Chapter Summaries

Public visitors crowded E3’s demo areas in the Los Angeles Convention Center, trying games from Sega, Square, Sony, Nintendo, Namco, Capcom, Konami, Enix, and other companies. The exhibition continued as players explored the games and gaming reporters documented the crowds.

• A young man tried Sega’s MGS2 demo, used Snake to distract a guard, triggered an infrared alarm, and lost.
• Players tested Sega’s King of Fighters 3 and Pro Soccer World PSW demos, while Square’s visitors played Final Fantasy VII on Jupiter consoles.
• Children and other visitors tried Sony’s Jumping Flash!, Nintendo’s Yoshi’s Island and Super Donkey Kong GB, and Namco’s Tekken and Ace Combat demos.
• Capcom’s Street Fighter Alpha drew veteran players, and a girl emerged from the Resident Evil demo room frightened by its zombies and dogs.
• Visitors played demos from Konami, Enix, Hudson, and Neo Geo as gaming reporters watched the public crowd and photographed the exhibition.

The first E3 officially closed after drawing crowds eager for games and merchandise, while Sega celebrated strong business results and gaming magazines planned extensive coverage. The story left the exhibitors packing up and the press preparing special issues about the event.

• The convention center closed E3, and players left with merchandise and MGS2 stickers after waiting in long lines.
• Atari staff packed up unsold Jaguar T-shirts while other vendors cleared out their booths.
• Hisao Oguchi reported strong Pro Soccer World agreements and increased Jupiter restocking demand to Nakayama Takuya, who ordered Sega to accelerate its foundation registration.
• A GamePro editor planned a forty-page special issue covering Final Fantasy VII, MGS2, Nintendo and Capcom games, and Sony's arcade ports.
• The Electronic Gaming Monthly editor-in-chief ordered the next special issue's print run increased by fifty percent.

After E3, gaming magazines released special issues and a limited-edition GamePro box set featuring a VHS highlight reel. Mark bought one and showed his friends footage of upcoming games, leaving them eager to watch it.

• Famitsu editors planned coverage of E3 products, interviews, and game footage for their magazine.
• Mark bought a regular special issue and a limited-edition GamePro box set with an E3 VHS for $35.
• Mark and Danny watched footage of Sega's MGS2, Final Fantasy VII, and Resident Evil, then decided to show the tape to Paul and Mike.
• Mark found Paul and Mike with a sold-out EGM special issue and invited them to watch the E3 highlights at his home.

After the Ghost in the Shell trailer from E3 spread on videotape, players around the world grew excited about Sega’s upcoming games and consoles. Mamoru Oshii explained in a joint interview that the trailer had been assembled from the most complete animation sequence available, while he focused on finishing the film at its own pace.

• Mark showed Paul, Mike, and Danny the E3 game footage on videotape, and they marveled at the realistic graphics.
• In an Akihabara game store, high school students watched the tape and discussed the games and technology shown in Famitsu’s special issue.
• The tape’s circulation fueled worldwide anticipation, and game retailers received a flood of calls asking about reservations.
• Mitsuhisa Ishikawa told Mamoru Oshii that Shochiku Films had arranged a joint interview with Animage and Famitsu after the trailer caused a stir.
• Mamoru Oshii told Sasaki that the E3 trailer used the completed sequence of Motoko’s body being assembled, paired with Kenji Kawai’s music.
• Mamoru Oshii told Takano that Sega’s game and console sales were not his concern and that he would not rush the film’s production.

Mamoru Oshii explained the spiritual concept behind “Puppet Song” and declined to predict Ghost in the Shell’s box office. At Pixar, John Lasseter and Ed Catmull described how Sega’s Toy Story game won them over, as the game’s E3 showcase drew widespread attention.

• Mamoru Oshii told Takano and Sasaki that he wanted “Puppet Song” to contrast Ghost in the Shell’s advanced technology with a primitive, ritualistic sound.
• Mamoru Oshii recalled that Nakayama Takuya praised the song three times and predicted it would captivate exhibition audiences.
• A GamePro videotape showcasing Toy Story and its Sega Jupiter gameplay became highly sought after among North American players after E3.
• Disney arranged a joint interview at Pixar as the game’s popularity drew attention to the unreleased film.
• John Lasseter said Sega’s Yuji Naka persuaded Pixar to support a game adaptation by demonstrating the Jupiter console and its capabilities.
• Ed Catmull explained that the console could render reflective plastic toy surfaces especially well.

