Released in 1988, the Genesis (known as the Mega Drive in Europe and Japan) was Sega's entry into the fourth generation of video game consoles. In mid-1990, Sega CEO Hayao Nakayama hired Tom Kalinske as CEO of Sega of America. Kalinske developed a four-point plan for sales of the Genesis: cut the console's price, develop games for the American market with a new American team, continue aggressive advertising campaigns, and ship Sonic the Hedgehog with the Genesis as a pack-in game. The Japanese board of directors initially disapproved of the plan, but all four points were approved by Nakayama, who told Kalinske, "I hired you to make the decisions for Europe and the Americas, so go ahead and do it." Magazines praised Sonic as one of the greatest games yet made, and Sega's console finally took off as customers who had been waiting for the Super Nintendo Entertainment System (SNES) decided to purchase a Genesis instead.
By the early 1990s, compact discs were making significant headway as a storage medium for music and video games. NEC had been the first to use compact disc technology in a video game console with their PC Engine CD-ROM² System add-on in October 1988 in Japan (launched in North America as the TurboGrafx-CD the following year), which sold 80,000 units in six months. That same year, Nintendo announced a partnership with Sony to develop its own CD-ROM peripheral for the Super NES. Commodore International released their CD-based CDTV multimedia system centered in early 1991, while long-in-waiting CD-i from Philips finally arrived towards the end of that year.
Shortly after the release of the Genesis, Sega's Consumer Products Research and Development Labs led by manager Tomio Takami were tasked with creating a CD-ROM add-on for the system, which became the Sega CD. The Sega CD was originally intended to equal the capabilities of the TurboGrafx-CD, but with twice as much random-access memory (RAM), and sell for about JP¥20,000 (or US$150). In addition to relatively short loading times, Takami's team planned for the device to feature hardware scaling and rotation similar to that found in Sega's arcade games, which required the use of a dedicated digital signal processor (DSP). However, two changes made later in development contributed to the final unit's higher than expected price. Because the Genesis' Motorola 68000 CPU was too slow to handle the Sega CD's new graphical capabilities, an additional 68000 CPU was incorporated into the add-on. In addition, upon hearing rumors that NEC planned a memory upgrade to the TurboGrafx-CD, which would bring its available RAM from 0.5 Mbit to between 2 and 4 Mbit, Sega decided to increase the Sega CD's available RAM from 1 Mbit to 6 Mbit. This proved to be one of the greatest technical challenges during development since the Genesis' access speed was initially too slow to run programs effectively. The cost of the device was now estimated at $370, but market research convinced Sega executives that consumers would be willing to pay more for a state-of-the-art machine. Sega partnered with JVC, which had been working with Warner New Media to develop a CD player under the CD+G standard, to develop the Sega CD.
Up until the middle of 1991, Sega of America had been kept largely uninformed of the details of the project, without a functioning unit to test (although Sega of America was provided with preliminary technical documents earlier in the year). According to former Sega of America executive producer Michael Latham, "When you work at a multinational company, there are things that go well and there are things that don't. They didn't want to send us working Sega CD units. They wanted to send us dummies and not send us the working CD units until the last minute because they were concerned about what we would do with it and if it would leak out. It was very frustrating." Even though they were not provided a functioning unit, Latham and Sega of America vice president of licensing Shinobu Toyoda put together a functioning Sega CD by acquiring a ROM for the system and installing it in a dummy unit. Further frustrating the Sega of America staff was the construction of the add-on. "The Mega-CD was designed with a cheap, consumer-grade audio CD drive, not a CD-ROM," stated Scot Bayless, former Sega of America senior producer. "Quite late in the run-up to launch, the quality assurance teams started running into severe problems with many of the units—and when I say severe, I mean units literally bursting into flames. We worked around the clock, trying to catch the failure in-progress, and after about a week we finally realized what was happening," citing the need for games to use more time seeking data than the CD drive was designed to provide.
