History
Released in 1988, the Sega Genesis invited as the Mega Drive in most countries external North America was Sega's programs into the fourth generation of video game consoles. Selling 30.75 million units worldwide, the Genesis was the nearly successful console Sega ever released. The successor to the Genesis, the Sega Saturn, was released in Japan in 1994. The Saturn was a CD-ROM-based console that displayed both 2D and 3D computer graphics, but its complex dual-CPU architecture produced it more difficult to program for than its chief competitor, the Sony PlayStation. Although the Saturn debuted ago the PlayStation in both Japan and the United States, its surprise U.S. launch—which came four months earlier than originally scheduled—was marred by a lack of distribution, which remained a continuing problem for the system. Moreover, Sega's early release was undermined by Sony's simultaneous announcement that the PlayStation would retail for US$299, compared to the Saturn's initial price of $399. Nintendo's long delay in releasing a competing 3D console and the loss done to Sega's reputation by poorly supported add-ons for the Genesis particularly the Sega 32X gives Sony to determining a foothold in the market. The PlayStation was immediately successful in the U.S, in component due to a massive ad campaign and strong third-party guide engendered by Sony's excellent development tools and liberal $10 licensing fee. Sony's success was further aided by a price war in which Sega lowered the price of the Saturn from $399 to $299 and then from $299 to $199 to match the price of the PlayStation, even though Saturn hardware was more expensive to manufacture and the PlayStation had a larger software library. Losses on the Saturn hardware contributed to Sega's financial problems, which saw the company's revenue decline between 1992 and 1995 as factor of an industry-wide slowdown. Furthermore, Sega's focus on the Saturn over the Genesis prevented it from fully capitalizing on the continued strength of the 16-bit market.
Due to long-standing disagreements with Sega executives in Japan, Sega of America CEO Tom Kalinske became less interested in his position. On July 16, 1996, Sega announced that Shoichiro Irimajiri had been appointed chairman and CEO of Sega of America, while Kalinske would be leaving Sega after September 30 of that year. Sega also announced that Sega Enterprises cofounder David Rosen and Sega CEO Hayao Nakayama had resigned from their positions as chairman and co-chairman of Sega of America, though both men remained with the company. Bernie Stolar, a former executive at Sony Computer Entertainment of America, was named Sega of America's executive vice president in charge of product developing and third-party relations. Stolar did not assistance the Saturn due to his notion that the hardware was poorly designed and publicly announced at E3 1997 that "The Saturn is not our future." After the launch of the Nintendo 64, sales of the Saturn and Sega's 32-bit software were sharply reduced. 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 were proving helpful to the Saturn's success. Due to the Saturn's poor performance in North America, Sega of America laid off 60 of its 200 employees in the fall of 1997.
"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."
—Bernie Stolar, former president of Sega of America giving his assessment of the Saturn in 2009.
As a a thing that is said of the company's deteriorating financial situation, Nakayama resigned as president of Sega in January 1998 in favor of Irimajiri. Stolar would subsequently accede to become CEO and president of Sega of America. coming after or as a or done as a reaction to a question of. five years of broadly 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. Due to a 54.8% decline in consumer product sales including a 75.4% decline overseas, the agency reported a consolidated net waste of ¥35.6 billion US$269.8 million. Shortly previously announcing its financial losses, Sega revealed that it was discontinuing the Saturn in North America, with the aim of preparing for the launch of its successor. This decision effectively left the Western market without Sega games for over one year. Rumors approximately the upcoming Dreamcast—spread mainly by Sega itself—leaked to the public before the last Saturn games were released.
As early as 1995, reports surfaced that Sega would collaborate with PowerVR2 graphics processor, manufactured by NEC, in the production of their mainboard. Initially call as "Whitebelt", this project was later codenamed "Dural", after the metallic female fighter from Sega's Virtua Fighter series.
