In mid-1990, Nakayama hired Tom Kalinske to replace Katz as CEO of Sega of America. Although Kalinske initially knew little about the video game market, he surrounded himself with industry-savvy advisors. A believer in the razor and blades business model, he developed a four-point plan: cut the price of the console, create a U.S.-based team to develop games targeted at the American market, continue and expand the aggressive advertising campaigns, and replace the bundled game Altered Beast with a new game, Sonic the Hedgehog.[39] The Japanese board of directors initially disapproved of the plan,[40] 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."[19] 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 release of the international version of Nintendo's Super Famicom—the Super Nintendo Entertainment System or SNES—decided to purchase a Genesis instead.[39] Nintendo's console debuted against an established competitor, while NEC's TurboGrafx-16 failed to gain traction, and NEC soon pulled out of the market.[41] In large part due to the popularity of Sonic the Hedgehog, the Sega Genesis outsold the SNES in the United States nearly two to one during the 1991 holiday season. This success led to Sega having control of 65% of the 16-bit console market in January 1992, making it the first time Nintendo was not the console leader since December 1985.[42]
Each new generation of console hardware made use of the rapid development of processing technology. Newer machines could output a greater range of colors, more sprites, and introduced graphical technologies such as scaling, and vector graphics. One way console makers marketed these advances to consumers was through the measurement of "bits". The TurboGrafx-16, Genesis, and Super NES were among the first consoles to advertise the fact that they contained 16-bit processors. This fourth generation of console hardware was often referred to as the 16-bit era and the previous generation as the 8-bit. The bit-value of a console referred to the word length of a console's processor (although the value was sometimes misused, for example, the TurboGrafx 16 had only an 8-bit CPU, and the Genesis/Mega Drive had the 16/32-bit Motorola 68000, but both had a 16-bit dedicated graphics processor). As the graphical performance of console hardware is dependent on many factors, using bits was a crude way to gauge a console's overall ability. For example, the NES, Commodore 64, Apple II, and Atari 2600 all used a very similar 8-bit CPU. The difference in their processing power is due to other causes. For example, the Commodore 64 contains 64 kilobytes of RAM and the Atari 2600 has much less at 128 bytes of RAM. The jump from 8-bit machines to 16-bit machines to 32-bit machines made a noticeable difference in performance, so consoles from certain generations are frequently referred to as 8-bit or 16-bit consoles. However, the "bits" in a console are no longer a major factor in their performance. The Nintendo 64, for example, has been outpaced by several 32-bit machines.[91] Aside from some "128 Bit" advertising slogans at the beginning of the sixth generation, marketing with bits largely stopped after the fifth generation.
The first video games appeared in the 1960s.[20] They were played on massive computers connected to vector displays, not analog televisions. Ralph H. Baer conceived the idea of a home video game in 1951. In the late 1960s, while working for Sanders Associates, Baer created a series of video game console designs. One of these designs, which gained the nickname of the 1966 "Brown Box", featured changeable game modes and was demonstrated to several TV manufacturers, ultimately leading to an agreement between Sanders Associates and Magnavox.[21] In 1972, Magnavox released the Magnavox Odyssey, the first home video game console which could be connected to a TV set. Ralph Baer's initial design had called for a huge row of switches that would allow players to turn on and off certain components of the console (the Odyssey lacked a CPU) to create slightly different games like tennis, volleyball, hockey, and chase. Magnavox replaced the switch design with separate cartridges for each game. Although Baer had sketched up ideas for cartridges that could include new components for new games, the carts released by Magnavox all served the same function as the switches and allowed players to choose from the Odyssey's built-in games.