As the year 1998 came into view and the video game console industry readied itself for the 128-bit nextgen wave of systems, once proud Sega found itself looking up from the bottom of the digital barrel. At the beginning of the decade, David Rosen's little Japanese startup had not only ruled the roost in the U.S. video game market but also enjoyed a worldwide reputation for programming excellence. The end of the decade was a different story, however. Rosen was long gone, having left in despair at the way his Japanese business partners were running his company into the ground. Sega's reputation had suffered greatly, tarnished by intransigent company executives who had become caught in the same culture of corporate arrogance that had practically destroyed Atari and humbled fellow rival Nintendo not too many years before. Sega's customer base had long since departed for greener pastures, save for the absolute diehards, confused by a plethora of questionable Sega hardware and downright incensed by the company's apparent arrogance. Sega had once had aspirations of redefining the video game industry in its own image, but now it was struggling just to stay alive, fighting a losing battle on a quarterly basis just to keep its head above the waters of bankruptcy.
Sales of Sega products had been trending downward since 1993, the year that Nintendo's 16-bit SNES finally pulled ahead of the aging Genesis in overall console sales. It was not that Sega had not tried; it was that the public either did not want or did not care about Sega's attempts to field a worthy successor to its venerable Genesis. Instead of capitalizing on the success of the Genesis as it should have, Sega instead chose to squander its windfall on corporate posturing and overly complicated hardware. 1992 saw the release of Sega CD, a console that by any reasonable assessment was too far ahead of its time to ever become a success. It never did, and its failure was a big reason why Sega's sales began their downward trend the following year. 1994 saw the sudden rise and subsequent swift fall of the Sega 32X. It probably should have never been released in the first place, given its rushed development and absolute lack of software worthy of the hardware for which it was intended. 1995 saw the launch of the Sega Saturn, a console whose confused development and rushed production ensured its inevitable failure at the hands of the Sony PlayStation. By 1996, Sega's heir apparent to the Genesis was in no position to carry the load intended for it, suffering as it did from a poor software base and lack of support on all fronts. Saturn would cost Sega approximately US$1.06 billion over five years (1993-1998, and there was no way that Sega's other more profitable divisions could offset those kind of losses. By 1997, the Sony PlayStation dominated the video game console market, longtime rival Nintendo was playing strong second with its N64, and onetime king Sega had been reduced to a distant and weak third. That sam year Sega posted one of the largest single-year losses in the history of the company at that time, and the US$389 million bath that Sega in 1997 was one largely of its own pouring. 1998 would see Sega suffer a massive 21% drop in overall product sales and managing an even larger single-year operating loss of US$450 million. The one-time dominant force in the North American video game market was now little more than a heavily indebted pauper, still struggling to live the life of Riley and doing a rather poor job at that.
There is an old adage that certain members of Sega's top management seems to have taken to heart at this time. "When you're at the bottom, the only way to look is up."
After he began to assert direct control over the company's affairs in 1997, Sega chairman Isao Okawa moved decisively to rescue Sega from the sad shape it was in. He was firmly convinced that if Sega was ever to have a chance to survive as a major player in the video game console market, then it was going to have to make drastic changes in the way it was doing business. Okawa, a veteran of Japan's post-World War II economic reconstruction, knew what had to be done in troublesome times and was not afraid to act once he had made up his mind. As a result of this, a massive shake-up of top echelon Sega personnel took place. Okawa worked to clear Sega's top ranks as best he could of the bad managment that had been the chief cause of Sega's internal woes. Fifteen of Sega's twenty-five corporate directors were either fired outright or encouraged to leave via voluntary resignations. Hayao Nakayama, the aging CEO of Sega and one of the company's original founders, was uncerimoniously booted out of the picture and replaced by his subordinate, Shoichiro Irimajiri. The ex-Honda executive and former Formula One race car engine designer was now thrust into the unwelcome role of reinvigorating Sega and providing it with a new sence of purpose and direction. As for Sega of America's Bernie Stolar, the former Sony pitchman was placed in sole charge of Sega's flagging North American fortunes. Sega of Europe also saw a management shakeup at this time, with the charismatic J.F. Cecilion assuming the helm over in the Old World. Many of the new people that Okawa brought into Sega's corporate ranks at this time were from outside Sega's rather close-knit ranks. This was a deliberate choice on Okawa's part; he felt it was high time for Sega to get some new ideas from new people and hopefully regain something of its lost vision of old. "It seems that Sega wants some fresh perspective on the business," noted NextGen magazine's Markus Webb. Okawa's personnel shakeups would countinue through the remainder of the year and well into the first half of 1998.
In analyzing its recent failures and subsequent fall from grace within the video game console industry, Sega's new leadership team reached the following conclusions concerning the collapse of Sega's fortunes:
Sega's new leadership team was not about to let Sega echo the mistakes of the past. The Sega of 1998 knew that the Sega that had existed from 1992 to 1997 had screwed up big time. In so doing, the Sega of days past had almost taken the company down with them. Okawa and his team were not about to let Sega continue this sad legacy if it could help it. Shoichiro Irimajiri, the new Sega CEO, was rather blunt about the situation in an interview he gave to NextGen magazine, saying, "In the past, I think that Sega has maybe been arrogant." The editors at NextGen magazine put it this way: "Unlike the Sega of 1995, which refused to admit that anything was wrong, the Sega of 1998 is composed of an entirely new team, one that recognizes the mistakes of its past and is determined not to repeat them. Can the company come back? That will be decided by the marketplace, but the initial plans and efforts seem promising."
- Lack of a good development environment: The chief complaint about Sega CD was that it came too early for its full potential to be tapped. The chief complaint about the 32X was that its full potential was never tapped. The chief complaint about the Saturn was that its full potential was too difficult to tap. The common cause of these complaints was the lack of a good development environment early on. The software development kits (SDKs) for Sega CD were late in arriving from Japan, which was one of the major contributing factors towards the lack of a good software base, which also in part explained with the Sega CD software library wound up being as lousy as it was. The SDKs for the 32X shipped the same day as the Saturn SDKs, so developers naturally gravitated towards what looked to be the more powerful, more long-term, more marketable console. As for the Saturn, Sony's SDK for the PlayStation made the creation of software so much easier than did Sega's Saturn SDK that the choice between the two was a no-brainer. Sega may have (and still did) enjoy a reputation as one of the best video game creators in the business, but the software development environment it wound up creating for its Genesis successor consoles left a lot to be desired. Okawa and his management team resolved that Sega's newest console, already in the develoment pipeline, would have one of the most sophisticated yet user-friendly development environments ever brought about for a Sega video game system.
- Lack of third-party support. The presence of a poor development environment for its Genesis successor consoles was perhaps the major cause behind the lost of third-party support for Sega's later systems. This in turn wound up being yet another major factor behind Sega's failing fortunes in the video game marketplace. One of the first things that rival Sony had done with the PlayStation was to line up major third-party support long before it launched the system. The way Sony sold the PlayStation to them, as opposed to the way this had been done by other vendors in the past, was threefold. First, it worked the third parties long before launch time to perk their interest in the new console. Second, it placed into their hands console SDKs with lots of easy-to-use tools for software development. Third, it provided them whatever support they needed whenever they needed it. Sony's battle plan was a mixture of all the successful techinques it had seen other vendors use in the past, including Sega itself. The key difference was the timing. Instead of asking Muhammed to come to the mountain, Sony brought the mountain to Muhammed. Instead of building the system and inviting the third parties in afterward to do what they could with it, Sony in effect brought in the third parties as early in the console creation process as it could. This practically guaranteed that the PlayStation launched with a bigger and broader software base than Sega could have ever hoped to have had with the Saturn. Bringing in the third parties as early as possible was a major change in mindset for the video game console industry. It was also one which Okawa and his team knew Sega would have to successfully duplicate in order for Sega's next console to succeed.
