Donkey Kong Country 2
Image: Zion Grassl / Nintendo Life

Many of us think of the '90s as the golden age of video games. The Super Nintendo and Sega Genesis / Mega Drive were brimming with a huge variety of games. But when Sony's PlayStation hit in 1995, it was an indication of another huge shake-up in the video game industry — though even then, there was something more concerning happening behind the scenes.

In a newly translated article from the Japanese newspaper Nikkei Sangyo Shimbun dated February 29 1996 (translated by Gryson from Mega Drive Shock), it's revealed that there was a huge decline in 16-bit sales in the year 1995, with one industry expert even saying “It’s almost like a return of the 1982 Atari Shock".

The article itself largely covers Sega, who in 1994 launched the ill-fated Sega Saturn in Japan, and its rapid expansion led to the company having to revise its home console business.But things weren't rosy for Nintendo and many of the big Japanese companies. The huge growth and success of the previous years meant that many companies were holding on to large amounts of unsold inventory. Nintendo, Capcom, Sega, and Konami all reported losses between 1994 and 1996:

Sega has not been the only company to suffer. One large software company stated, “There is not a single company that has been able to turn a profit in the European market.”

In the fiscal period ending in March 1995, Konami took an extraordinary loss of ¥11.6 billion due to clearing out unsold inventory. During the same period, Capcom took a loss of ¥7.5 billion after writing down the value of its American subsidiary, and in the mid-year period ending in September 1995, Nintendo also took a loss of ¥9.8 billion after doing the same with its American subsidiary. This fiscal year, Sega is taking an extraordinary loss of ¥26 billion due to the downsizing of its American and European subsidiaries and due to the disposal of unsold inventory.

The article also reports on the rivalry between Nintendo and Sega. Sega, who were often chasing Nintendo and the SNES' tail in Europe and North America, were competing via aggressive marketing and "large-scale mass production", whole Nintendo "conventionalized the practice of including multiple free games as pack-ins with the purchase of a console". The consoles were selling, but the games were not.

When asked to comment on why he thought the North American market was declining, Nintendo president at the time — Hiroshi Yamauchi — is quoted saying "The market has been flooded with low-quality software". Nintendo was struggling to get the N64 out on time and rushed the Virtual Boy to market in 1995, which didn't exactly set the world on fire.

With the PlayStation's huge success and the jump to 32-bit, the article states "Consumers in North America who want to buy 16-bit games are rapidly disappearing", and that's despite some huge releases like Donkey Kong Country 2: Diddy's Kong Quest, Chrono Trigger, and Super Mario World 2: Yoshi's Island releasing for the SNES in the West.

So we were pretty close to seeing a repeat of the Atari video game crash in the '80s. Thank goodness that didn't happen! And thank you to Gryson for translating the article which reveals a pretty important note in video game history. You can read the whole piece, which covers Sega's decline in much more detail, down below.