Continued from Part 1
Chapter 5 - Genesis Does What Nintendon't!!!
October 29, 1988, Sega released it's 16-Bit Machine, The Megadrive, The launch of the Megadrive was overshadowed by Nintendo's release of Super Mario Bros. 3 a week earlier. Though the system Did get some positve coverage from prominent Japanese Gaming Magazines, such as Famitsu and Beep!. This helped the Megadrive gain a small following.
Sega only managed to ship 400,000 units in the first year. The Megadrive was unable to overtake the venerable Famicom and remained a distant third in Japan behind Nintendo's Super Famicom and NEC's PC Engine throughout the 16-bit era.
Sega announced a North American release date for the system on January 9, 1989. At the time, Sega didn't have a North American sales and marketing organization for its consoles, but ultimately decided to launch the console through its own Sega of America subsidiary, which launched later that year.
For the North American market, where the console was renamed The Sega Genesis , former Atari executive and new Sega of America CEO Michael Katz instituted a two-part approach to build sales in the region. The first part involved a marketing campaign to challenge Nintendo head-on and emphasize the more arcade-like experience available on the Genesis, summarized by the "Genesis does what Nintendon't" ad campaigns.
Since Nintendo owned the console rights to some of the greatest arcade games of the time, the second part of the involved creating a library of licensed titles, which used the names and likenesses of celebrities and athletes, who would endorsement the games And Sega itself.
Despite this success, Sega failed to beat Nintendo in the Console Market. Tasked by Sega President, Hayao Nakayama to sell one million units within the first year, Katz and Sega of America managed to sell only 500,000+ units.
Due to the Total Failure of their Mascot, Alex Kidd, Sega knew it was time for a Brand New one. A Mascot that was gonna represent Sega in the future. Naoto Ohshima designed a teal hedgehog with red shoes, known only as Mr. Needlemouse. This character won the contest and was renamed Sonic the Hedgehog, spawning one of the most legendary video game franchises in history.
The gameplay of Sonic the Hedgehog originated with a tech demo created by Yuji Naka, who had developed an algorithm that allowed a sprite to move smoothly on a curve by determining its position with a dot matrix. Naka's original prototype was a platform game that involved a fast-moving character rolling in a ball through a long winding tube, and this concept was subsequently fleshed out with Ohshima's character design and levels conceived by designer Hirokazu Yasuhara.
Sonic became blue to match Sega's blue logo, and his shoes were a concept evolved from a design inspired by Michael Jackson's boots with the addition of the color red, which was inspired by both Santa Claus and the contrast of those colors on Jackson's 1987 album Bad. His personality was based on Bill Clinton's "can do" attitude in politics
Sonic was a Japanese creation, inspired by Americans.
In mid-1990, Nakayama hired Tom Kalinske to replace Katz as CEO of Sega of America. Although Kalinske initially knew little about the video game market, he surrounded himself with industry-savvy advisors. A believer in the razor and blades business model, he developed a four-point plan: cut the price of the console, create a U.S.-based team to develop games targeted at the American market, continue and expand the aggressive advertising campaigns, and replace the bundled game Altered Beast with a new game, Sonic the Hedgehog.
The Japanese board of directors hated the plan, but all four points were approved by Nakayama, who told Kalinske, "I hired you to make the decisions for Europe and the Americas, so go ahead and do it." Magazines praised Sonic as one of the greatest games made, and Sega's console finally became successful.
In large part due to the popularity of Sonic the Hedgehog, the Sega Genesis Finally defeated the Nintenso Entertainment System and gained a strong foothold in the American Market, even briefly outselling Nintendo's Newest platform, The 16-bit Super Nintendo Entertainment System.
Due to the lack of 16-bit hits on Nintendo's, The 1991 holiday season favored Sega and it's bigger library of games. This success led to Sega having control of 65% of the 16-bit console market in January 1992, making it the first time Nintendo was not the console leader...except in Japan, where Nintendo still reigned Supreme.