- Lack of superior marketing techniques. To quote NextGen magazine, "Sega never expected that an outsider would have so swiftly demolished its preeminence in the video game industry, but armed with a powerful machine, Sony did just that. [It] pulled the rug from under its rival's feet, redefining how a console could - and should - be marketed." Sony had been in the software development business for its rivals for years, and had time to study and analyze the sucesses and failures of the marketing techniques of both Sega and Nintendo. It managed to successfuly combine parts of Nintendo's inventory management promotionals with the youthful brashness of the Sega scream, melding them together into a multimillion dollar advertising campaign that wound up pushing far more consoles that its rivals dared to hope. There was also another factor at play here, one that Sega knew all too well: it had turned its back on the Sega scream. This beloved ad campaign had defined Sega to its audience during its Genesis glory days, and its abandonment had been one of the major factors in the erosion of support among Sega's once-loyal user base. Okawa and his team knew they had a twofold responsibility in pitching their newest console. First, it had to create an ad campaign following the new parameters Sony had recently defined in order to promote the system launch to the general gaming public. Second, it had to bring back Sega's rebellious advertising image of old as fast as possible in order to win back the support of as many of its die-hard loyalists as it could.
Eclipse ... Dural ... Black Belt ... Katana .... These and other names for a new and more powerful Sega console had been floating around the videogaming scene for almost as long as the Saturn's failure had become apparent. Even so, few people were taking them seriously. "Sega's washed up," was the word on the street. "They're gonna make the same mistakes as before, screw up just as bad as before, and fall just as flat on their face as before. You just watch. They'll work up a new system, then turn right around and abandon it before it can do anything, just like they did with the 32X. They'll stab us in the back with an expensive console and keep almost all the good games in Japan, just like they did with the Saturn. We won't be fooled again. We're sticking with the PlayStation until Sega proves it's serious." This is just a general representation, but you can at least get some idea of just how far Sega's reputation had sank with the gaming public. Deep down, almost all of them wanted the new and cool Sega games that would come with a new and more powerful console. The only drawback was the console itself, especially if it was going to be another Sega effort. Was Sega going to get serious this time and release a real console with real support, or was it just going to be another infamous Sega flash in the pan? It was going to take a lot of work on Sega's part to regain its lost reputation among gamers, and it was going to take one helluva console for consumers to bring Sega back into their homes again.
The revolutionary and short-lived video game console known as the Sega Dreamcast was the product of the final act in this troubled period in Sega's history. It represented Sega's last desperate bid to remain a major player in the console wars. This was a fight that Sega had been steadily losing since 1994, when Nintendo briefly regained its number one position in the market prior to Sony's arrival. The fact that Sega had three failed console efforts in a role didn't help matters any, either. Couple that with classic Sega mismanagement, the increasing inability of its revenues in other venues to cover its mounting console division losses, and a growing public lack of trust in Sega's assurances, and you can begin to understand why Sega was willing to take this gamble. It was over US$1 billion in the hole, so Sega had to start making money however it could, any way it could, or go belly up. Dreamcast, which was already in the development pipeline, was Sega's last desperate throw of the dice. Sega had to take its chances with Dreamcast because it simply had no other choice. It was do or die time for Sega, and Dreamcast would be the product upon which Sega's future would balance. If Dreamcast was even a modest success, then Sega would rally and in time go back to business as usual as one of the video game industry's major players. If not, well ... it would depend on how things went. All eyes within and without Sega were on Dreamcast as Sega's latest and greatest console was made ready for the starting gate. All Sega could do now was deliver the goods ... and pray.
128 bits - the new nextgen wave
Hideki Sato and his engineering teams had already began looking at a new Sega console as early as 1996, once it became clear that Saturn had failed to catch on with the public. The clean, simple design they came up with might have come straight from the 32-bit console proposal Tom Kalinske and company had fielded back in 1994: a single-processor design utilizing the best graphics and sound chipsets to be had at the time. This was because Sato and his fellow engineers were deliberately designing Saturn's successor to be everything that Saturn was not: user-friendly, programmer friendly, market friendly, and reasonably affordable by the averager consumer. As it just so happened, Sega was in a perfect position to lead the next generation of video game consoles with its own. None of their current or potential rivals would be able to field a comparable system for at least a year after Sega's new console had debuted. To have that much guaranteed lead time over the competition allowed Sato and his team to make sure that they "got it right" this time. Given Sega's limited financial resouces, there would be no second chance.
A lot of changes had taken place in the computer and electronics industry since Saturn had bolted out of the starting gate. The exponential increases in graphics processing technology, spearheaded by the friendly rivalry between 3Dfx and nVidia, had resulted in high-speed 128-bit 3D graphics processors that could generate the kinds of high-res, high-color, high-texture, photo-quality images previously reserved for movies and video demonstations. The processor speed war between Intel and former partner AMD had pushed the top speed of CPU technology up to 200 MHz and promised to go even higher in the near future. Advances in sound technology spearheaded by Creative Labs, Ensoniq, and Yamaha was bringing theater-quality surround-sound stereo home to the average personal computer user. Once again, the console industry was lagging behind the personal computer and video arcade industry in terms of hardware. Once again, it was time for "the nextgen wave." This time, it would be based on 128-bit processing technology, and once again, stuff that had previously been reserved for the arcade and the computer geeks was about to find its way into a console near you. Sega, by luck of the draw, would be the leading the pack with Dreamcast. It didn't really matter what Sega fielded, because whatever it was would automatically become the benchmark by which the rest of the 128-bit (and 256-bit) generation of consoles would be measured. Sega could either rise to the challenge with what resources remained to it, or pass on the opportunity and possibly never get such a chance again. Sato and company were going to make sure that Sega's once-legendary technical prowess would meet that challenge. In so doing, the Sega Dreamcast would make the 128-bit console standard a high one to meet.
In developing the hardware behind the Dreamcast, Sega lined up four major players in the computer industry. NEC, the well-known Japanese computer giant and onetime friendly rival back in the Genesis days, won the contract to come up with the console's 128-bit chipset. Hitachi, another famous Japanese electronics powerhouse, was again tapped by Sega to provide the new console's CPU with its brand-new 200 MHz SH-4 processor. Yamaha, whose excellent reputation in the music industry spoke for itself, wound up with the twin jobs of providing both the console's 64-bit 3D stereo sound system and a customized CD-ROM based delivery system. Finally, none other than Microsoft itself was approached (and willingly accepted) the task of providing an alternate programming environment to Sega's own with its industry-standard DirectX APIs.
Microsoft's involvment with the development of the Dreamcast hardware is important to note at this point. Both Sega and Microsoft had already worked together on joint projects, such as the porting of popular Saturn titles to the then-new Windows 95 operating system. Sega executives were willing to bend over backwards in providing a programming environment as friendly as possible to third-party development. It was a lesson that Sega had learned at Sony's hands back in the bad ol' Saturn days, so it moved as swiftly as it could to make such an environment possible. The rapid acceptance of Microsoft's DirectX as a standard within the personal computer gaming industry seemed to Sega to be the most reasonable approach to adopt. In addition to its own proprietary SDK, Sega had Microsoft come up with a customized version of Windows CE for Dreamcast as an alternate development environment. WinCE was a stripped down version of Windows geared specifically for small computer systems, such as pocket and palm devices, so its small size would work fairly well in a dedicated video game system such as Dreamcast. The only major change, and it would prove to be a significant one, was the inclusion of the DirectX graphical programming environment from the full-blown version of Windows. This opened up a whole new world of development possibilities for Dreamcast and immediately caught the eye of the third-party community, just as Sega hoped it would. While Sega's proprietary APIs were faster and made the most of the hardware, Microsoft's DirectX was already well-known to the industry and therefore easier to program. It also made for easy porting of existing software titles to the new platform, and a number of vendors began making such plans even before the console was officially launched. Meanwhile, Microsoft also took note of the rapid acceptance of DirectX among the console gaming community and filed this fact away for future reference.