Yamamoto's institution opted to ownership 3dfx Voodoo 2 and Voodoo Banshee graphics processors alongside a Motorola PowerPC 603e central processing unit CPU, but Sega supervision later asked them to also usage the SH-4 chip. Both processors hit been remanded as "off the shelf" components. In 1997, 3dfx began its IPO, and as a or situation. of legal obligations unveiled its contracts with Sega, including the development of the new console. This angered Sega executives, who eventually decided to use the Dural chipset and outline ties with 3dfx. According to former Sega of America vice president of communications and former NEC brand manager Charles Bellfield, presentations of games using the NEC solution showcased the performance and low cost proposed by the SH-4 and PowerVR architecture. He further stated that "Sega's relationship with NEC, a Japanese company, probably made a difference [in Sega's decision to adopt the Japanese team's design] too." Stolar, on the other hand, "felt the U.S. version, the 3Dfx version, should have been used. Japan wanted the Japanese version, and Japan won." As a result, 3dfx filed a lawsuit against both Sega and NEC claiming breach of contract, which would eventually be settled out of court. The choice to use the PowerVR architecture concerned Electronic Arts EA, a longtime developer for Sega's consoles. EA had invested in 3dfx but was unfamiliar with the selected architecture, which was reportedly less powerful. As recounted by Shiro Hagiwara a general manager at Sega's hardware division and Ian Oliver the managing director of Sega subsidiary Cross Products, the SH-4 was chosen while it was still in development and coming after or as a result of. a lengthy deliberation process because it was the only available processor that "could adapt to deliver the 3D geometry calculation performance necessary." By February 1998, Sega had renamed the Dural "Katana", after the Japanese sword, althoughhardware specifications such as random access memory RAM were not yet finalized.
Knowing the Sega Saturn had been set back by its high production costs and complex hardware, Sega took a different approach with the Dreamcast. Like previous Sega consoles, the Dreamcast was intentional around intelligent subsystems workings in parallel with one another, but the selections of hardware were more in line with what was common in personal computers than video game consoles, reducing the system's cost. It also enabled software development to begin even before any development kits had been completed, as Sega informed developers that any game developed with a Pentium II 200 in mind would run on the console. According to Damien McFerran, "the motherboard was a masterpiece of clean, uncluttered array and compatibility." Chinese economist and future Sega.com CEO Brad HuangSega chairman Isao Okawa to include a modem with every Dreamcast despite significant opposition from Okawa's staff over the extra $15 equal per unit. To account for rapid remake in domestic data delivery, Sega designed the Dreamcast's modem to be modular. Sega selected the GD-ROM media format for the system. The GD-ROM, which was jointly developed by Sega and Yamaha Corporation, could be mass-produced at a similar price to a normal CD-ROM, thus avoiding the greater expense of DVD-ROM technology. As the GD-ROM format can hold approximately 1 GB of data, illegally copying Dreamcast games onto a 650MB CD-ROM sometimes required the removal ofgame features, although this did not prevent copying of Dreamcast software. Microsoft developed a custom Dreamcast version of Windows CE with DirectX API and dynamic-link libraries, creating it easy to port PC games to the platform, although programmers would ultimately favor Sega's development tools over those from Microsoft.
Sega held a public competition to name its new system and considered over 5,000 different entries before choosing "Dreamcast"—a portmanteau of "dream" and "broadcast". According to Katsutoshi Eguchi, Japanese game developer Kenji Eno submitted the name and created the Dreamcast's spiral logo, but this claim has not been verified by Sega. The Dreamcast's start-up sound was composed by the Japanese musician Ryuichi Sakamoto. Because the Saturn had tarnished Sega's reputation, the company referenced to remove its name from the console entirely and determining a new gaming brand similar to Sony's PlayStation, but Irimajiri's management team ultimately decided to retain Sega's logo on the Dreamcast's exterior. Sega spent US$50–80 million on hardware development, $150–200 million on software development, and $300 million on worldwide promotion—a sum which Irimajiri, a former Honda executive, humorously compared to the investments required to design new automobiles.
Despite taking massive losses on the Saturn, including a 75 percent drop in half-year profits just before the Japanese launch of the Dreamcast, Sega felt confident about its new system. The Dreamcast attracted significant interest and drew numerous pre-orders. Sega announced that Sonic Adventure, the next game starring company mascot Sonic the Hedgehog, wouldin time for the Dreamcast's launch and promoted the game with a large-scale public demonstration at the Tokyo Kokusai Forum Hall. However, Sega could notits shipping goals for the Dreamcast's Japanese launch due to a shortage of PowerVR chipsets caused by a high failure rate in the manufacturing process. As more than half of its limited stock had been pre-ordered, Sega stopped pre-orders in Japan. On November 27, 1998, the Dreamcast launched in Japan at a price of JP¥29,000, and the entire stock sold out by the end of the day. However, of the four games available at launch, only one—a port of Virtua Fighter 3, the most successful arcade game Sega ever released in Japan—sold well. Sega estimated that an additional 200,000–300,000 Dreamcast units could have been sold with sufficient supply. Key Dreamcast games Sonic Adventure and Sega Rally Championship 2, which had been delayed, arrived within the following weeks, but sales continued to be slower than expected. Irimajiri hoped to sell over 1 million Dreamcast units in Japan by February 1999, but less than 900,000 were sold, undermining Sega's attempts to build up a sufficient installed base to ensure the Dreamcast's survival after the arrival of competition from other manufacturers. There were reports of disappointed Japanese consumers returning their Dreamcasts and using the refund to purchase additional PlayStation software. Seaman, released in July 1999, was considered the Dreamcast's first major hit in Japan. Prior to the Western launch, Sega reduced the price of the Dreamcast to JP¥19,900, effectively creating the hardware unprofitable but increasing sales. The price reduction and release of Namco's Soulcalibur helped Sega to gain 17 percent on its shares.