The Console Wars had Begun!!
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Chapter 6 - The Console War Begins.
To compete with Nintendo, Sega was more open to new types of games than its rival, but still tightly controlled the approval process for third-party games and charged high prices for cartridge manufacturing. Technicians from Electronic Arts (EA) reverse engineered the Genesis in 1989, following nearly one year of negotiations with Sega in which EA requested a more liberal licensing agreement.
As a result, EA signed what founder Trip Hawkins described as "a very unusual and much more enlightened license agreement" with Sega in June 1990: "Among other things, we had the right to make as many titles as we wanted. We could approve our own titles ... the royalty rates were a lot more reasonable. We also had more direct control over manufacturing."
The first Genesis version of EA's John Madden Football arrived before the end of 1990, and became what EA creative officer Bing Gordon called a "killer app" for the system.
Great Sports titles were something that Sega had over the Super Nintendo at the time, and it drew in older players.
Another issue Sega of America had to deal with was Nintendo's dominance with retailers. Major retail stores such as Wal-Mart, Target, and Kmart had all refused to carry the Genesis in their stores. To get Wal-Mart to carry the system, Kalinske advertised the system heavily in Bentonville, Arkansas, where Wal-Mart's home office is located. Tactics used in the area included renting billboards, radio advertisements, sports stadiums, and renting a store in the local mall. This resulted in Wal-Mart relenting and choosing to carry the Genesis.
In the Good 'Ol U.S. of A, Sega was able to outsell Nintendo 3 Christmas seasons in a row ('91, '92, and '93) due to the Genesis' head start, a lower price point, and a larger library of games when compared to the Super Nintendo at its release.
Sega's advertising positioned the Genesis as the cooler console, and as its advertising evolved, the company coined the term "blast processing" to suggest that its processing capabilities were far greater than those of the SNES. Yup, while The SNES was much Smarter and slightly Stronger, The Genesis excelled at Speed. This made for some exciting 16-bit gameplay sessions.
After the release of the Sega Genesis in 1989, video game publisher Accolade began exploring options to release some of their PC games on the console. At the time, Sega had a licensing deal in place for third-party developers that increased the costs to the developer. According to Accolade co-founder Alan Miller, "One pays them between $10 and $15 per cartridge on top of the real hardware manufacturing costs, so it about doubles the cost of goods to the independent publisher."
To get around licensing, Accolade chose to seek an alternative way to bring their games to the Genesis. As a result of piracy in some countries and unlicensed development issues, Sega incorporated a technical protection mechanism into a new edition of the Genesis released in 1990, This new variation of the Genesis included a code known as the Trademark Security System (TMSS).
Accolade successfully identified the TMSS file. It later added this file to the games HardBall!, Star Control, Mike Ditka Power Football, and Turrican. In response to the creation of these unlicensed games, Sega filed suit against Accolade in the United States District Court for the Northern District of California, on charges of trademark infringement, unfair competition, and copyright infringement. In response, Accolade filed a counterclaim for falsifying the source of its games by displaying the Sega trademark when the game was powered up.
Despite winning an injunction in the initial district court case, as a result of Accolade's appeal, the Ninth Circuit overturned the district court's verdict and ruled that Accolade's de-compilation of the Sega software constituted fair use Ultimately, Sega and Accolade settled the case on April 30, 1993. As a part of this settlement, Accolade became an official licensee of Sega, and later developed and released Barkley Shut Up and Jam! while under license.
The terms of the licensing were not released to the public. The financial terms of the settlement were also not disclosed, although both companies agreed to pay their own legal costs.
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Chapter 7 - The Mortal Kombat Incident and The Birth of the ESRB.
