The Ten: Sega's Last Stand

There was a time in Sega’s history when the phrase “Genesis does what Nintendon’t” permeated throughout the living rooms of families.

Sega’s Genesis era was truly a golden age; amid a two-console horse race between it and the Super Nintendo, the company managed to keep things interesting, innovative, and exciting.  The Genesis managed to obtain a majority market share in nearly every market it was sold.  The console even sold in some territories better than the company’s ultimate 32-bit successor, the Sega Saturn.

It was that Saturn era where Sega began to dig itself a hole.  Sony had a strong showing with the original Playstation, and in almost every territory but Japan, the Sega Saturn could not keep up.  Efforts were mainly made domestically toward a successor to that system.  Not helping matters was Sega of America’s then CEO Bernie Stolar declaring the Saurn’s death at the 1997 Electronic Entertainment Expo.

Call it Dural, Black Belt, Katana, or anything else you want–the Dreamcast would ultimately be born.

Sega was facing tough odds from tough competition, including from within the company.  The Nintendo 64 was holding its own against the Playstation, and Sony had its own next generation plans in the cards.  Stolar, a Sega convert from a previous stint at Sony, talked the talk, but was determined to walk the walk–demanding value pricing for the Sega Dreamcast in North America at launch time.  Hopes for $249 became $199 at Stolar’s discretion.

The problem was, Sega of Japan felt the Saturn was doing fine.  It was with reluctance that the division began research and development on the Saturn’s successor.  Dueling consoles were internally conceptualized, one with a PowerVR2 graphics processor; the other with a 3Dfx Voodoo2 chipset.  3Dfx had disclosed some Dreamcast details as part of the company going public with an IPO.  Sega ultimately chose the PowerVR2 powered console, prompting 3Dfx to sue.  The suit was settled out of court.

Adding to Sega’s pre-Dreamcast troubles was news that Bernie Stolar would be released from Sega of America shortly before the Dreamcast’s launch.  Things didn’t look good, but ultimately, he would be responsible for orchestrating the most successful console launch in Sega’s history.  Domestically, the Dreamcast sold more than 225,000 units on its first day, out of 300,000 pre-orders.  After two weeks, 500,000 consoles were sold.  All told, in North America, launch day brought in $98.4 million for Sega, shattering a daily record for sales at the time.All seemed w

ell.  With online capability right out of the box, and a slew of critically acclaimed titles at launch–including Sonic Adventure–Sega appeared solid again.  Sega was thinking–smart thinking, at that.  It gave Sony more fuel to fire up what would be Sega’s death blow.
Indeed, the Playstation 2 had been announced right in the thick of the Dreamcast preparations.  While it may not have deterred gamers in the rest of the world, it did hurt Sega in Japan, as consumers waited for Sony’s next big thing.  That was the true beginning of the brand recognition that Sony would win.

While Sega spent millions to nab exclusives from third parties, Sony spent big advertising bucks to get the word out about PS2 worldwide.  Because of this gamers knew the PS2 was coming, and rather than try their luck at a new console from a company that mismanaged its previous system, they stayed the course, and waited out for PS2.  Indeed, quantity and brand recognition would prevail over quality.

Sony launched the Playstation 2 to blockbuster sales figures worldwide in 2000–with nearly a million sold in Japan on day one–and those same third parties who pledged allegiance to Sega soon jumped ship from the Dreamcast to the sure bet that Sony offered.  Sega simply couldn’t keep up–this, despite Sony’s unwillingness to embrace online gaming, a trait that still set the Dreamcast apart.  Sega’s Dreamcast still did what Nintendon’t, but it was Sony and their “Plaything” that flew to victory.

What follows are two TSSZ News radio broadcasts from January 27, 2001, and February 3, 2001.  The former detailed the company’s new software strategy, something that would be unheard of in the 90s–publishing on other consoles.  Sega was hemorraging money in the wake of Sony’s dominance, cutting the price of the Dreamcast–including a cut timed to coincide with the PS2’s domestic launch–in the hopes consumers would notice.  The news was merely a precursor to the following week’s shellshocker: That Sega would discontinue the Dreamcast.  Sega had lost the console war.