One of the most unusual aspects of Sega's newest console to be addressed was the issue of removeable memory cards. The idea was not new to Sega (remember the Sega CD Backup RAM Cart and the prized Saturn memory expansion modules?), but once again Sony had taken the lead with its compact PlayStation memory cards. Sega's engineers seized upon the concept and took it one step farther. Instead of making Dreamcast's removeable memory cards just a place to dump game save files, Sato and company designed them to be standalone accessories. The Dreamcast Virtual Memory Unit (VMU) could be used for more than just a removeable RAM cart; it had its own built-in LCD display and controls and was also designed with interlink capability with both the console and other VMUs. The potential possibilities were not missed by the video game industry. To quote EGM on the subject:
You can save games on them. You can download mini-games on them .... You can push them together and pass information back and forth on them. You can use the screen to do secret stuff in games. You can use them as a calendar and a clock. [The VMU is p]ossibly the most versatile peripheral for a games system ever made ... and we bet Sony and Nintendo are kicking themselves because they didn't think of it first.
Perhaps the most important piece of hardware that was to be included with Dreamcast was an internal high-speed modem for Internet access. This was done at the insistence of none other than Okawa himself. He believed strongly in the power of the burgeoning Internet and felt now was the right time to invest in its future promise. It was not Sega's first Internet effort for a console; however, Saturn's NetLink had proven to be little more than an expensive test bed for the concept. By making the modem part of the Dreamcast itself instead of an expensive accessory, Okawa was enabling Sega to set yet another standard for the rest of the industry to follow. How it would play remained to be seen, but the promise of online console gaming cause more than a few heads to turn and look Sega's way that had not been looking before.
There were currently four other systems in the making by Sega's rivals waiting to pass the Dreamcast bar. Sony was already in the process of developing a successor to the PlayStation, and once again Ken Kuratagi and his team were in charge of making Sony's newest console. It would not hit the market until about a year after Sega released the Dreamcast, but Sony had something Sega did not: an excellent reputation with the public and large cash reserves for the inevitable pre-launch market push. Nintendo was farther behind with its own effort, being some two years out, and at this point not even the name of its new console had been decided. The other two, Project X (i.e. NUON) and the Linux-based Indrema deserve lip service even if they were no serious threat for the simple fact that at least some effort was being made to break the console industry out of its traditional confines and move it into previously unexplored territory. Perhaps the best observation about this state of affairs came from SegaWeb's Sheriden Hortness: "The one thing that everybody seems to have overlooked in this whole DC vs. PSX2 ... debate is the fact that Sega started this round of the war and the gamers of the world should thank them for it .... In effect, Sega forced the industry to take a huge step forward." That debate was about to come into play in the most profitable video game market in the world, where the stakes were highest and the gamble the biggest. This was Sega's last throw at playing with the big boys in the home console market. It had to do well, somehow, someway, because too many other competitors were now lining up behind them, readying themselves for their turn to catch the 128-bit nextgen wave. There would never be another chance, not with a market opportunity as wide open as this one. Sega simply had no choice. Dreamcast had to succeed, or else.
Dreamcast did not come cheaply for Sega. Making sure that it had the right system at the right time to catch the 128-bit generation - the video game market's latest "nextgen wave" - cost Sega dearly. Remember, Sega was suffering from the reputation of putting out one underpowered or overly complicated system after another, abandoning them almost as soon as the bad reviews began to roll in. Not so this time, if Sega CEO Shoichiro Irimajiri had anything to say about it. According to an interview that he gave to NextGen magazine, Sega spent almost US$600 million in pre-launch research and development in order to make sure that Dreamcast was done right - the way that it needed to be and the way that the market wanted it to be. To use Irimajiri's own numbers, between US$50 and 80 million was spent on hardware development, US$150 to 200 million on software development, and an additional US$100 million per venue for each of Sega's three major distribution markets (Japan, the U.S., and Europe) in advertising and promotion. "When I was involved in the auto industry," Irimajiri laughed, "to launch a new car it cost US$600 million, the same as to launch this tiny machine!"
Given the fact that Sega was over US$1 billion in the hole at this point, it may seem absurd to the uninformed that Sega was out spending money it didn't have on a system that might not even succeed. It was a big gamble, perhaps the biggest in Sega's long and storied history, but Isao Okawa's convictions remained unshaken. He authorized the expense knowing full well just how precarious Sega's position now was in the market. He also knew that Sega would eventually have to get out of the console hardware business altogether, because it was simply too expensive for a company with limited resources like Sega to keep going. Nevertheless, Okawa did not want Sega to have to bail with the stink of Saturn on its back. It was going to cost money that Sega did not have, putting his beloved company further in the hole, but it was now a matter of honor for Okawa. Remember, Japanese businessmen such as Isao Okawa place a great amount of value in the concept of honor, and Okawa still believe that Sega was and always would be an honorable company. Dreamcast would mean many things to many people, but perhaps most importantly it gave Sega the perfect opportunity to rebuild its long-lost reputation with the gaming public. If presented properly and managed carefullly, the name of Sega would once again shine in the positive light that it had enjoyed mere years before. There was also the outside chance, however remote, that Sega might actually pull some some kind of profit on the Dreamcast gamble. Okawa was no stranger to market gambles; however, the Sega Dreamcast would prove to be one of the biggest of his life.
Up from the depths
On 12 March 1997, stories appeared on several Internet sites that Sega was working on a 64-bit upgrade module, code-named Eclipse, for its ailing Saturn. At the end of the month, on 31 March 1997, the story changed. Instead of a mere upgrade, Sega was in fact designing a whole new console. While details were extremely sketchy, it became known on 28 June 1997 that Sega had two different design specs ready for final consideration for its newest console. These were code-named Black Belt and Dural. The two specs were practically identical save in the processor departments, and just happened to match well with the specs for Sega's newest arcade board, code-named NAOMI. It seemed that Sega had found its way around the cost part of the console by once again basing it on its arcade technology. Identical hardware, straightfoward ports. Sega fans were excited, because they hadn't seen anything like this out of Sega since the glory days of the Genesis. A lot of gamers and industry watchers began speculating as to which of the two competing console desgins would be chosen for the final design.
In an eerie parallel to the preproduction days of the Saturn, Sega had once again found itself with two competing designs for its newest video game console. This time, however, instead of backing Sega of Japan's preferences and not giving Sega of America's a chance, Okawa ordered that full-blown working prototypes of both designs were to be fabbed for better evaluation. He wanted the best bang for his buck, even if it meant going with hardware that had not yet had time to prove its market staying power. As might be expected, Sega of Japan backed one and Sega of America backed the other. Sega of Europe sat on the sidelines and watched, but secretly it also leaned toward Sega of America's favored system. Who wanted what design, and what made that design unique?
Note that both systems were built around 128-bit RISC CPUs from the start. The PowerPC had already proven itself with the newest generation of Apple Macintosh personal computers, whereas the SH-4 was a natural (and unproven) extention of technology with which Sega's tech teams was already familiar. 3Dfx's Voodoo2 was at that time the industry standard for 3D video on personal computers; however, the company was losing the battle with rival nVidia for that very market and needed to broaden its customer base. NEC's PowerVR2 might not have been as popular as 3Dfx's Voodoo2, however it was well known in the industry and was just as capable of bearing the high-end 3D processing burden as its upstart rival. Some hard choices were going to have to be made, so Sega began its official evaluation of both designs as soon as the prototypes were functional. By summer, it had finalized the design of the console. By fall, Sega was ready to proceed.
