 94% of the country's $3 billion gaming market. It would be foolish to challenge that dominance, but that's where Sega enters the picture.

Sega had already made a name for itself in Japan by making arcade games, but its home console, the Sega Mega Drive, was struggling. That's when Michael Katz, the president of Sega of America, decided that in order to challenge Nintendo, Sega had to focus its sights on the west. The Mega Drive was rebranded as the Genesis in America. Katz proposed going for the jugular by attacking Nintendo's reputation with marketing.

Commercial: The Sega Genesis has blast processing. Super Nintendo doesn't. ♪ Genesis does what Nintendon't ♪

Manny: Sega's reputation as a cooler, more adult version of Nintendo started to resonate with fans. For example, because of internal restrictions, the Mortal Kombat series on Nintendo couldn't show blood. But on Sega...

In order to truly take the gaming crown from Nintendo, though, Sega had to come up with a mascot that could rival Mario, one that could easily appeal to American audiences. The company tasked artist Naoto Ohshima with the job, and he came up with a little guy named Sonic The Hedgehog. Sega's Sonic games featured a much faster-paced, action-oriented experience that a lot of Americans favored over the slow-moving Mario platformers. The boom in sales came when Sega decided to drop the price of the Genesis and include a copy of Sonic with new purchases. This tactic led to an additional 15 million units sold.

By 1992, Sega had matched Nintendo in sales in the US. From 1989 to 1993, Sega went from $800 million in sales to $3.6 billion. Sega solidified itself as a top contender and a force to be reckoned with.

And then...

Commercial: Hey! You still don't have a Sega CD?

Manny: The Sega CD was an add-on device for the Sega Genesis. It let you listen to music as well as play new choose-your-own-adventure games featuring live-action footage. But instead of investing its time into new, innovative games that could attract new customers, Sega opted for this add-on device. It couldn't increase its market share with this product because only people who already had Sega Genesis consoles could use it.

The Sega CD also suffered from terrible publicity after the release of its game Night Trap, which let the player watch "surveillance tape" of teenage girls trying to escape from bad guys who broke into their home. This particular bathroom scene was cited in a US congressional hearing led by Joe Lieberman in 1993. Lieberman said that Night Trap promoted violence against women and shouldn't be in the hands of children.

To make matters worse for Sega, Nintendo chairman Howard Lincoln testified at that hearing.

Howard Lincoln: I want to state that Night Trap will never appear on a Nintendo system.

Manny: Decades later, the game has actually been re-released for the Nintendo Switch. But that's beside the point.

All of this hurt Sega's credibility, which proved to be detrimental when it released the Sega Saturn in the US at the E3 conference in 1995. It had an impressive technical prowess, but at $400, it was expensive for a machine that didn't have many games yet. It also didn't help that a new player in the console wars emerged.

The PlayStation featured sleek 3D models, while the Sega Saturn still partially relied on 2D sprites. Finally, the PlayStation cost only:

Steve Race: $299. [audience applauding]

Manny: For $100 cheaper than the Sega Saturn, it was a no-brainer for gamers.

Sega's console aspirations went out with a financial whimper when it released the Sega Dreamcast in 1998. Sega of America's president at the time, Bernie Stolar, has since acknowledged the Dreamcast's mistakes.

He told Polygon that the company should've created a larger variety of games instead of focusing on providing internet connectivity to the few games that the Dreamcast had. Internet gaming wouldn't really take off until Microsoft released Xbox Live in 2002.

But it wasn't all bad news at first. The Dreamcast sold an impressive 372,000 units in the first four days. After a year, though, sales for the Dreamcast plummeted. From 1998 to 2001, the Dreamcast only sold 3 million units in the United States. In the last year of the Dreamcast's life, Sega lost over $200 million. With the PlayStation 2 coming right around the corner, it was the last console Sega would ever make.

Today, Sega exists as a video-game-making company only. It makes games for all the popular consoles. And while there's been a ton of rumors of Sega making a return to consoles, nothing has been confirmed.