Lasseter and Catmull described how Sega and Pixar collaborated on the Toy Story game, while Sega’s cross-industry publicity boosted attention and film pre-sales. At Sony headquarters, Ken Kutaragi warned Nobuyuki Idei that Sega had used Hollywood and Japanese animation partnerships to attract people beyond the gaming audience.

• Lasseter explained how Pixar supplied toy-sized scenarios and Sega turned them into game obstacles and stages, praising Yuji Naka’s team.
• Lasseter said the Toy Story film and game would complement each other, and that Steve Jobs had approved Sega’s demo and welcomed future collaborations.
• Reports on Sega’s E3 partnerships circulated widely as Sony’s Jumping Flash! drew supporters amid the shift from 2D to 3D gaming.
• Hisao Oguchi told Nakayama Takuya that cross-industry interviews had raised Toy Story and Ghost in the Shell pre-sales, and Nakayama ordered Sega to continue promoting its partnerships.
• Ken Kutaragi told Nobuyuki Idei that Sega’s Toy Story demonstration and film tie-in had reached parents who were not normally interested in games.

Sony planned to use Columbia Pictures’ film library to create PlayStation adaptations after seeing Sega’s success with movie-linked games. Meanwhile, Nakayama Takuya reviewed the escalating Microsoft–Netscape dispute and discussed its implications with Frank and Tom Kalinske.

• Nobuyuki Idei sent Ken Kutaragi to Hollywood to find Columbia Pictures productions suitable for PlayStation game adaptations.
• The chapter recounted how Netscape accused Microsoft of pressuring it to abandon a Windows 95 browser, while Microsoft denied the allegations and described the meeting as friendly.
• Nakayama Takuya read Frank’s briefing about the dispute and asked how Silicon Valley was reacting to it.
• Frank reported that Netscape was using the controversy to build public support and boost interest in its IPO.
• Tom Kalinske warned Nakayama Takuya that Microsoft could use Windows’ installed base to overwhelm Netscape by bundling Internet Explorer.

Nakayama Takuya advised Frank to cash out Silicon Valley Online’s Netscape shares after its IPO and focus on acquiring valuable internet startups, while keeping the company centered on content and community. He left work on time to be with his pregnant wife Eri and their son Kazuki.

• Nakayama Takuya told Frank to secure useful technology from Netscape, sell Silicon Valley Online’s Netscape shares gradually after the IPO, and preserve cash for future investments.
• Nakayama Takuya asked Tom to direct Sega of America’s resources toward Silicon Valley Online and its planned DND online game, and Tom said the TSR licensing talks were nearly complete.
• Nakayama Takuya postponed a meeting with Sony Music so he could take Eri to a follow-up appointment at Sugiyama Obstetrics and Gynecology Clinic.
• Nakayama Takuya arrived home and joined Eri as Kazuki played in the yard, then called their son in to wash his hands before dinner.
• Eri teased Nakayama Takuya about his daily rush home, and he replied that he would protect her like a top-secret game project.

Nakayama Takuya spent a quiet evening at home with his pregnant wife, Eri, and their family, choosing time with them over work and business. After Eri revealed she was likely expecting a girl, they settled on the name Miki and planned a celebratory meal after her hospital follow-up.

• Eri teased Nakayama Takuya about enjoying California while she suffered through pregnancy symptoms, and he promised to stay home with her.
• Nakayama Hayao brought Kazuki a remote-control car, while Eri told Takuya that her doctor had hinted their baby was a girl.
• At dinner, Nakayama Hayao asked Takuya about Sony's plans to adapt films into games, and Takuya said Sega's experience gave it an advantage.
• Eri joked that Takuya now cared more about getting home on time than work, and the family laughed together.
• In the yard, Takuya and Eri agreed to name their daughter Miki and planned to eat at Eri's favorite kaiseki restaurant after her follow-up appointment.

Nakayama Takuya began examining Sega’s financial statements and sales practices as his father transferred more authority to him. He left Yoshimura facing a coming overhaul of sales incentives designed to curb channel stuffing and financial risk.

• Nakayama Takuya reviewed Sega’s financial statements with Director Hoshino and focused on operating cash flow, slow customer payments, inventory turnover, and internal controls.
• Nakayama Takuya ordered Hoshino to compile past audit management letters and investigate approval authority for major expenditures.
• Nakayama Takuya questioned Yoshimura about sales customer concentration, order trends, payment terms, and credit policies.
• Yoshimura admitted that a Kansai agent had reduced orders after taking on Sony’s PlayStation and that some major customers had been granted longer payment terms.
• Nakayama Takuya criticized commissions based on book sales for encouraging channel stuffing, excessive discounts, relaxed terms, and fake transactions, and said the incentive system had to change.