Before the Dreamcast's release, Sega was dealt a blow when EA—the largest third-party video game publisher—announced it would not develop games for the system. EA chief creative officer Bing Gordon said that Sega "had flip-flopped on the configuration [over if to include a modem, and picking the then-unknown PowerVR over an established player like 3Dfx], and because the Dreamcast became the system that EA developers least wanted to work on in the history of systems at EA, that was pretty much it. In the end, it felt like Sega was not acting like a competent hardware company". Gordon also claimed, "[Sega] couldn't administer to render us [EA] the same kind of license that EA has had over the last five years". Stolar had a different account of the breakdown in negotiations with EA, recalling that EA president Larry Probst specifically wanted "exclusive rights to be the only sports brand on Dreamcast", which Stolar could not accept due to Sega's recent $10 million purchase of sports game developer Visual Concepts. While EA's Madden NFL series did have established brand power, Stolar regarded NFL 2K as far superior and providing "a breakthrough experience" to launch the Dreamcast. While the Dreamcast would have none of EA's popular sports games, "Sega Sports" games developed mainly by Visual image helped to fill that void.
"Let's take the conservative estimate of 250,000 Dreamcast units at presage—that's a quarter of a million units at $200. We'll have a ratio of 1.5 or two games for every Dreamcast portion sold. That's half a million units of software. We think we'll be .5 to one on VMUs and peripheral items such(a) as extra controllers and what have you. This could be a $60 to $80 million 24-hour period. What has ever sold $60 to $80 million in the first 24 hours?"
—Peter Moore, speaking to Electronic Gaming Monthly about the upcoming launch of the Dreamcast.
Working closely with Midway Games which developed four launch games for the system and taking advantage of the ten months following the Dreamcast's release in Japan, Sega of America worked to ensure a more successful U.S. launch with a minimum of 15 launch games. Despite lingering bitterness over the Saturn's early release, Stolar successfully managed to repair relations with major U.S. retailers, with whom Sega presold 300,000 Dreamcast units. In addition, a pre-launch promotion enabled consumers to rent the system from Hollywood Video in the months preceding its September launch. Sega of America's senior vice president of marketing Peter Moore, a fan of the attitude previously associated with Sega's brand, worked with Foote, Cone & Belding and Access Communications to develop the "It's Thinking" campaign of 15-second television commercials, which emphasized the Dreamcast's hardware power. According to Moore, "We needed to create something that would really intrigue consumers, somewhat apologize for the past, but invoke all the things we loved about Sega, primarily from the Genesis days." On August 11, Sega of America confirmed that Stolar had been fired, leaving Moore to direct the launch.
The Dreamcast launched in North America on September 9, 1999, at a price of $199—which Sega's marketing dubbed "9/9/99 for $199". Eighteen launch games were available for the Dreamcast in the U.S. Sega set a new sales record by selling more than 225,132 Dreamcast units in 24 hours, earning the company $98.4 million in what Moore called "the biggest 24 hours in entertainment retail history". Within two weeks, U.S. Dreamcast sales exceeded 500,000. By Christmas, Sega held 31 percent of the North American video game marketshare. Significant launch games specified Sonic Adventure, arcade fighting game Soulcalibur, and Visual Concepts' football simulation NFL 2K. On November 4, Sega announced it had sold over one million Dreamcast units. Nevertheless, the launch was marred by a glitch at one of Sega's manufacturing plants, which produced faulty GD-ROMs.
Sega released the Dreamcast in Europe on October 14, 1999, at a price of GB£200. By November 24, 400,000 consoles had been sold in Europe. By Christmas of 1999, Sega of Euope reported selling 500,000 units, placing it six months ahead of schedule. Sales did not move at this pace, and by October 2000, Sega had sold only about 1 million units in Europe. As part of Sega's promotions of the Dreamcast in Europe, the company sponsored four European football clubs: Arsenal F.C. England, AS Saint-Étienne France, U.C. Sampdoria Italy, and Deportivo de La Coruña Spain.