Although Sega had made many preparations and even preemptive adjustments for the economic downturn, its impact was still unavoidable.
The first to feel the chill was the arcade business, overseen by Director Takahashi.
In the arcade operations meeting room, the ashtray was already overflowing with cigarette butts, yet Director Takahashi anxiously lit another one. The curling smoke could not hide the troubled expression on his face.
He pushed a data report toward Takuya Nakayama.
"Executive, please take a look."
"Customer traffic has declined for three consecutive weeks, totaling over 15%!"
"Revenue hasn't dropped too drastically, because before, people queued up, but now the arcades are barely full. However," he took a heavy drag from his cigarette, his eyes full of anxiety, "the trend has already formed! That's the scariest part!"
He glanced at the calm Nakayama, then at Suzuki Hiro who sat beside him, frowning. His voice carried suppressed frustration: "Our home consoles, made by ourselves, are now taking business away from our arcades."
There was a hint of grievance in his tone, but it was the truth.
Takuya's gaze scanned the report but he did not speak immediately. He understood that Takahashi's anxiety wasn't just about the company's performance, but also about himself. Takahashi's stronghold was the arcade business; if this segment shrank, it would weaken his influence within the company.
Takuya put down the report and turned to Director Takahashi.
"Takahashi, there's no need to be so pessimistic."
Seeing Nakayama respond, Takahashi straightened in his seat.
"The economic slowdown in Japan is an unavoidable reality. In this situation, trying to save games with low attendance would be inefficient. We should focus on games that are performing well and analyze current market characteristics."
Nakayama refilled the teacups for Takahashi and Suzuki and continued, "Takahashi, which games currently have the highest coin insertion rate? Which ones retain players the most?"
"This…" Takahashi perked up and quickly opened another set of data. "Currently, the most popular are Super Motorcycle, Taiko Master, and Dragon Tiger Fist."
"DDR attracts spectators, but its difficulty discourages many, so the player base is relatively fixed."
He added, "Fighting games like Dragon Tiger Fist, with their strong competitive appeal and the lively arcade atmosphere, haven't declined much. But the most resilient is Super Motorcycle, which features large hydraulic motion machines."
"Even if its graphics are not as good as some MD titles, the driving experience cannot be replicated at home. Its coin intake remains consistently high."
At this, Suzuki Hiro's head perked up. He said seriously, "I understand. Home consoles are rapidly catching up in performance, erasing the advantages of traditional 2D games. The future of arcades must be about differentiation—providing experiences players can't have at home!"
Takuya nodded approvingly, looking at Suzuki with admiration.
"Exactly, differentiation is the foundation of the future." He swept his gaze over both men and shifted to a deeper question. "So, to achieve this differentiation, in which direction should our next-generation arcade boards develop? Suzuki, any ideas?"
Nakayama passed the question to him, hitting the heart of Suzuki's dilemma.
He fell into thought, his fingers idly tracing circles on the table. "There are two directions, both difficult."
"One is 3D." His eyes briefly lit up but then dimmed. "I've seen the tech from Argonaut Software, in which we've invested. It has great potential and suits Sega's style of high-impact gameplay."
"But 3D technology is still rough—low polygon counts, simple textures. Creating a satisfactory game requires massive investment. One game alone cannot cover R&D costs."
"And 2D?" Takahashi asked anxiously.
"2D…" Suzuki shook his head. "There's still room, but screen resolution is fixed. Improvements are limited to color depth and scroll layers, which are visually capped."
The meeting room fell silent again. Takahashi's eyes flicked between Suzuki and Nakayama as if searching for a lifeline.
Originally, he had supported the Nakayama father-son project for home consoles, gaining resource preference for arcades. Now it was time for the home console division to "give back."
Nakayama felt his gaze, paused, and finally spoke.
"Takahashi, Suzuki, let's think differently."
The two exchanged puzzled glances, uncertain what he meant.
"Our real competitor isn't home consoles, but 'similar experiences.' And our bottleneck isn't technology—it's cost allocation."
Nakayama raised three fingers.