Nakayama Takuya pressed Sega’s Sales Department for reliable figures and discussed tighter internal controls with Nakayama Hayao. He began studying accounting and auditing to uncover risks in the company’s financial reporting.

• Nakayama Takuya sent Yoshimura back to redo the sales report with detailed product, regional, customer, and risk data.
• Nakayama Takuya told Nakayama Hayao he planned to reassess sales managers and strengthen coordination among sales, finance, and production.
• Nakayama Hayao approved careful preparation before any changes and said he planned to record a video for Kazuki’s kindergarten trial class.
• Nakayama Takuya organized his documents and resolved to compare his understanding of Sega’s finances with actual data over the coming months.
• Nakayama Takuya studied financial management, auditing, and Japanese tax law to improve his ability to detect manipulated accounts.

Nakayama Takuya grew concerned that Sega’s domestic auditing arrangements could allow financial misconduct to go undetected, so he planned an independent international audit system. He left the office after directing Director Hoshino to contact firms in the United States and prepare a proposal.

• Nakayama Takuya reviewed Sega’s audit contracts with Director Hoshino and learned that ChuoAoyama Audit Corporation had handled the company’s audits for three years.
• Director Hoshino explained that Japanese auditors often resolved accounting irregularities through discussions with finance staff, unlike the more rigid PricewaterhouseCoopers team in New York.
• Nakayama Takuya proposed a dual-track audit system with an independent foreign team reporting directly to the board or a group audit committee.
• Nakayama Takuya instructed Director Hoshino to contact PricewaterhouseCoopers and McKinsey in the United States and keep the proposal confidential until it was ready.
• Nakayama Takuya and Director Hoshino left the office, while Nakayama Takuya reflected that building safeguards was harder than firing employees.

Nakayama Takuya continued studying Sega’s finances, pressing departments for explanations and arranging an independent North American audit. Nakayama Hayao approved his preparation but warned him not to personally scrutinize every detail as Operations Managing Director.

• Nakayama Takuya signed off on Sakura Wars 2’s late-stage test report and left development decisions to Hisao Oguchi as long as the budget held.
• Nakayama Takuya examined Yoshimura’s revised reports and ordered Finance Section Two’s Sato to explain and separately document an irregular North American bad-debt entry.
• Director Hoshino told Nakayama Takuya that PricewaterhouseCoopers had offered to send a senior-partner-led team to Sega, and Nakayama Takuya asked Hoshino to prepare board members to approve the cost.
• Hoshino reported that Yoshimura had improved sales assessments and reduced channel stuffing, while Nakayama Takuya said an external audit was needed to uncover deeper problems.
• Nakayama Takuya showed Nakayama Hayao his financial notebooks, and Nakayama Hayao praised his study while cautioning him against tightening oversight too far.

Nakayama Takuya continued learning Sega’s finances while anticipating Microsoft’s challenge to Netscape after Windows 95’s launch. He instructed Frank to sell Silicon Valley Online’s Netscape shares in stages and hold the cash for future opportunities.

• Nakayama Takuya returned to his office after telling the president that Hoshino was advancing a systems proposal for board discussion.
• Microsoft released Internet Explorer 1.0 with its Windows 95 Plus! pack, and Netscape’s engineers dismissed the browser as crude.
• Windows 95 went on sale on August 24, drawing crowds and selling more than a million copies within four days.
• Frank told Nakayama Takuya that Silicon Valley Online’s client ran smoothly on Windows 95 and that the system made dial-up networking easier to configure.
• Nakayama Takuya warned Frank that Microsoft could bundle later versions of Internet Explorer with Windows and undermine Netscape’s paid model.
• Nakayama Takuya ordered Frank to sell Silicon Valley Online’s Netscape shares in batches and keep the proceeds for investment in emerging startups.

Frank advanced a plan to secure DND adaptation rights and shift development to Windows 95, while Nakayama Takuya prepared Sega for a stricter financial review. At the board meeting, Nakayama praised the Sales Department before arguing that Sega needed external cross-supervision of its audits.

• Frank told his staff to pursue the DND authorization and build the project on Windows 95.
• Nakayama Takuya received confirmation that five PricewaterhouseCoopers auditors would arrive in Tokyo, and he arranged for them to appear at Sega's next board meeting.
• Nakayama Takuya told Director Hoshino that the auditors' arrival was pressuring the Sales Department to collect overdue payments.
• At the board meeting, Nakayama Takuya praised Yoshimura's Sales Department for managing risk while continuing to expand in North America and Europe.
• Nakayama Takuya raised concerns about relying on a single audit firm and warned that unmonitored accounting errors could grow into serious problems.

