Dreamcast

The Dreamcast is the final home video game console manufactured by Sega. It was released in Japan on November 27, 1998, in North America on September 9, 1999, in Europe on October 14, 1999 and in Australia on November 30, 1999. It was the first sixth-generation video game console, preceding Sony's PlayStation 2, Nintendo's GameCube, and Microsoft's Xbox. The Dreamcast's discontinuation in 2001 ended Sega's 18 years in the console market.

A team led by Hideki Sato began developing the Dreamcast in 1997. In contrast to the expensive hardware of the unsuccessful Saturn, the Dreamcast was designed to reduce costs with off-the-shelf components, including a Hitachi SH-4 CPU and an NEC PowerVR2 GPU. Sega used the GD-ROM disc format to avoid the expense of DVD licensing. To speed game development, the console could run a custom version of Windows CE for easier PC game porting and shared hardware with Sega's NAOMI system board, enabling authentic arcade game conversions. The Dreamcast was the first console to include a built-in modular modem for internet access and online play.

Though its Japanese release was beset by supply problems, the Dreamcast had a successful US launch backed by a large marketing campaign. However, sales steadily declined as Sony built anticipation for the PlayStation 2. Dreamcast sales did not meet Sega's expectations, and attempts to renew interest through price cuts caused significant financial losses. After a change in leadership, Sega discontinued the Dreamcast worldwide on March 31, 2001, withdrew from the console business, and restructured itself as a third-party developer. A total of 9.13 million Dreamcast units were sold worldwide and over 600 games were produced. Its bestselling game, Sonic Adventure (1998)—the first 3D game in Sega's Sonic the Hedgehog series—sold 2.5 million copies.

The Dreamcast's commercial failure has been attributed to several factors, including competition from the PlayStation 2, limited third-party support, and the earlier failures of the 32X and Saturn having tarnished Sega's reputation. In retrospect, reviewers have celebrated the Dreamcast as one of the greatest consoles. It is considered ahead of its time for pioneering concepts such as online play and downloadable content. Many Dreamcast games are regarded as innovative, including Sonic Adventure, Crazy Taxi (1999), Shenmue (1999), Jet Set Radio (2000), and Phantasy Star Online (2000). The Dreamcast remains popular in the video game homebrew community, which has developed private servers to preserve its online functions and unofficial Dreamcast software.

In 1988, Sega released the Genesis (known as the Mega Drive in most countries outside North America), in the fourth generation of video game consoles. It became the most successful Sega console ever, at 30.75 million units sold. Its successor, the Saturn, was released in Japan in 1994. The Saturn is CD-ROM-based and has 2D and 3D graphics, but its complex dual-CPU architecture was more difficult to program than its chief competitor, the Sony PlayStation. Although the Saturn debuted before the PlayStation in Japan and the United States, its surprise US launch, four months earlier than scheduled, was limited to four retailers due to a lack of supply, which "aggravated" other retailers. Developers also found it easier to program for the Playstation, which caused a loss of support from these game developers. Losses on the Saturn contributed to financial problems for Sega, whose revenue had declined between 1992 and 1995 as part of an industry-wide slowdown.

Sega announced that Shoichiro Irimajiri would replace Tom Kalinske as chairman and CEO of Sega of America, while Bernie Stolar, a former executive at Sony Computer Entertainment of America, became Sega of America's executive vice president in charge of product development and third-party relations. After the 1996 launch of the Nintendo 64, sales of the Saturn and its software fell sharply. As of August 1997, Sony controlled 47 percent of the console market, Nintendo controlled 40 percent, and Sega controlled only 12 percent; neither price cuts nor high-profile games helped the Saturn.

I thought the Saturn was a mistake as far as hardware was concerned. The games were obviously terrific, but the hardware just wasn't there.

Hayao Nakayama resigned as president of Sega in January 1998 in favor of Irimajiri, and Stolar acceded to become CEO and president of Sega of America. Following five years of generally declining profits, in the fiscal year ending March 31, 1998, Sega suffered its first parent and consolidated financial losses since its 1988 listing on the Tokyo Stock Exchange, reporting a consolidated net loss of ¥35.6 billion (US$269.8 million). Shortly before announcing its financial losses, Sega announced the discontinuation of the Saturn in North America to prepare for the launch of its successor. This effectively left the Western market without Sega games for more than a year. Rumors about the upcoming Dreamcast—spread mainly by Sega—leaked to the public before the last Saturn games were released.