Even as a software-only developer, and with Sammy’s acquisition of the company, Sega is financially not faring much better than it did as a dual content provider.  Sega Sammy holdings continues to lose money most quarters, though perhaps not to the extreme that it once did.

The strange thing about Sega’s departure from a three console market that originally seemed too saturated is that Microsoft, stepping in with its XBOX line of consoles, quickly debunked that theory.  Even more ironic is that Sony now finds itself looking up at Nintendo with its Wii and Microsoft with the XBOX360, as the PlayStation 3, lacking in sales and lacking in the niche luster its competitors push, is perhaps in danger of extinction.  Could Sony be doomed to repeat the same mistakes Sega made?

In this generation, many Wii games are exclusive to the console simply due to the uniqueness of the hardware, while Microsoft has a big enough budget to afford keeping major titles like Halo 3 out of the hands of PS3 owners.  Sony has Blu-Ray capabilities going for the PS3, much like Sega had an edge with Dreamcast’s online capabilities.  But as Sega did learn–and what Sony may learn–it’s not what you have, but how it’s used and marketed.

By flaunting assumed success in the face of its competitors, Sega during and after the Stolar era became smug; they felt they won the 128-bit console war right off the bat.  But without their key architect, the direction of the Dreamcast lost its way.  The main arm of Sega’s corporate division in Japan–a division that still believed in the Saturn, as it remained somewhat successful in Japan–took over, and Sega’s long-term success fell like a house of cards.  Initial success was won, but maintaining it became a challenge almost immediately.
Further, what Sega forgot is that first-party hardware and support mean nothing if third parties and the audience they ultimately serve can’t take advantage.  Domestically, Dreamcast owners, were well short changed, with only about 200 of a more than 300 game library ever making it out of Japan.  Re-releases and new editions of some Sega classics, like Sonic Adventure and Virtua Fighter 3tb, were part of Sega’s DC lineup, but some titles, like Daytona USA 2 or Super GT, thought to be shoo-ins, never saw the light of day on Sega’s home system.  Sony has fare such as LittleBigPlanet and Gran Turismo, but not much else that isn’t available elsewhere.

Sony may also have equally been as smug as Sega once was.  Both the PlayStation and PlayStation 2 are 100 million unit sellers worldwide, and with numbers like that, it’s easy to set the bar high for a next generation console.  The difference between the declines, however, is that while Sony has to this point a consistent track record of success, Sega was a clear underdog with the Dreamcast launch.  Sega finally had something to gloat about in the six to nine month window between the Dreamcast launch and Playstation 2 hype.  But as Sony is showing, neither short-term nor long-term nor past success means anything if the demands of now aren’t met.

Without a home console, Sega may, in the long run, come out better with its software-only stance.  Though the initial shock of hearing that Sonic may end up on other systems initially didn’t sit well with fans, the ultimate result has been multiple venues for the hedgehog to strut his stuff, and multiplied sales for Sega.  The same can be said for the company’s other key franchises.  Without such opportunities, the whole of Sega could have been out of business shortly after the Dreamcast’s demise.  Sony, lacking a mascot or key franchise and primarily billing itself as a hardware beast, may not have the luxury of such an easy transition to software.

When history has its say, though, Sony did do what Nintendidn’t–send Sega and the Dreamcast packing.  They cast the first and final blow, with wounding slashes in between.  Can the sword that slayed the promising beast survive the economic downturn and return to glory?  Or will the gaming saturation theory spring anew, with Sony finding itself on its short end?  The next ten years will surely dictate how corporate will cope–and how gamers will react.
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The Ten is a multi-part series examining the 10 events of the past decade that have shaped Sonic fandom and community affairs today.  It is part of a series meant to complement the 10th anniversary of TSSZ News.