Director Hoshino introduced a dual-track audit plan developed with PricewaterhouseCoopers and McKinsey for Sega’s board to consider. After PricewaterhouseCoopers presented the plan and examples of audit failures, Nakayama Takuya described the proposed one-week review as a low-cost experiment.

• Director Hoshino said Sega had worked with PricewaterhouseCoopers and McKinsey to develop a new audit plan and invited the auditors into the meeting.
• Richard Cohen presented a dual-track system in which domestic auditors would handle routine compliance while PricewaterhouseCoopers reported independently to Sega’s board.
• Richard explained that PricewaterhouseCoopers would sample existing audit workpapers and help train a board audit committee, limiting extra work and reducing Sega’s future reliance on external auditors.
• Richard cited Japanese securities and defense procurement scandals to argue that a single domestic audit track could miss financial fraud.
• Richard offered a one-week, small-scale review at a preferential rate, and the auditors left after his presentation.
• Nakayama Takuya told the directors that the review was an experiment and passed around PricewaterhouseCoopers’ quotation.

Nakayama Takuya secured approval for a limited PricewaterhouseCoopers audit at Sega and directed the team to retrieve original records without warning department heads. Meanwhile, Bandai released Gundam Battlefield Evolution to strong first-day sales, but its confusing controls became apparent when Sato started playing.

• Hoshino presented McKinsey’s advice for a board audit committee, and the directors approved a trial audit using PricewaterhouseCoopers.
• Nakayama Takuya ordered the auditors to collect original working papers directly and told Hoshino to report anyone who obstructed them.
• PricewaterhouseCoopers began examining overseas accounts while Yoshimura answered questions about fund movements.
• Bandai released Gundam Battlefield Evolution without fixing its disorienting gameplay, and the game sold more than one hundred thousand copies on its first day.
• Sato started playing Gundam Battlefield Evolution, but the black, featureless background and rapid turning left him disoriented.

Sato and countless other players suffered severe motion sickness while playing Bandai’s Gundam Battlefield Evolution, leading to mass refund attempts and a collapse in secondhand value. Yamashina Makoto halted shipments and accepted returns, while Bandai’s executives faced a demoralized game division and the loss of confidence in its ability to develop 3D games.

• Sato’s disorienting session with Gundam Battlefield Evolution made him rush to the bathroom, and players across Japan suffered similar motion sickness.
• Furious players sought refunds, then flooded secondhand shops with the game until shops stopped buying it.
• Yamashina Makoto confronted Mitsui Chuta over the game’s poor sales and ordered Bandai to halt shipments and accept retailer returns.
• Bandai’s executives reviewed the game’s return figures and learned that Development Sections One and Two had stopped working, while the technical supervisor resigned.

Bandai’s executives reviewed the collapse of its game division, declining character-toy sales, and losses from overexpanding newer products. Yamashina Makoto returned the meeting to Sega’s merger proposal, with Bandai’s bargaining position badly weakened.

• Mitsui Chuta and other executives acknowledged that Bandai’s game division could not compete with Sega, and Yamashina Makoto proposed handing it over in a merger.
• Bandai’s toy division reported that Sailor Moon shipments had fallen from 26.3 billion yen to 16.4 billion yen, with a further sharp decline forecast.
• The executives learned that Power Rangers toy sales had dropped nearly thirty-five percent, while attempts to replace established characters had failed.
• The toy division reported strong sales for Dragon Ball Carddass cards and HG Series capsule toys, but production expansion had created costly inventory backlogs.
• Yamashina Makoto returned the discussion to the Sega merger proposal as Bandai’s executives faced their weakened position.

Nakayama Takuya watched Bandai weaken as Sega’s audit and market intelligence revealed its financial and operational troubles, while preparing Sega to absorb the company. As Sega’s autumn game releases gained momentum, Takuya stayed buried in audits and delegated routine game decisions to Hisao Oguchi.

• Yamashina Makoto and Bandai’s senior managers argued over whether to approach Sega, but they could not agree on a course of action.
• Director Hoshino told Nakayama Takuya that Bandai’s Gundam Battlefield Evolution shipments had stopped and that toy sales and inventory were in trouble.
• Nakayama Takuya ordered Sega’s investment department to assess Bandai’s finances, especially its overseas sales, while letting Bandai’s internal crisis deepen.
• Sega’s new releases, including MGS2, reached the global market and helped Jupiter’s installed base grow.
• Nakayama Takuya told Hisao Oguchi to handle game coordination and related decisions within the approved budget without reporting every detail to him.