When video games moved from arcades to living rooms, a whole new industry was born as Atari, Sega, Nintendo and others competed to dominate the world's home console markets. For Sega, a company initially founded in the U.S. before moving to Japan, it was always a fight to unseat Nintendo; famously, its Master System (the predecessor to the Genesis, Sega's calling card in America), featured superior technology, yet it couldn't shake its secondary status. Eventually, the '90s ended, Sony Playstation 2 was released and it was largely game over.
And yet, there was an unexpected place where Sega reigned supreme: Brazil. And even stranger, Sega still moves hundreds of thousands of game systems every year.
The number of Master System consoles on the market in Brazil, based on sales figures compiled by UOL Games in 2012 is 5 million. That's a larger install base in Brazil than for the Genesis, the most popular Sega game system in the U.S., which sold 3 million copies during its lifetime. The website also notes a stunning fact—despite being a console that's nearly 30 years old, it still sells around 150,000 units per year in the country. That's a level that holds its own compared to more modern consoles like the Sony PlayStation 4.
It's like Brazil exists in an alternate universe—it's as if Betamax beat VHS, as if Samsung flip phones outsold iPhones. And the video game stakes are high, as Brazil represents the fourth-largest video game market in the world. The story of how Sega came to dominate is part historical accident, part savvy marketing and part slap in the face to the idea that globalism has erased all regional differences in taste.
Sega itself has gone through many twists and turns since its World War II-era founding. Begun in 1940 in Hawaii, its initial name was “Service Games” and its first business was in slot machines and coin-operated jukeboxes. In the mid-60s, it merged with another game company to become Sega. By the late ‘70s, arcade games had made Sega huge; the video game crash of 1983, though, hit profits hard. Around that time, though, home consoles began to appear on the marketplace—and Sega, bought again, moved its headquarters to Tokyo. The Sega Master System, called Sega Mark III, appeared on Japanese store shelves in 1985.
During this era, Nintendo and Sega had a very Coke-versus-Pepsi relationship—with Sega being second banana Pepsi. Sega's biggest problem was both simple and intractable: Nintendo had exclusive licenses with nearly every large game maker of the era, so Sega didn't have the games that everyone wanted.
Sega, though, did several things right with Brazil, a country with roughly two-thirds the population of the U.S. but nearly as much interest in games. Nintendo ignored the market but Sega built a licensing agreement with Tectoy, a powerful local toy manufacturer. That agreement ensured the Sega would always have a backer in Brazil. And because Nintendo had ignored the market at first, NES piracy was rampant by the time it got there. While the rest of the world was focused on Nintendo, Sega’s presence just grew and grew.
But even past the console’s heyday, nostalgia fueled game sales. Gamer memories of the Master System in Brazil rival those of the NES in the U.S., and because Sega eventually got out of the market for building new consoles, Tectoy was essentially left to market the Master System and Mega Drive (which you might know as the Genesis) by its lonesome. Rather than giving up on the system, the company adapted its approach, coming out with continually updated versions of the device and even producing new games long after the system had faded from view everywhere else.
Price, too, plays a part in Sega’s lingering success. Brazil is one of the largest markets in the world for video games, but because of a set of strict import taxes designed to ensure that locally built products get preference in the market, piracy has become rampant.
“Buying original games in Brazil is so expensive that [it] even frightens. To give an idea, a just-launched game can cost up to BRL 250 in the country, almost half of the workers’ minimum salary,” says Brazilian journalist Juliana Mello. Microsoft gets around this problem with its Xboxes by creating factories to build consoles locally. As a result, the Xbox One, while still more expensive in Brazil than in the U.S., is still more than $100 cheaper than the cost of Sony's Playstation 4 models. (By the way, the exchange rate between the Brazilian Real and the U.S. dollar is 1 real for every 31 cents—so a single video game generally goes for around $80 in Brazil.)
Around the time of the Playstation 4's launch in 2013, it was revealed that Sony's console had a pretty insane price for the Brazilian market. At a time when the system was selling for $399 in the U.S., an equivalent system was heading to Brazil for $1,899. "It’s not good for our gamers and it’s not good for the PlayStation brand," Sony admitted, but said its hands were tied due to high import taxes. Tectoy, meanwhile, doesn't have this problem, because it produces the systems locally, meaning that you can get a Master System with 132 built-in games for around $50 in U.S. money at Walmart—a steal compared to the $712 price of the PS4 now.
(Modern game manufacturers tend not to release sales numbers for local markets such as Brazil.)
Things are so challenging for modern game-makers that Nintendo announced it was leaving the Brazilian market earlier this year, citing local import taxes and financial rules that made it difficult for the company to run its eShop online store.
The result, according to the research firm Superdata, is that while gaming was a $4.5 billion market in Latin America in 2014—with Brazil being the largest local market—console gaming makes up just 6 percent of that market, with mobile gaming taking up the lion’s share at 43 percent.
In an environment like this, it’s understandable why the Master System hasn’t completely died off yet.
In the end, the Brazilian video game time warp might have as much to do with solid business fundamentals as anything else. Take, for example, how Sega handled Street Fighter II.
Street Fighter II is the ultimate 16-bit game. The 1991 quarter-muncher was colorful, violent, ridiculously popular and one of the first games that showed a large number of gamers how awesome an arcade game could be with a ton of buttons. It had fluid animation and definitely used all 16 of those bits.
And yet, technical difficulties in recreating the look and usability kept the iconic game off-limits for an 8-bit game system like Sega's.
Except, of course, in Brazil.
It was Sega's partner, the Brazilian Tectoy, who succeeded in getting the game ported to the Master System in 1997—way after the Master System had been removed from the market in most other countries. Porting the game between systems was difficult but Tectoy made its mission to keep Sega relevant in ways it was no where else on Earth. For instance, Mortal Kombat III also appeared on the Master System.
"Maybe the reason for our success was based on low cost, high quality, locally manufactured products, plus aggressive marketing and a good knowledge of our end consumer," Tectoy President Stefano Arnhold told Hardcore Gaming 101. "We did not only sell them a product, we invited them to join Sega Club where they enjoyed a sense of participating in a community."
But with Sega having not built a new console in more than 15 years, Tectoy has shifted its strategy a bit. Instead of simply making video games, it now makes DVD players, Android tablets, and even baby monitors. They may not have Microsoft or Nintendo in their corner, but their licensing game is strong—with both Mickey Mouse and Spongebob Squarepants giving their DVD players a little extra snazz.
Even now, Tectoy is confident that its relationship with Sega might bear new fruit eventually.
“The future will come with Sega again through mobile games," Arnhold added.
In an age where globalization permeates everything, Tectoy’s success—not just as a toy company, but as a local filter for that globalization—is actually kind of refreshing. Sega chose wisely all those years ago.
Update, 7/27: An earlier version confused the Sega Master System and Mega Drive. The Mega Drive was known as the Sega Genesis in the U.S. We regret the error.
Update, 7/28: Data from Sequoia on the sales figures of various home consoles was misstated in earlier version.