- Black Belt (Sega of America): IBM/Motorola PowerPC 603e CPU, 3Dfx Voodoo2 graphics chipset
- Katana (Sega of Japan): Hitachi SH-4 CPU, NEC/Videologic PowerVR2 graphics chipset
Sega's successor to the Saturn, still unnamed at this point, was offically anounced to the public on 8 September 1997, with official specs coming about a week later. Sega had gone with the Katana design, but with one significant difference. The production model would have 16 MB of video RAM instead of the 8 MB in the Katana prototype. This change would permit greater renedering capabilities and texture storage, thus making for a video graphics suite as powerful as the best personal computer of the day had to offer. Other than that, the differences between Sega's newest console and the Saturn were mind-numbing. Its 200 MHz Hitachi SH-4 CPU meant that it had over 10 times the processing capability of Saturn, parallel processing notwithstanding. Its 128-bit PowerVR2 graphics processor could render a practical limit of about 3 million polygons on screen per second, which was a thousandfold increase over the Saturn. In comparison, Saturn had a theoretical limit of 500,000 with its twin 32-bit VDPs, but system limitations constrained it to a practical limit of about 3 thousand polys per second. Only a blind fool could not take notice of what Sega was planning for its new system, and many within the industry were quietly pleased at Sega's plans.
Sega of America was not happy that Okawa and senior Sega management had chosen to go with the Katana design. Their work on Black Belt had reached such an advanced stage that they were already in the process of selecting and awarding production contracts. Many of its members felt deceived once again by what they considered to be an about-face on the Japanese side of the company, having been assured time and again that this time Sega of America would have a far greater say in affairs than it had before. Almost all of the Black Belt development team quit in disgust and moved on to other fields of endeavor. That should have ended the matter then and there; however, it did not. Before Sega was ever able to gear up Dreamcast for production, it had to deal with a sudden and unexpected legal batle over the way that the console was designed. This went largely unnoticed saved by industry watchers and insiders; however, it would eventually prove to be a major headache for Sega and would significally impact the company's already strained resources for some months to come.
On 17 July 1997, the industry trade magazine Microprocessor Report was the first to break the news that Sega was planning to use the NEC/Videologic PowerVR2 as the graphics processor for its new video game console. Word on the street had it that Sega of Japan had been highly vocal in objecting to the use of 3Dfx's Voodoo2, claiming that it was "unproven technology" and that continued work with it was "a waste of time." The story caught everybody by surprise - including 3Dfx, which had in its possession a contract drawn up by Sega authorizing it to provide the graphics chipset for Sega's newest console. They wasted little time in reminding Sega of its existence. On 21 July 1997, in a carefully worded press statement, 3Dfx said that Sega had "... a contractural oblication to 3Dfx Interactive to utilize the company's Voodoo graphics technology as the graphics engine for its next consumer gaming platform. Should they choose to introduce a product that does not utilize this technology, 3Dfx believes that the terms of the contract entitle it to commensurate damages." The following day, Sega officially broke all ties with 3Dfx and publically renounced any plan to use Voodoo technology in any Sega hardware product. Approximately six weeks later, on 2 September 1997, 3Dfx filed a multimillion dollar breach-of-contract lawsuit against Sega. On 27 October 1997, 3Dfx expanded its suit to include both NEC and Videologic, makers of the PowerVR2 that Sega had chosen over 3Dfx's Voodoo.
The 3Dfx vs. Sega took about a year to wind its way through the torturous twists and turns of the American legal system before it resurfaced in the news, but by then it was all over. On 4 August 1998, Sega and 3Dfx agreed to settle the suit out of court. While the exact terms of the agreement remain undisclosed, it was later reported by the BBC that Sega had agreed to pay 3Dfx approximately US$10.5 million in exchange for dropping the suit and setting aside all claims for punitive damages. That figure tallies roughly with the amout of money 3Dfx claimed that Sega owed it as part of their original contract. It may seem like a small amount, but it was US$10.5 million wasted on a court battle that should have never taken place - funds that could have been better spent elsewhere.
To DVD or not DVD?
So where could have Sega spent an extra US$10.5 million in Dreamcast development? Probably on the one feature of the system that users were anticipating the most: the inclusion of a DVD-ROM drive for playing high-capacity discs and DVD movies.
On 5 February 1998, it was reported by several sources claiming inside information that Sega had decided against including a DVD-ROM drive as a standard feature of the Dreamcast. Instead, Sega had opted to develop its own proprietary 1 GB disc format based on time-tested standard CD-ROM technology. The news was a cold douche to gamers worldwide, who had been speculating for months that, given all of its other firsts, Dreamcast would also end up being the industry's first DVD-capable video game console. The two major reasons cited by these anonymous inside sources were the high cost of DVD-ROM technology and no pressing need for such large amounts of storage capability (about 3-4 GB per DVD-ROM, depending on the format employed) in a market where the majority of games didn't fill a stock 650 MB CD-ROM. Sega's proprietary technology, dubbed GD-ROM, was significantly cheaper than DVD-ROM to use, and the extra 350 MB of storage would be that much more incentive for software developers to tap Dreamcast's deep resources. Besides, having your own proprietary format is one of the simplest and most effective copy-protection measures around, and Sega hoped that GD-ROM would keep the software pirates at bay long enough for them to turn a profit. Sega would have preferred DVD-ROM, which at that time would have been the ultimate proprietary format due to the special discs required, but then again there was that nagging issue of the cost involved.
The possibility of a DVD-capable Dreamcast wound up being one of the most contested issues about the console. It was debated from the moment the console was announced in 1997 well into the summer of 2000, over a year after having first hit the market. Sega's Charles Bellfield said flat out on 15 March 2000 that Dreamcast never had DVD and never would. Even so, just two months later on 13 May 2000 at the annual E3 consumer electronics show, Sega displayed an upgraded Dreamcast mockup with DVD capability. The rest of the industry seemed impressed, yet Sega itself sounded strangely uncommitted to the idea. To quote Sega of America's Peter Moore:
To me, if the DVD format allows better gaming, then it’s a rational reason that it has got a place in gaming. If it's simply to play DVD movies, then that's one that we would have a more difficult time in the US to rationalize .... It's still not clear to me now - it may clear up tomorrow - what DVD does for gaming. Obviously you can pack more data to the disc, but other than that, we're pretty committed to the GD-ROM format.
In typical Sega fashison, it subsequently backed away from the notion of a DVD-capable Dreamcast and by the end of the summer had dumped the idea altogether. Again, it was the issue of the cost involved that was the chief concern, although by this time other market factors had crept into the picture. The whole thing would up being a sore spot with Sega fans, resurrecting memories of the bad days during the 1990s when Sega had a nagging habit of making one broken promise after another.
It wasn't that Sega didn't want a DVD-equipped Dreamcast. It simply couldn't afford it, and it knew full well it was making a major mistake in not including one with the console. It had no choice; DVD-ROMs cost in the hundreds of dollars apiece at the time and were still something of a pricey novelty. It was a price that Sega simply could not afford to bear given its cash-strapped resources. Sega's own Hideki Sato had this to say about the DVD affair, as quoted from an inteview with EDGE magazine published on January 1999:
We gave [DVD] up because it was still too expensive and the development environment was a major problem. We needed to create the authoring tools from scratch! So we searched for a new cost-effective solution, and we came up with the GD-ROM.
