The US launch of the Sega Genesis, on 14 August 1989, probably didn’t seem like a huge deal outside the video game industry. The machine was launched in Japan the year before under a different name – the Mega Drive – and with a couple of decent arcade conversions, Space Harrier II and Super Thunder Blade, but not much in the way of fanfare. Nintendo utterly dominated the games business at that time, with a 95% share of the console sector and most of the biggest Japanese developers locked into exclusive deals to make games for its NES and forthcoming SNES consoles. The Mega Drive did OK in Japan but it was small fry – a cult machine.

But David Rosen, who co-founded Sega after serving with the US air force in Japan during the Korean war, was determined to make a real event of the console’s launch in his native country. The first games machine with a 16-bit processor, and boasting beautiful, colourful visuals, excellent sound and enough power to handle accurate arcade conversions, it had all the credentials of a hit. All he had to do was get US gamers to recognise it. So he rebranded it Genesis – a name he thought was cool and symbolised Sega’s rebirth – and then he started building.

At that time, Sega of America was basically a trading outpost; 30 staff in a small office, handling distribution and modest marketing budgets. To take things up a step, Rosen brought in Michael Katz as CEO, a combative exec with years of experience at blue-chip companies such as Colgate and Proctor & Gamble, as well as a stint at early console manufacturer Coleco. Katz immediately challenged the polite business practices of his bosses at Sega of Japan by funding a TV and print advertising campaign that set out to belittle Nintendo and its quaint, family-orientated consoles. This was just the way he’d always done things.

“In my first week at Coleco I was asked to approve an ad for a game that was a direct competitor against Mattel’s Football,” he explains. “It was a wonderful ad, two guys dressed up as football players, one as Coleco Electronic Quarterback and one as Mattel Football. The two guys boast throughout the commercial, with the Coleco guy countering everything the Mattel guy says. It was the first directly competitive commercial in the games industry. But it was nothing new to me.”

So Katz went for Nintendo with the advertising slogan “Genesis does what Nintendon’t”, and suddenly Sega had a new image as the brash bad boy of the industry. “I knew that for every marketing dollar I had, Nintendo had 10,” says then director of marketing Al Nilsen, who joined Sega of America when there were only three other people in the team. “You didn’t play video games back then, you played Nintendo. Sega was an afterthought. We couldn’t go after their core audience: children. Peter Main, their head of marketing basically said, just get the six to 12 year olds, that’s all we need.

“So I looked at what we had that Nintendo didn’t and it was our arcade heritage. Golden Axe, Space Harrier – these were Sega classics, and the Genesis system was the first console that could bring that arcade experience home. I looked at who was playing in the arcades – and this was back in the day, when they were on every street corner – and it wasn’t six to 12-year-old boys, it was teenagers and young adults. They went there because that’s where the best games were. And that’s also where the girls were. I said: ‘This is my market’”.

So Sega went straight for the teenagers with aggressive, rock music-driven, jump cut-filled TV ads, initally produced by slick PR and advertising agency Bozell, and later by Goodby, Berlin & Silverstein, who masterminded the “Welcome to the Next Level” TV commercials and would go on to make the famed “Got Milk” campaign.

But Katz knew if the Genesis was really going to rule in the US, it needed something else: celebrity endorsement. This became another vital focus. “When I got to Sega, we needed hot licensed software with names that consumers would recognise,” he says. “If we could get that, we’d be able to compete with Nintendo. So I said let’s go after personalities. Let’s go after the hottest athlete in the States – that was Joe Montana – then we’d extend that to boxing and everything else.” The eventual result was Joe Montana Football from Electronic Arts, a huge hit that spawned several sequels. “We didn’t realise we were competing with Nintendo for Montana,” says Katz. “We beat them out by a couple of hundred thousand dollars, and after that I discovered I’d been bidding against [Nintendo of America chairman] Howard Lincoln. That was gratifying – it signalled that we were beginning to gain traction.”

Also vital to the success of the Genesis was Sega of America’s determination to bring US developers on to the console. There was an understanding that they wouldn’t beat the Super Nintendo with arcade conversions alone – they needed local talent. So they approached US studios such as Accolade, Spectrum Holobyte and, of course, Electronic Arts to support the console.

“Sega were always going to make a good job of bringing over their arcade games, but the total product offering was narrow,” says EA founder Trip Hawkins. “The 16-bit market was new and a lot of developers had come to understand how much more they could do with it. We really pushed the envelope and explored genres that others weren’t really willing to try at the time – sports simulations being the most pervasive example, but then there was true innovation. Populous invented a new genre.”

The Sega Genesis didn’t just make games cool, it changed how consoles were marketed, and widened the scope of console game development beyond Japanese powerhouses such as Nintendo, Capcom, Konami and Taito. There was a slightly combative relationship between Sega of Japan and Sega of America, and this led to a richly creative period of development, culminating in the arrival of Sonic the Hedgehog, a Japanese character infused with the bombastic qualities of 1990s US pop culture.

East meets west … Sonic the Hedgehog fused Japanese character design with US pop culture. Photograph: Sega

Launched in the US more than a year before the Super Nintendo system, the Genesis came out of nowhere to become the biggest-selling machine in the country. We look back now and it seems like Sega had preternatural confidence in its vision but in fact, as is often the case in the games industry, it was winging it.

“I was just trying to establish a toehold for Genesis in the US,” says Nilsen. “I didn’t have the software to be an aspirational machine – I launched with five titles! By 1990, I had maybe 30 titles and some third-party games. If you’d asked me in 1989, ‘Will Sega have the No 1 selling console in America?’ it never even entered my mind. I shouldn’t say that though, because when I was out talking to prospective partners that’s exactly what I was telling them. Did I believe it? No.”

• This article was based on interviews conducted while researching the book Sega Mega Drive: The Collected Works, published by Read-Only Memory.