Sega announced the release of the Mega-CD in Japan for late 1991, and North America (as the Sega CD) in 1992. It was unveiled to the public for the first time at the 1991 Tokyo Toy Show, to positive reception from critics. The Mega-CD would go on to be released in Japan on December 12, 1991, initially retailing at JP¥49,800. Though the unit sold quickly, the small install base of the Mega Drive in Japan meant that sales declined rapidly after launch. Within its first year in Japan, the Mega-CD only sold 100,000 units. Third-party development of games for the new system suffered because Sega took a long amount of time to release software development kits. Other factors impacting sales included the high launch price of the Mega-CD in Japan and only two games available at launch.
On October 15, 1992, the Sega CD was released in North America, with a retail price of US$299. Advertising for the add-on included one of Sega's slogans, "Welcome to the Next Level". Though only 50,000 units were available at launch due to production issues, the add-on sold over 200,000 units by the end of 1992. As part of Sega's sales, Blockbuster LLC purchased Sega CD units for rental in their stores. The Mega-CD was launched in Europe in the spring of 1993, starting with the United Kingdom on April 2, 1993, at a price of GB£269.99. The European version of the add-on was packaged with Sol-Feace and Cobra Command in a two-disc set, along with a compilation CD of five existing Mega Drive games. Only 70,000 units were initially available in the UK, but 60,000 units were sold by August 1993. Emphasized by Sega of America, the benefits of the Sega CD's additional storage space allowed for a large amount of full motion video (FMV) games to be published for the add-on, with Digital Pictures becoming an important partner for Sega. After the initial competition between Sega and Nintendo to develop a CD-based add-on, Nintendo eventually canceled the development process of its own competing peripheral after having partnered with Sony and then with Philips to develop one.
Mega-CD II without a Mega Drive attached
Sega would go on to release the add-on's second model, the Sega CD 2 (Mega-CD 2), on April 23, 1993 in Japan at a price of JP¥29,800, It was released in North America several months later at the reduced retail price of US$229, with one of the system's best-selling games, Sewer Shark, as a pack-in. Designed to bring down the manufacturing costs of the Sega CD, the newer model is smaller and does not contain the motorized disc tray used in the initial model. A limited number of games were also later developed that utilized both the Sega CD and the 32X add-ons, the latter of which was released in November 1994.
Night Trap controversy
On December 9, 1993, the United States Congress began to hold hearings on video game violence and the marketing of violent video games to children. One of the games at the center of this controversy was the Sega CD's Night Trap, a full-motion video adventure game by Digital Pictures. Night Trap had been brought to the attention of United States Senator Joe Lieberman, who said of the game, "I looked at that game, too, and there was a classic. It ends with this attack scene on this woman in lingerie, in her bathroom. I know that the creator of the game said it was all meant to be a satire of Dracula; but nonetheless, I thought it sent out the wrong message." Lieberman's research later went on to conclude that the average video game player at the time was between seven and twelve years old and that video game publishers were marketing violence to children. Similar issues were brought up in the United Kingdom, with former Sega of Europe development director Mike Brogan noting that "Night Trap got Sega an awful lot of publicity.... Questions were even raised in the UK Parliament about its suitability. This came at a time when Sega was capitalizing on its image as an edgy company with attitude, and this only served to reinforce that image." Although experiencing increased sales as a result of the hearings, Sega decided to recall Night Trap and re-release it with revisions in 1994. Following these hearings, video game manufacturers came together in 1994 to establish a unified rating system, eventually materializing in the form of the Entertainment Software Rating Board used in North America.
As time passed, the releases of new CD-based consoles such as the 3DO Interactive Multiplayer rendered the Sega CD technically obsolete, reducing public interest in the add-on. In late 1993, less than a year after the system's launches in North America and Europe, the gaming media reported that Sega was no longer accepting in-house development proposals for the Mega-CD in Japan. In early 1995, Sega shifted its focus to the Sega Saturn and discontinued all advertising for Genesis hardware, including the Sega CD. Sega officially discontinued the add-on in the first quarter of 1996, saying that it needed to concentrate on fewer platforms and felt the Sega CD could not compete in the current marketplace due to its high price tag and outdated single-speed drive. The last two games scheduled to be released for the Sega CD, Myst and Brain Dead 13, were subsequently cancelled. 2.24 million Sega CD units were sold worldwide, including 400,000 in Japan.