Sato knew better than anybody at Sega that DVD-ROM would be the wave of the future for large-capacity disc-based delivery of video game software. He also knew that this time Sega was in no position to ride the cutting edge and lead the industry in this regard. It simply couldn't afford to blaze the trail for everybody else to follow as it had done in the past with other technologies. There was no money to spare in Sega's coffers. Sato knew, as did everybody else at Sega, that they were taking a big market risk by not including DVD with Dreamcast for the simple reason that it could have been one of the console's biggest selling points. The market was there, especially in Japan, for a cheap DVD player, and a reasonably priced video game console that could play DVDs would sell itself in such an environment. Sega simply couldn't afford it, the development environment wasn't there, and there really wasn't any decent video game software yet that required such vast amounts of storage (save for the odd RPG here and there). It was another gamble that Sega took with Dreamcast solely because it had no choice in the matter. In retrospect, though, the failure to include DVD capability with Dreamcast may have been one of the worst hardware mistakes Sega ever made.
Foot in the door
On 20 October 1997, Sega of Japan gave a private in-house demonstration to several software companies who had expressed interest in developing for Sega's next video game console. The console in question was the 128-bit Dural prototype system; the game demonstrated for consideration was a workable port of Sega's first-ever Model 3 arcade game, the highly regarded road racer Super GT (aka Scud Race in Japan). Sega's visitors were reportedly impressed by how well the arcade-quality port looked on the console. The following day, Core Design became the first third-party vendor to commit to Sega's newest console, and other notables such as Capcom, GameArts, Namco would follow in the weeks and months to come. By March of 1998, Sega managment had gathered enough interest in the new console, now known as Katana, to justify the hiring of a significant number of new personnel. Their services would be required once the new system began the ramp-up process towards production.
The very first piece of software announced for Sega's new 128-bitter was Kenji Eno's D2, originally intended for Matsushit's ill-fated 3DO M2 upgrade. Eno made his announcement at the spring Tokyo Game Show on 20 March 1998. Up until this announcement, a fair number of vendors had expressed interest in the system and several were rumored to have software under develompent, but nothing had been officially announced. As such, D2 gets credit for being the first official Dreamcast title ever announced to the public. It had been hoped that Sega would also officially unveil the system itself at the show, but this did not happen. Instead, on April Fool's Day, Sega officiall unveiled its NAOMI arcade hardware to the public. Almost identical to Sega's new home video game console save in a few minor areas, it gave a news-thirsty public some of the "hard stuff" on which to ponder as the new console was readied for production. Everybody agreed that having nearly identical home and arcade hardware was going to make the software porting process dreadfully easy. In addition, NAOMI easily blew Sega's most sophisticated piece of arcade hardware at the time, the venerable Model 3 board, clear out of the water in terms of processing power and graphics capability. On 21 April 1998, Sega began shipping first-generation Katana development kits to most of the major and minor third-party software houses within the video game industry.
On 21 May 1998 during the Sega New Challenge Conference, hosted by Sega CEO Shoichiro Irimajiri, Sega offically unveiled its newest video game console to the public. The design had been finalized into that which we know it by today and it now had the official name of Dreamcast. Sega's explanation of the name was that it "... symbolizes the universe and the infinite power of human beings." Dreamcast now had an official Japanese release date of 20 November 1998, with some 120 software developers reportedly at work on games for Sega's newest platform. Over 11,000 people showed up for the event, and Irimajiri's polite handling of the event was a big hit with the attendees. He clearly enjoyed himself during the event, fielding a number of questions about Dreamcast and conducting several interviews. The following comments by Irimajiri are reproduced from his interview by NextGen magazine during this event:
Most of the third parties say they want to develop their lead titles for Dreamcast because of the superiority of the hardware, and I think that gives us the upper hand for one or two years. The most important thing is that before PlayStation 2 comes out, we get a considerable share of the market and generate enough momentum to carry it through ....The following day, a major executive representing Sega's biggest technology partner in its latest console effort said that "... Dreamcast will set a new standard for entertainment ... and will achieve huge success in this industry." That man was none other than Bill Gates, founder and CEO of Microsoft.
We have lost some credibility among our Saturn users - even in Japan - because they have seen the PlayStation become the dominant force [in the market]. To recapture them, we have to convince them that Sega is serious about satisfying its customers ....
I have been saying only one thing: think and look at things from the customer's point-of-view. In the past, I think maybe Sega has been arrogant. We decided to be far more open and listen to our customers ....
Online facilities will be a mandatory requirement for all game development in the very near future. At the same time, we know we can't make money from the online gaming business, but we also know that everyone has to add value by developing online gaming. I discussed this issue with lots of top management people from the big publishers. They all said that it would be hard to make a profit from online gaming over the next few years, but they still have to explore the business opportunities....
Sonic will remain as the major character for Sega, but we also want to bring lots of new characters forward, and that's one of the major challenges.
Developing for Dreamcast proved to be ridiculously easy, thanks to Sega's early insight on the SDK issue, and it was not long before word began to spread about all kinds of high-caliber software under development for the platform. Epic Games was reported to have ported their hit shooter Unreal to Dreamcast within a few weeks. Bizzare Creations threw together a playable, decent-looking in-house Dreamcast game inside of a month. By September, Europe's UbiSoft was already in the process of porting a number of its hit Windows-based personal computer games to Dreamcast - including Redline F1 Racer, Monaco Grand Prix 2, Speed Busters, and Sub Culture. Other software houses took Sega's excellent SDKs and began creating high-end original efforts on their own. The news just kept getting better and better ... a perfect port of Tecmo's newest fighting game, Dead or Alive 2 ... Project Berkeley, a sprawling 3D RPG authored by none other than Sega's own Yu Suzuki ... the new Phantasy Star game that Sega reportedly had in the works ... Resident Evil - CODE: Veronica, the latest installment in Capcom's hit horror series (and slated to be a Dreamcast exclusive for its debut) ... Yuji Naka's Sonic Adventure - the first real Sonic game for a Sega platform since the glory days of the Genesis ... Namco's latest sword fighter, Soul Calibur ... and for Japanese dating sim fanatics, no Sega plaform would be complete without a new installment of Sakura Taisen.
Developers from around the world praised the power of the Dreamcast. "The Dreamcast hardware gives us all the features that we could ever want from a gaming system," noted Bioware's Cameron Toffer, and it was an attitude shared by many of his Western peers. His Eastern counterparts felt the same way. "Switching to Dreamcast development will be our biggest challenge," said Capcom's Noritaka Funamizu. "Up to now, we've never been able to do what we really wanted to do because there's always been some kind of hardware limitation ... we pushed [both the Super Nintendo and the PlayStation] to [their] limit, but the Dreamcast is too powerful - we'll never be able to do that."
Sega's strategy was working. Not only were the third parties accepting Dreamcast, they were welcoming it with open arms. The time had come to get Dreamcast out of the back room and onto the sales floor.
The Japanese launch
It was on 22 September 1998 that the first delay in the Japanese launch date for Dreamcast was announced. There were two reasons given by Sega for the delay. The first, and most important to Sega fans, was that Yuji Naka and Sonic Team needed more time to polish up Sonic Adventure for Dreamcast. The first "real Sonic game" in ages promised to be (and was) one kick-ass game, so a delay like this was understandable - so long as it didn't take too long. The second reason, which tended to be glossed over at the time, was that Sega needed more time to produce more consoles. It was here, as events subsequently proved, wherein the real problem lay.
