Dreamcast

The **Dreamcast** is a home video game console released by Sega on November 27, 1998 in Japan, September 9, 1999 in North America, and October 14, 1999 in Europe. It was the first in the sixth generation of video game consoles, preceding Sony's PlayStation 2, Nintendo's GameCube, and Microsoft's Xbox. The Dreamcast was Sega's final home console, marking the end of the company's eighteen years in the console market.

In contrast to the expensive hardware of the unsuccessful Sega Saturn, the Dreamcast was designed to reduce costs with "off-the-shelf" components, including a Hitachi SH-4 CPU and an NEC PowerVR2 GPU. Released in Japan to a subdued reception, the Dreamcast enjoyed a successful U.S. launch backed by a large marketing campaign, but interest in the system steadily declined as Sony built hype for the upcoming PlayStation 2. Sales did not meet Sega's expectations despite several price cuts, and the company continued to incur significant financial losses. After a change in leadership, Sega discontinued the Dreamcast on March 31, 2001, withdrawing from the console business and restructuring itself as a third-party publisher. In total, 9.13 million Dreamcast units were sold worldwide.

Although the Dreamcast had a short lifespan and limited third-party support, reviewers have considered the console ahead of its time. Its library contains many games considered innovative, including *Crazy Taxi*, *Jet Set Radio*, *Phantasy Star Online*, and *Shenmue*, as well as high-quality ports from Sega's NAOMI arcade system board. The Dreamcast was also the first console to include a built-in modular modem for internet support and online play.

## History

### Background

Released in 1988, the Sega Genesis (known as the Mega Drive in most countries outside North America) was Sega's entry into the fourth generation of video game consoles. Selling 30.75 million units worldwide, the Genesis was the most 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 made it more difficult to program for than its chief competitor, the Sony PlayStation. Although the Saturn debuted before 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 damage done to Sega's reputation by poorly supported add-ons for the Genesis (particularly the Sega 32X) allowed Sony to establish a foothold in the market. The PlayStation was immediately successful in the U.S, in part due to a massive advertising campaign and strong third-party support 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 part 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 of 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 of Japan 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 development and third-party relations. Stolar did not support the Saturn due to his belief 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."

As a result 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. 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. Due to a 54.8% decline in consumer product sales (including a 75.4% decline overseas), the company reported a consolidated net loss of ¥35.6 billion (US$269.8 million). Shortly before announcing its financial losses, Sega revealed that it was discontinuing the Saturn in North America, with the goal of preparing for the launch of its successor. This decision effectively left the Western market without Sega games for over one year. Rumors about the upcoming Dreamcast—spread mainly by Sega itself—leaked to the public before the last Saturn games were released