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When Nintendo Bought Sega: How A Simple Misunderstanding Caused Stock Market Chaos

In a recent post here at the Junkyard, we looked briefly at a news story that occurred in late 2000, and which eventually lead to both Sega and Nintendo suffering financial losses. What's interesting, is that at the time the story didn't really generate that much interest outside of the gaming press; but if it happened today, the 'fake news' epidemic which is currently gripping mainstream media would no doubt have propelled this particular tale into the stratosphere.
The Dreamcast Junkyard is, first and foremost a blog which exists simply to celebrate the highs and the lows of the Dreamcast; the Dreamcast's history and the contemporary scene which appreciates the wonders of Sega's little box of tricks in the present day. Politics is not something we wish to bring into the mix...however, one cannot escape the fact that over in the United States, the accusations of President Trump levelled against the media for the proliferation of 'fake news' has reached fever pitch. There are comparisons which can be drawn to this tale from the turn of the century, but I'm not one for over dramatics - it's pretty much just games and an honest misunderstanding at heart. But still, it's an interesting story and parallels can be drawn...so lets get on with it.
On the 27th December 2000, the New York Times ran a story which reported that a merger between Nintendo and Sega was imminent. Or rather, that Nintendo was in advanced talks to purchase its rival for a figure in the region of $2 billion. While you may be forgiven for shrugging and thinking "so what?" it's worth remembering that back in 2000 Sega was still in the hardware business. The Dreamcast was still on store shelves and according to various reports Christmas 2000 was a healthy one for Sega and the Dreamcast - in the UK at least, the Dreamcast was the number one console in sales terms over the festive period.

The reason this particular story is of interest is due to the ramifications it had, the way in which the media reacted to such explosive news and ultimately the explanation as to how a simple misunderstanding lead to Nintendo having 4% of its market worth wiped out in a single day.

Since learning about this tale, I've been scouring defunct websites through the awesome Wayback Machine and poring over a multitude of reports on the subject, and ultimately it boils down to a simple mistranslation. So, here are the basics. The New York Times ran this story on the 27th December 2000. Titled Nintendo is Reported in Talks to Buy Sega, journalists Andrew Ross Sorkin, Stephanie Strom and John Markoff wrote that:

Nintendo, the Japanese video game systems company that popularized arcade-style games at home, is in talks to buy Sega, the beleaguered video game maker that revolutionized the industry in the early 1990's with its fanciful characters and eye-popping virtual worlds.

According to executives close to the negotiations, the two companies are holding discussions that could lead to Nintendo acquiring Sega for about $2 billion, though the terms of the transaction are still being negotiated.

The talks have been going on in fits and starts for months, the executives said, and the deal could still collapse.

The thing is, there is no basis to these reports other than an IGN report from several months prior, in which contributor Anoop Gantayat wrote on October 29th 2000 the following:

According to the Online version of Japan's Asahi newspaper, Sega and Nintendo are teaming up to form a joint company. The story at Asahi first describes Sega's recently announced losses, stating that Sega revealed to investors in September that its results for the half-year ending September 30th would be less than expected. And that's what happened, with the company announcing a loss of 29.2 billion yen today, down from an expected profit of 600 million yen. Poor Dreamcast performance was stated as the cause for the loss. Now, for the full year period ending March 2001, the company expects a loss of 22.1 billion yen, down from an expected profit of 1.5 billion yen. This will be the fourth yearly loss in a row for the company.

However, the very next day IGN published a (sort of) retraction, stating that the story was the result of a mistranslation of a press release. And this tip off came from none other than Famitsu, the highly respected Japanese games magazine:

We brought you news on Friday regarding Sega, Nintendo and big time Japanese music producer Tetsuya Komuro (known in some circles as the father of J-Pop) teaming up for a mysterious joint venture that, according to Asahi Newspaper, would benefit Sega's upcoming network plans. Unfortunately, it seems that due to a misreading on our behalf, this information is wrong.