On 20 October 1998, Sega of Japan started accepting preorders for Dreamcast consoles. Two days later, in a written letter to Japanese retailers, Sega CEO Shoichiro Irimajiri asked them to stop. The reason given was that the retailers were wanting to order far more consoles than Sega could make for them in time for the launch. Some retailers had ordered as many as 600 units apiece, which meant that over 100,000 units had been ordered by the time Irimajiri pulled the plug. That seems like a rather small number of consoles to make available, but then again this was Sega. Many observers both East and West correctly surmised that the struggling video game company was having production problems, and this was in fact the case. There were two things slowing Dreamcast production: a dreadfully short supply of PowerVR2DC graphics processors (NEC was having its own fabbing problems with a brand new plant), and the extremly rigorous internal quality control that Irimajiri was insisting for Dreamcast production. 1 November 1998 came and went, significant for the fact that it marked the beginning of Sega's official pre-launch Dreamcast promotional blitz in Japan, and still the production issues wouldn't go away. If anything, they got worse, and company executives began to fear that they couldn't fill the orders they had on hand. Two days later, on 3 November 1998, Sega began shaking up the Dreamcast software release schedule, pushing titles back down the calendar. On 17 November, the schedule was revised yet again. On 19 November, Irimajiri offered a formal apology for the production delays. The following rough translation is taken from the Japanese gaming magazine Famitsu Weekly:
To everyone who went to the stores to buy a Dreamcast but could not, I offer my most humble apologies. Thanks to you, the popularity of the Dreamcast has reached the boiling point. [Because of this,] all of our advance orders were filled more quickly than we had anticipated. We [at Sega] are doing our best to produce many more units, so please be paitent.
On the side, Famitsu noted that NEC's PowerVR production problems were so severe that Sega would definitely miss its goal of having 1 million consoles ready to ship by launch time. It also reported that NEC believed it would not be until February 1999 until it could get the rest of the kinks out of the fabbing process.
20 November 1998 came ... and went ... with nary a Dreamcast to be seen on Japanese store shelves. Sega had delayed the launch a full week hoping to get as many consoles produced as it could without further delay. Instead, Sega took the opportunity to revise its sales goals downward. Instead of wanting to sell 800,000 Dreamcast by the end of 1998 and 1.5 million by March 1999, it hoped to sell 500,000 by the end of the year and 1 million by March. On 25 November 1998, NEC revealed that the biggest issue behind the PowerVR2 DC production delay was in reducing the complete chip mask down to the 0.25 micro level, which had caused far more headaches than originally anticipated. The following day, thanks to the arrival of their initial shipment of consoles, Hong Kong vendors began selling Dreamcasts to the public.
27 November 1998 was the date that Dreamcast officially launched in Japan. At 10:00 am, vendors in Tokyo's Akihabara district (known for its electronics) opened their shop doors to long lines of prospective customers. Sega only had 150,000 consoles on hand, but that was 50,000 more than they looked like they were going to have earlier. The week's delay in the launch had helped in this regard. In fact, all 150,000 sold out that day, and Dreamcast would continue to remain sold out until Sega was able to ship more in mid-December. Sega management was as pleased as punch at the success of the launch, modest as it was. "We have the big advantage of releasing [a] next-generation machine well ahead of [our] rivals," noted a Sega spokesman. "By the time Sony launches a new PlayStation model, we will have retail know-how [on such systems] and become more price competetive through cost cutting. Our goal is to capture 50% of the market." Those were rather big words for Sega to be saying, because at that time, Sony enjoyed a 55% share of the video game market, with Nintendo second at 30% and Sega a distant third at 15%. Still, spirits were high, and who could blame Sega for getting a bit carried away. They were behind schedule, below target, and out of stock, but at least Dreamcast was now officially out the door! It was quickly dubbed "the PlayStation killer" by the Japanese trades reporting on the launch. Sega CEO Shoichiro Irimajiri was widely quoted as saying that his company was looking forward to selling "10 million Dreamcast units in Japan within 3-4 years." Industry insiders quipped that Sega would have to sell at least 3 million units in Japan alone just to break even on its investment. They also noted that Sega's biggest tasks will be gaining "support from powerful software manufacturers" along with "improving its relatively weak sales network in overseas markets."
By 16 December 1998, over 175,000 Dreamcasts had been sold in Japan. On 23 December 1998, sales of the Sega Dreamcast broke the 200,000 mark. Incidentally, in an eerie parallel to the Saturn, just over 188,000 copies of VIrtua Fighter 3tb for Dreamcast had also sold, making Yu Suzuki's fighting franchise the biggest launch hit of both systems. Sonic Adventure had been the second biggest seller, despite a number of graphics bugs and camera control problems that escaped Sega beta testers. Dreamcast saw its first full-blown RPG on 19 Januarry 1999 with the release of GameArt's Evolution: World of Sacred Device, and that drew the attention of RPG groupies nationwide. Console sales began to pick up significantly in January 1999 once Sega Rally 2 was released, and by the end of the month Sega's 128-bit racer was the #1 best-selling video game in all of Japan. By 1 February 1999, Sega of Japan was so confident of the impending success of the Dreamcast that it released new sales figures. Sega's press statements claimed sales of some 500,000 consoles by the end of 1998, with goals to sell 2 million by the summer and 4 million by March of next year. This was pure bunk to anyone who was monitoring actual vendor-to-customer sales figures, which showed that Sega had only moved about 200,000 Dreamcast consoles by then; however, there was no doubt that Dreamcast was making its presence felt in the Japanese video game market.
The biggest news of all, though, insofar as the Dreamcast cast was concerned, was Shenmue - the newest video game creation by Sega master programmer Yu Suzuki. Previously known as Project Berkeley and conceived during the dying days of the Saturn, Shenmue was designed to be a first-person action-style RPG like no other before. Combining the visual horsepower of the Dreamcast with an epic storyline and Suzuki's sophisticated programming, Shenmue promised to set new standards for the genre. It was first publically unveiled at the International Meeting Assembly Hall in Yokohama, Japan, before a stunned audience of over 15,000, with live simulcast video feeds to the Internet. At that demonstation, an extensive video demo utilizing pre-rendered was shown demonstrating the game's incredible graphics; however, it was made clear that all everyone had seen was to be rendered in real time on the Dreamcast. Reception was very positive by both the gaming public and the press corps with numerous reports calling Shenmue "the best looking game in the history of videogames." The only problem was that Suzuki's ambitions outstripped Sega's resources, and Shenmue began missing production deadlines. It would not be released until the end of the year, but when it came, Shenmue promised to draw all eyes to the Dreamcast in a way no other game had done for a console before..
A sleeping giant stirs
On 13 November 1998, software programmer Toby Gard of Confounding Factor offered this opinion about Sega's new video game console. "The Dreamcast is exceptionally good, and if Sony doesn't do something about it fairly swiftly then they deserve to be utterly trounced by Sega." His was an astute observation, for Sony had not been sitting idle while Sega fiddled. This was the major drawback for Sega being being the first out of the gate: it gave Sony time to better its efforts and capitalize on its mistakes. Kuratagi and company might not have the hardware quite ready, but Sony still had its marketing muscle and every intention to use it. The multimedia giant had no intention of letting Sega get its foot back in the door if it could help it. The time was now ripe for the PlayStation 2 hype machine to kick into gear.
On 16 November 1998, just three days after Toby Gard made his observation, Sony executives decided to go ahead and jump-start the PlayStation 2 public relations machine. They were understandably worried about Sega's Dreamcast. While its CPU was not as fast as PlayStation 2 (200 MHz, as opposed to PS2's 350 MHz), its graphics suite was easier to program and had deeper memory resources (16 MB, as opposed to PS2's 4 MB). In layman's terms, this meant that the two machines were fairly well matched - what one lacked the other had, which tended to cancel out any real advantages of each insofar as the hardware was concerned. Sony knew this, but it also knew how to go after Sega. There were two keys upon which the success of Dreamcast rode: third-party support and consumer acceptance. Remove those keys, and Dreamcast's car could never get started. It would just roll along the tracks on whatever momentum Sega could give it, which was precious little in comparison to Sony's vast marketing resources. That was how Sony planned to derail Sega's comeback bid, and that is just exactly what it proceeded to do.
