Console makers sell their hardware at a loss in the hopes of making up in software sales and licensing fees, but the Dreamcast lacked the big hits of its rival platforms. Besides its console business, Sega also operates video game arcades and manufactures arcade machines. But with one-third of Japanese homes plugged into home video game systems that rival the power of larger arcade machines, the company had been reducing its reliance on video arcade operations. Rival platforms now boast superior graphics performance, networking capability, and DVD drives to boot. And while Sega managed to sign up a million subscribers worldwide to its online gaming service, online players still represented a small portion of all gamers.
History shows that no more than two or three video game platforms can survive.
Console leader Sony, itself a latecomer to the video game industry, will face a formidable rival in Microsoft and a tightening consumer market given the downturn in the US economy. The news media reports that Sega is also in discussions with Microsoft to provide game software for the X-Box. Sega hopes to generate revenue from licensing fees of the API as well as from game software sales. While the shift towards software is seen as positive, Sega will be fighting in a competitive market here too. With no major hits when it owned its own platform, it remains to be seen if Sega can produce popular titles for platforms it doesn't own.