Famitsu.com has actually printed a moderately clearer version of the story, and it involves no such joint company. The story should read that Sega, in an effort to further its networking plans, has invited Satoshi Kayama, director at Marigul Management, to act as an advisor. Apparently, Mr. Kayama has worked with the likes of Tetsuya Komuro and Nintendo in the past, but there's no connection between Sega, Nintendo and Komuro (although damnit, there should be!).

So that's that, right? IGN got second hand information from Asahi and a mistranslation of a press release (which can be found here) was interpreted as Nintendo was buying Sega. In all honesty, it looks like someone was eager to put two and two together and break a story, and in that pre-Twitter, pre-Facebook era it appears that it kinda just fell by the wayside. Nobody was sharing it online and the few sites that did report it were largely ignored. That is, until the New York Times picked up on it almost two months later and ran it as a factual report. From the scant information I can dig up online relating to the rest of this fascinating story, it appears that due to the New York Times regurgitating this ancient tale and not seeing the follow up article, the whole 'Nintendo buying Sega' thing was dredged up again; and in late December the story was published not by a fairly niche (at the time) gaming site, but by one of the biggest news outlets on the planet.
The results were not insignificant, either. According to this article from Geek.com, Nintendo's value on the Tokyo stock exchange dropped 4%; while Sega's dropped by 7% at one point before recovering. The fact of the matter is though, due to the report by the New York Times, both companies felt the shock waves of what today would be considered 'fake news.'

Sega of Japan didn't take too kindly to the reports and in January 2001 issued the following statement on its website:

Mr. Glenn Kraman
Business Desk, The New York Times
Mr. Howard French
Tokyo Bureau Chief, The New York Times Tokyo Bureau

While Sega has always been fond of The New York Times' objective coverage of our company, we would like to express our concern over the fallacy that appeared on 12/27/00 regarding Nintendo's buy out of Sega. Not only did this erroneous allegation cause the trade of Sega's corporate stock to be temporarily suspended while substantially influencing Sega and Nintendo's stock prices, it caused unnecessary confusion among stockholders, affiliated companies, business partners, and end-users of both companies. It also severely damaged Sega's corporate and brand image during a very precarious time in the videogame industry.

Although top executives of Sega and Nintendo flatly and completely denied the rumor, The New York Times has published yet another article containing similar content on 12/29/00. Such repeated and arbitrary publication of groundless statements is pure harassment and unacceptable obstruction of our business, which we cannot overlook.
We believe that The New York Times as a news organization is heavily responsible for this misinformation.

Sega Corporation is requesting that The New York Times immediately run a notification and apology for the fallacious feature in the same scale and manner as the initial article. We expect The New York Times to address this issue in the honorable tradition of a respectable news source by taking the appropriate and responsible measures toward reparations. 

Thank you, 

Shunichi Nakamura
Corporate Executive Vice President
Sega Corporation of Japan

You can read the full version of the statement by visiting the archived site here. Likewise, Nintendo reacted with fury at the reports, and company president Hiroshi Yamauchi is quoted as stating "...there is absolutely no chance that Nintendo will buy Sega."
Interestingly, I searched for any stories containing the terms 'Sega' and 'Nintendo' for the period 27th December 2000 to the 10th February 2001 and could find no evidence that any apology or retraction for the erroneous reporting was ever made. This particularly alarming when you consider the section of Sega's statement which refers to the "severely damaged corporate and brand image." Have a look yourself here.

Ultimately, Nintendo and Sega went on to continue a great relationship that endures to this day. Indeed, Sega published many great games on Nintendo platforms in the years following the demise of the Dreamcast and will support the Switch at launch. However, that both companies suffered at the hands of a minor error in translation goes to show that even the most respected news outlets are not infallible.
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1 comment:

hoogafanter said...

Trump only popularized the term "fake news"... The mainstream media has been biased and misinforming the public for decades and people are just now pretending it's the first time they've heard of such a notion...