On 2 March 1999, just as Dreamcast was beginning to establish a foothold in the Japanese video game market, Sony held a public press conference concerning its newest video game console, the PlayStation 2. "I believe this is something that will surpass a mere game machine," said new Sony chairman Nobuyuki Idei as he unveiled the machine to the assembled throng. Sony had over $160 million already invested in its newest system, which hadn't even hit the market yet but promised to deliver more goods than even the most wistful gamer could dream. Ken Kuratagi, creator of the original PlayStation and godfather of its successor, calmly delivered the specs to his astonished audience. In the words of MSNBC reporter Steven Kent, as quoted in his book The Last Quarter:
As [Kuratagi] explained the performance specifications of his new console, it became obvious that Sony had created a stripped-down version of a super computer. Sega's Dreamcast rendered 3 million polygons per second, nearly 10 times as many as the original PlayStation. That sounded impressive until Kuratagi revealed that his next-generation machine could render ... more than 16 million polygons per second. Central to the new console's performance was an amazing new processor which Kuratagi called the "Emotion Engine." ... [I]ts floating-point calculation performance was rated at 6.2 gigaflops (billion) per second, making it as fast as most super computers.A gaming machine with enough raw graphics horsepower to render the kind of computer-generated graphics that LucasFilm was using in its movies (according to none other than George Lucas himself) ... a set-top console that was equipped with DVD-ROM and would (in all probability, if Sony had any sense) play DVD movies ... a next-generation PlayStation that would also play last generation's games. If it sounds like gaming heaven now to you seasoned gamers reading this, imagine how it sounded to gamers and consumers worldwide at the time. Industry observers thought so, too, because many of them promptly predicted the death of the Dreamcast at the hands of Sony's "killer console."
Kuratagi's team had pulled out all the stops. The new console would run games on DVD .... While he would not commit to whether the new console would play movies on DVD, the announcement led to widespread speculation that it would. What Kuratagi did confirm, however, was that the new console would be backwards-compatible with the original PlayStation, meaning that it could play the thousands of games that had been released for the Sony platform worldwide.
Sega's response to Sony's move was what one might have expected from the underdog. The following day, Sega of Japan proudly announced that Dreamcast sales had exceeded 800,000 units. Sega of America's Bernie Stolar also paid a call to the press a few days after the Sony announcement. The response is recorded by Steven Kent from his book The Last Quarter:
On paper Sony's machine sounds impressive, but the fact is it is still on paper. Dreamcast is here now. Frankly, Sony really has their work cut out for them creating a machine with the specs they unveiled on Tuesday and supporting it with a strong line-up of games. With a launch just one year away, [that] will be a challenge. And while Sony is working to create that hardware, Sega will already be in the marketplace with Dreamcast, building our installed base and developing an impressive library of games.
Stolar's brash bluster was the kind of verbage one might expect from Sega of America, which was still smarting over the Saturn debacle and hell-bent on rebuilding itself with or without the support of its Japanese superiors at any cost. Sega of Europe echoed their counterparts in America, albeit in muted form - after all, for them, Dreamcast was still almost two years away. As for Sega of Japan? Hardly a peep, aside from the usual predictable press releases. They knew the truth of the matter despite Stolar's bold proclamations. All eyes in Japan were now firmly locked on Sony. They would do so as well in the West unless Sega struck first and hard, because the West was now Dreamcast's last chance at making a market for itself.
The sad truth of the matter was that Sega's presence in Japan was never strong enough to establish the kind of momentum Dreamcast needed to establish a firm beachhead. It would never be now that Sony had sprang its PS2 Pandora's box on the Japanese gaming public. The one factor upon which the fate of the Dreamcast had hung in those early days was the lack of supply of its PowerVR2 DC graphics processor. Thanks to NEC's production problems at its new plant, there simply weren't enough to make all the consoles that Sega might have sold. Now that PS2 was "on the scene," as it were, thanks to the Sony hype machine, Sega and the Dreamcast didn't have a chance. Shoichiro Irimajiri was brutally honest about this issue when he was interviewed about Dreamcast's early days by industry reporter Steven Kent: "We set up the whole program, and it seemed perfect except for the supply of the graphics chips .... It was very sad to have the shortage of the graphics chips. We [at Sega] felt that 200,000 to 300,000 additional [consoles] could have been sold if we could have had enough supply."
In the closing chapter of his book The Last Quarter, Steven Kent made this telling observation about Dreamcast's fortunes at this point: "Sega's only hope was to beat Sony on the basis of price and games." The two consoles were about evenly matched in terms of gaming capability, but Sega would never be able to scream above Sony's stormy thunder. It had Sony beat in terms of game programming prowess ... but then there was that small problem of proper pricing. If Sega priced Dreamcast and its games too high too long, it would lose customers. If it priced them too low too soon, it could never make a profit. Sega was caught between a rock and a hard place, and no matter which way it turned, it was damned if it did, and damned if it didn't. On 28 May 1999, Sega Enterprises annouced that it was anticipating its third straight yearly loss in a row. They expected to end the year some ¥19.8 billion (US$165 million) in the red. "Sales of Dreamcast in Japan have fallen short of Sega's original forecasts and wide adoptance has been found wanting. Monthly sales of the PlayStation have outpaced Dreamcast sales handily in [Japan]," according to National Console Support. Dreamcast was not making Sega any money in Japan. It was time to look elsewhere for those elusive profits that Sega was so desperately seeking.
It was time to bring the West into the next generation. It was time to send Dreamcast across the big pond.
Across the big pond
In the West, Dreamcast first made its presence felt at the Nürnberger Spielwarenmesse (Nuremberg Toy Show) in Germany. The show lasted six days, from 4 to 10 February 1999, with many announcements being made by Sega and its European Dreamcast developers. Among these was a color change in the European Dreamcast logo from orange to blue - explained away by Sega for asthetic reasons - and confirmation that country lockout technology would be employed in all versions of the Dreamcast. They noted that defeating the lockout "will be very difficult," and publically expressd doubt that it will be possible. Days later, industry sources cited possible trademark infringement as the reason for Sega changing the color of the Dreamcast "swirl" logo in Europe. The German multimedia company Tivola had already been using a similar orange swirl logo for years.
On 5 March 1999, Sega of America president Bernie Stolar reported that U.S. Dreamcast preorders from chain-store retailers had exceeded 11,000 units to date. He predicted that over 15,000 retail locations would have consoles in stock in time for the launch. Stolar commented that a U.S. pre-launch ad blitz was set to begin in April, some four months in advance, and would consist "of successful cross-promotional and PR methods." Just days later, Namco officially announced the impending release of Soul Calibur for Dreamcast, ported directly from the Naomi arcade version of the game. This move got a lot of people excited, since a console with Namco's support was obviously worth considering given how it had helped build the success of Sony's original PlayStation. It was therefore with more attention given that might have been expected otherwise that Sega's Bernie Stolar gave a major presentation at the Game Developer's Conference in San Jose, California. "I'm here to challenge you to dream big," Stolar announced right off the bat, "and tell you that everything you know about video gaming is about to change, thanks to Dreamcast ... I know that Dreamcast is the platform that will change more than a few minds." Previewed for the first time at that conference were working alphas of NFL 2K and NBA 2K, as well as mid-stage betas of Cart-to-Cart Racing and Geist Force. Sega of America was taking no chances with the sports game screw-up that had helped kill Saturn. It was going to have its Sega Sports lineup ready to go and hit the ground running once the U.S Dreamcast launc commenced. Stolar confirmed that Dreamcast would come standard with a 56K modem for the U.S. as opposed to the 33.6K modems being included with the Japanese and European versions. As part of his speech, he also took the opportunity to chide his former employer Sony, claiming that their rush to announce the impending release of PlayStation 2 proved that they were scared of Sega and the Dreamcast.
