the fall of the sega Dreamcast

by simon jenner

dramatic failure or underrated gem?

The Sega Dreamcast. A legendary games console that came and went too soon. Sporting better graphics than any other console on the market at the time, even trumping the later released Playstation 2 in terms of textures, anti-aliasing, and image quality, the Dreamcast is remembered as being a pioneer of the gaming world, introducing a series of industry firsts and leaving a mark so profound that fans are still hankering for a sequel.

So why is it seen as a failure? With so many revolutionary feats surrounding the console, why did the Dreamcast have one of the shortest lifespans in video game history, and, more tragically perhaps, how did it lead to Sega’s departure from the home console market? The truth lies somewhere between mismanagement and uncertainty.

In 1997, in order to rectify the substandard release of the Sega Saturn, which sold 9.26 million units worldwide compared to its competitor, the Nintendo 64, which sold 32.93 million, Sega’s President, Shoichiro Irimajiri contracted two teams to come up with the design for their new console. In Japan, he enlisted Sega Saturn designer, Hideki Sato and hardware developer PowerVR (formerly known as VideoLogic) to come up with a new chipset design for the Dreamcast with the goal of one-upping Nintendo and propelling the gaming world into the 128bit era.

One of the Saturn’s downfalls was the fact that it ended up being more expensive to build than to sell, costing roughly $380 to produce and as low as $300 to buy at retail price (reduced from $400 to compete with the Sony Playstation). Thus, when designing the Dreamcast, Sega concentrated on utilising economically efficient parts, such as the PowerVR2, to sustain the console’s profitability.

Sega’s Saturn

The system failed to meet industry expectations and caused an estimated loss of $43 million in 1998 alone.

The road to 9. 9. 99

After the initial launch of the Dreamcast in Japan in 1998, Sega managed to sell all its units within the first 24 hours. Priced at JP¥29,800 (about $290), Sega’s plan to outshine its competitors seemed to be succeeding. However, with only four games available at launch, one of which was a visual novel, the company soon suffered a backlash from fans, many of whom reportedly began handing in the console in favour of the Sony PlayStation.

In order to regain some of their losses, Sega decided to drop the price of the console to $199 for the North American release, hoping to spark a boost in software purchases. Yet, while the release of Soul Calibur did manage to secure 17% of Sega’s shares, the console became unprofitable, and more expensive to build than sell, mirroring one of the key issues of the Saturn. This was made worse when EA, one of Sega’s main developers for the Saturn, refused to support the Dreamcast, demanding exclusive rights to sports games on the console. Citing a rift between him and former Electronic Arts CEO, Larry Probst, then CEO of Sega of America Bernie Stolar explains that his recent purchase of 2K developer, Visual Concepts, prevented him from accepting EA’s demands:

“Larry came to me and said, ‘Bernie, we’ll do Dreamcast games, but we want sports exclusivity.’ I said, ‘You want to be on the system with no other third-party sports games?’ I looked at him and said, ‘You know what? I’ll do it, but there’s one caveat here: I just bought a company called Visual Concepts for $10 million, so you’ll have to compete with them.’ Larry says, ‘No, you can’t even put them on the system.’ I said ‘Then Larry, you and I are not going to be partners on this system.’”

Sega was in a state of near-financial crisis, dropping shares, losing partners, and lacking games. But with the lead up to the North American release, things started to pick up, due in large to a unique advertising campaign, and the memorable launch date of 9/9/99.

Created by Brian Bacino, former Creative Director at respected advertising house Foote, Cone & Belding, the famously weird “It’s Thinking” advertisements, along with the memorable release date, were carefully designed works of marketing gold, working to catapult the Dreamcast into North American homes. Capitalising on the console’s innovative capabilities, the campaign utilised a weird cyberpunk vibe to accentuate the futuristic design choices of the Dreamcast.

It was through this marketing campaign that the Dreamcast exploded across North America, selling over 500,000 units in just over two weeks. And while Bacino’s campaign certainly helped to spread the word about Sega’s new console, much of the Dreamcast’s early success can be attributed to its impressive launch gallery, which included titles such as Soulcalibur, Ready 2 Rumble Boxing and of course, Sonic Adventure.

Promo Art for Sonic Adventure, released for the Dreamcast on September 9, 1999 in North America. The title, which was the first 3D game in the Sonic the Hedgehog series, went on to become the best-selling game for the console with 2.5 million units worldwide.

The beginning of the end

It seemed Sega had learned its lesson from the lacklustre Japanese release of the console and ensured to have 19 titles prepared for the Dreamcast’s American release, yet the truth of the matter is that there was another monster on the horizon: the Sony Playstation 2. On paper, a superior console, with DVD playing capabilities, larger memory space and an in-built modem, Sega was aware of the hype for Sony’s sophomore console and determined to develop and nurture a loyal fanbase for the Dreamcast months before the release of the Playstation 2.

Selling over 600,000 units in just over 24 hours on launch in Japan, the Sony Playstation 2 took the reins of the Japanese market and put the record-breaking success of the Dreamcast on the back burner. In an effort to combat Sony’s bouldering success, Sega decided to focus its efforts on the North American market, having sold double the amount of units there than in Japan.

To make matters worse, in March of 2000, Microsoft announced the Xbox, another console which, like the Playstation 2 (and unlike the Dreamcast) required no external modem to use the internet. In a last-ditch effort to bolster consumer incentives, Sega announced SegaNet, the company’s own internet service which allowed for fast online gaming and web browsing for only $21.95 a month. Moreover, with the purchase of a two-year subscription, consumers would receive a Dreamcast and keyboard for free. Yet, with the North American release of the Playstation 2 looming, and the announcement of the Nintendo GameCube in September of 2000 to further put a boot in SEGA’s butt, the lifeblood of the Dreamcast was beginning to drain.

(pictured above) The Playstation 2, unveiled in March 1999 with a planned North American release date of March 2000.

With surplus inventory stacked up, Sega determined that due to a lack of sales, and a market quickly overloaded by competing devices with similar capabilities, there was no need to produce any more consoles. In 2001, Sega announced that they would be pulling out of the hardware business, officially stating that they would now only be making games for third-party platforms. With many new games still releasing for the Dreamcast, and even a few accessories such as a broadband adapter, Sega decided that the console was on its way out.

After less than two years in the North American market, the Dreamcast was quickly axed, marking the end of Sega’s 18-year lifespan in the home console market.

the dreamcast in 2022

As of 2007, the Dreamcast had sold only 10.6 million units, falling short of Sony and Microsoft by a landslide. While sporting an incredible selection of iconic games including the slick Jet Set Radio, the manic Crazy Taxi and the legendary Shenmue, unfortunately, the system which pioneered the use of internet connectivity, propelled gaming marketing into the world of the weird (an aspect later picked up by Sony and Nintendo), was unable to sustain itself for longer than three years. A uniquely designed console that has gone down in history as the gaming gem which came and left, in the blink of an eye, or the swirl of a dream.

However, it’s through the cutting-edge efforts of Sega that the Dreamcast’s legacy has been solidified as one of the most innovative consoles of a generation. A forward-thinking, highly original device that despite enjoying a banging launch gallery, an iconic marketing campaign and a few industry firsts (the revolutionary PowerVR2 and the aforementioned internet capabilities), couldn’t get over the haphazard blunders made by the Saturn, with Sega rushing towards a release that could likely have benefitted from a longer development cycle and a streamlining of marketing efforts.