"First, we continue enhancing 2D performance. Upgrade on the System18 board. The goal isn't just to surpass MD, but to make this year's SFC games pale in comparison to our new boards."
"We want every third-party developer to understand that the only place to make top-tier 2D games is Sega arcades. I've already obtained SFC configuration info for the hardware team, ready for your use."
Takahashi's eyes lit up.
"And this R&D won't be overly costly—it's just stacking existing technology and hardware. Hardware costs may be high for home consoles, but not an issue for arcades."
Nakayama raised his second finger:
"Second, strengthen motion-based experiences. Modularize all unique peripherals—steering wheels, light guns, motion motorcycles, flight joysticks. Standardize interfaces for plug-and-play across boards. The home console division will cover part of the R&D cost."
He smiled at Takahashi. "This will make arcades more fun and accumulate tech that will eventually benefit home consoles when component costs drop. The home console division will share R&D expenses."
Takahashi's worries evaporated, his body relaxing. The arcade vs. home console resource battle was a major internal conflict, and Nakayama's words had solved it.
Finally, Nakayama's gaze turned to Suzuki, full of trust and encouragement, and he raised his third finger.
"Third, 3D. Suzuki, go for it."
Suzuki looked up sharply.
"I know 3D isn't mature, and costs are high. But the future belongs to 3D. We must invest now—not for one game, but to seize the 3D technology lead!"
"As for costs—" Nakayama smiled confidently, "don't limit your vision to game development. 3D applications extend far beyond. Our stake in Argonaut Software is for these broad possibilities. Arcade, console, software, even animation partners—all will share the R&D."
Suzuki's eyes brightened.
Cost, risk, market—Nakayama's grand vision shattered all the concerns that had plagued him. What remained was the path of technology.
Takahashi exhaled, seemingly ten years younger. "Understood! I'll inform the arcade team immediately!"
As he left, a firm hand pressed on Nakayama's shoulder.
Suzuki leaned forward, staring intently. "Don't think you can leave. You mentioned 3D—this isn't a whim. You must have a full blueprint in mind. If you don't satisfy my curiosity today, you're not going anywhere."
Nakayama smiled at Suzuki's eager, almost childlike insistence.
"Alright, I'll explain." He set down his teacup. "Given our current technology, high-precision polygon modeling and complex textures aren't fully feasible. But we can still make fun 3D games by playing to our strengths and avoiding weaknesses."
"I have two ideas. Listen carefully."
Suzuki pulled out his notebook and pen, ready to jot down every word.
Nakayama raised one finger:
"First, racing. Similar to your OutRun, but we add a first-person cockpit view. Imagine seeing the track through the windshield, steering wheel in view, racing forward. Speed sensation! Full immersion using high frame rates and smooth 3D scaling. Low-poly models for vehicles and track. Dynamic loading for distant scenery reduces hardware strain."
Suzuki's eyes sparkled; his pen flew across the notebook.
"Nighttime track, Japanese highway bayside at midnight—a paradise for underground racers. Black skies, blurred city lights, full-throttle adrenaline. This experience can't be replicated on home consoles!"
Nakayama raised his second finger:
"Second, fighting games. Unlike 2D fighting games, our arenas are true 3D spaces. Characters move 360 degrees, dodge, retreat. Combat exists in full 3D. And to differentiate from comic-style fighters, our game emphasizes realism. Real martial arts—judo, karate, taekwondo, Muay Thai, Chinese kung fu—faithfully reproduced. As hardware improves, visuals and moves approach reality. This game's life force grows with technology, never outdated, only more realistic and thrilling."
Suzuki jumped up, thrilled, pacing before stopping and slapping Nakayama's shoulder with excitement.
"Realistic fighting… let's call it Virtua Fighter! How about it?"
His eyes shone with unprecedented brilliance. He wrote down the last words, closed his notebook, and patted Nakayama again.
"You genius—what are you made of? Done. It's settled! Drinks tonight are on me!"
With that, he dashed out, leaving only his voice echoing down the corridor.
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