A lot of anxious Western eyes were also focused on the 1999 Spring Tokyo Game Show, since this would be the place were Sega's upcoming lineup for Dreamcast in the West would get its first real public preview. As expected, Sega stole the spotlight on the first day of the show. Its booth featured demos and trailers for such in-progress Dreamcast and NAOMI titles as Shenmue, D2, Street Fighter Alpha 3, Rippin' Riders, Resident Evil 2, Resident Evil - CODE: Veronica, and the acknowledged showstopper : a late-stage, working beta of Namco's Soul Calibur. The spectacular, lifelike graphics and seamless animation combined with first-rate gameplay made this perfect port of Namco's popular blade fighter the most popular game of the show.
On 25 May 1999 - Sega of Europe formally unveiled the Dreamcast to a stunned audience at a special showing in London's West End in anticipation of the system's planned October launch. "We are committed to a market which is very different from the last market we were in," commented Giles Thomas, Director of Sega UK. The announced price was £199, with the European retail system essentially identical to the American one apart from packaging and the inclusion of the slower 33.6kbaud modem.
If there is one title that is revered above all others among diehard Sega RPG fans, it is one that comprises two words - Phantasy Star. Therefore, when word leaked out from the Sega New Challenge Conference on 1 June 1999 that Sega had reformed the old Phantasy Star development team, well, you can guess the rest. A working title managed to slip between the cracks - Project Ares - and the rumor mill went wild with news of a new Phantasy Star for the Dreamcast. The only problem was that the few pictures that were leaked didn't resemble any of the previous (or abandoned) Phantasy Star titles for any of the older Sega consoles. Perhaps it was an all-new adventure in new locales? The rumor mill would continue to grind on until the fall, when it was eventuall learned that Project Aries was the working title for an all-new RPG named Eternal Arcadia. Phantasy Star fans were understandably disappointed, but they liked how the new game was taking shape. After all, it had the Phantasy Star development team behind it, right? Also, there was another well-founded rumor that Sega had even bigger plans for its trademark RPG franchise. It might take a while, but there would be a new Phantasy Star for a Sega console after all, and that was enough to mollify fans for the time being.
On 28 June 1999, Bernie Stolar and his staff at Sega of America unveiled the advertising campaign that they had put in place for Dreamcast's debut in the U.S. While it was not the Sega scream of old, as many had hoped, it was nevertheless just as eye-catching and thought-provoking. "IT'S THINKING," went the ad copy. "IT KNOWS IT'S ALIVE ... IT LEARNS FROM ITS MISTAKES ... EVEN IF YOUR MEMERY DOESN'T FAIL YOU, IT CAN'T HELP YOU ...," and so on and so on. The emphasis was on the Dreamcast not as a mere video game console, but as an intelligent opponent that even the most hardcore gamers would find a challenge. "This is not your typical ad campaign," Peter Moore quipped in an interview. "It's all about building an aura around a platform. You'll see gameplay introduced in a very innovative way in the next phase. It will be interwoven into the entire campaign .... It's alive. It's actually working against you, fighting you, challenging you, and in some instances humbling you." The first three "IT'S THINKING" TV spots made their debut on MTV later that evening, and a corresponding print campaign begans showing up on a regular basis in most major video game magazines. "IT'S THINKING" would be the Dreamcast's calling card in the U.S. until well into 2000. Hardcore Sega fans were not happy with the new ad campaign, and en masse pleaded for Sega to revive its trademark Sega scream. Griping over the "IT'S THINKING" ad campaign continued among the Sega faithful, but so did Sega's new ads.
Good press in the form of increased Japanese sales added fuel to the Dreamcast fire during July. Sega of Japan had dropped the price of the console by $10 and reduced prices on a number of older titles at the end of June. This caused a dramatic surge in Dreamcast hardware and software sales that, two weeks later, caused Sega to pass longtime rival Nintendo and retake the #2 position on the market. As of 16 July 1999, Dreamcast consoles were outselling Nintendo's aging N64 by a 3-to-1 ratio. It was not enough to pass Sony's 7,000 unit per week lead in PlayStation sales, and it was not to last. Sega slipped back into third place by the end of the month once the novelty of the promotion wore off, but the affair did make Sega some good press at a time when it desperately needed it.
24 July 1999 saw the Japanese release of the game that would prove to be the biggest showcase for the Dreamcast in the buildup to the American and European launches. Namco's Soul Calibur was a complex 3D fighting game in the same vein as the Tekken series for the PSX, and the sequel to its own fighter Soul Edge for the Sega Saturn. What set it on a pedestal above the rest were its literally eye-popping graphics. The fighters looked real, acted real, their movements and costumes flowed with the action as in real life, the environments were true to reality - and it had an excellent game engine to boot. There was really no need to advertise the game, and Namco's advance American ads were simple enough. "This is the heart," read the ad copy, showing a mostly empty screen with a small Dreamcast near the center of the page. Intrigued readers flipping the page found a gorgeously rendered two-page spread of Mitsurugi the samurai in a "drawing stance" with his hand on his katana blade - riotously rendered in multi-million color and smoothly textured 3D. "This is the soul," read the accompanying caption. Simple, yet effective. There was absolutely no other video game console on the market that could even come close to rendering that picture in real time save the Sega Dreamcast, of course. For that matter, only an expensive handful of 3D accellerator cards for personal computers of the day could claim to approach it. A lot of potential buyers would drool over that ad, the advance screen shots, and both Internet movie clips and trade show demos as the countdown to launchtime grew closer.
By August, the Dreamcast had completely shattered the advance sales record set by the PlayStation, with some 200,000 pre-orders placed through various retail outlets nationwide. Most major retailers reported that they were averaging 14,000 pre-orders a week, and Sega of America confidently predicted the trend would continue. Stolar and company were predicting Dreamcast console sales of 400,000 units in the first 30 days after launch, 1 million by the end of the year, and 1.5 million by 31 March 2000. One week later, Sega of America announced its upcoming "Mobile Assault Tour" to promote the U.S. Dreamcast launch. Starting 23 August and continuing for the next 22 weeks, two six-ton Sega "assault trucks" with trailers would tour 39 major U.S. cities, carrying sixteen Dreamcast system kiosks each and a variety of software to eager gamers across the nation in order to give them a taste of Sega's newest gaming experience. Old-time European Sega fans, upon hearing the news, could not help but draw parallels to Sega's "Pirate TV" ads for the 16-bit MegaDrive in Europe back in the early 1990s. The arrogant and overbearing Sega of the Saturn days had disappeared. In its place, it seemed, the bad and brash Sega of old had returned.
Sega of America's heavy-handed promotion of the Dreamcast to both potential vendors and customers had its price, though. Without warning, Sega of America president Bernie Stolar, who many credit with making the success of the Dreamcast launch possible in the first place, was forced to resign and leave the company. His was not the only head to roll - Gretchen Eichenger, vice president of third-party development, and Eric Hammond, vice president of internal development, also left around the same time. This meant that Sega of America was now going into Dreamcast launch mode without the management team that had laid its foundation in the first place. Stolar's replacement as head of Sega of America was Toshiro Kezuka, and among the chief members of Kezuka's management team was one Peter Moore, senior vice president of marketing. It was widely believed (and later confirmed) that Stolar's departure was encouraged in order to open up further third-party support, as his flamboyant style had caused measurable resentment among certain top-name third-party software houses. Stolar's departure may have also had a lot to do with his constant personality clashes with his boss, Sega CEO Isao Okawa, with whom he had never really gotten along. One can only imagine the scene at Sega of America, with thousands of fingers crossing as 9.9.99 inexorably approached. There was no more to be done, though, and those who had led the charge were now gone. It was going to be up to the whims of American consumers to decide Dreamcast's ultimate fate.