In 1993, when the American media began to focus on mature content, the American video game industry followed suit, including Sega. Games such as Night Trap for the Sega CD received unprecedented scrutiny. Issues about Night Trap were brought up in the United Kingdom, with former Sega of Europe development director Mike Brogan noting that "Night Trap got Sega an awful lot of publicity ... it was also cited in UK Parliament for being classified as "15" due to its use of real actors."
This came at a time when Sega was capitalizing on its image as an edgy company with attitude, and this only reinforced that image. By far the year's most controversial game was Midway's Mortal Kombat, ported to the Genesis and SNES by Acclaim. In response to public outcry over the game's graphic violence, Nintendo decided to replace the blood in the game with "sweat" and the arcade's gruesome "fatalities" with less violent finishing moves.
Sega, however, took a different approach, instituting America's first video game ratings system, the Videogame Rating Council (VRC), for all its current systems. Ratings ranged from the family friendly GA rating to the more mature rating of MA-13, and the adults-only rating of MA-17.
With the rating system in place, Sega released its version of Mortal Kombat, appearing to have removed all the blood and sweat effects and toning down the finishing moves even more than in the SNES version. However, all the arcade's blood and uncensored finishing moves could be enabled by entering a "Blood Code". This technicality allowed Sega to release the game with a relatively low MA-13 rating. Meanwhile, the tamer SNES version shipped without a rating or a Blood Code.
The Genesis version of Mortal Kombat was well received by gaming press, as well as fans, outselling the SNES version three- or four-to-one, while Nintendo was criticized for censoring the SNES version of the game.
In 1993, Nintendo was running neck and neck with Sega Stateside, due to it's great 3rd Party Titles, Legend of Zelda - A Link to the Past (released a year prior) and Super Mario All-Stars. However, thanks to the Mortal Kombat Incident, that changed. Because unlike with Nintendo, Sega decided to cater to Both Concerned Parents And Gamers. This led to big sales of the Genesis and gave the Console a slight lead for the rest of the year.
Due to this incident The U.S. Government decided to hold a hearing on Mature Themes in Video Games.
At the hearing, Executive vice president of Nintendo of America Howard Lincoln was quick to point out that Night Trap had no such rating. In response, Sega of America vice president Bill White showed a videotape of violent video games on the SNES and stressed the importance of rating video games.
At the end of the hearing, Senator Joe Lieberman called for another hearing in February 1994 to check on progress toward a rating system for video game violence. Although Night Trap recieved a slight sales increase, Sega decided to recall the game and re-release it with revisions in 1994 due to the Congressional hearings.
After the close of these hearings, video game manufacturers came together to establish the rating system that Lieberman had called for. Initially, Sega proposed the universal adoption of its system, but after objections by Nintendo and some Senators, Sega took a role in forming the new one. This became the Entertainment Software Rating Board, an independent organization that received praise from Lieberman.
Personally, I'm glad the ESRB exists, as it gives consumers basic information about the game's content before they decide to buy it. Good Going Joe Lieberman and The VG Devs.
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Chapter 8 - Welcome To The Next Level!
In 1990, Sega launched it's Own Handheld, the Game Gear to compete against Nintendo's Game Boy. The Handheld itself had been designed as a portable version of the Master System, and was slightly more powerful It also included a backlit screen And was in Color.
However, due to issues with battery life, lack of 3rd Party games, and weak support from Sega Japan, the Game Gear was unable to surpass the Game Boy, selling approximately 11 million units to The Game Boy's 100+ Million (and that's just talkin' about the OG Game Boy).
The Game Gear would be supported until Late-1995, though only in America. In Japan the Handheld died a year earlier in Late-1994.
By 1991, compact discs (CDs) had gained in popularity as a data storage device for music and software. PCs and video game companies had started to make use of this technology. NEC had been the first to include CD technology in a game console with the release of the TurboGrafx-CD add-on, and Nintendo was making plans to develop its own CD peripheral with Sony.
Now, before I talk about Sega's CD peripheral, a bit of history.
After being rejected by Nintendo, In 1992, Sony turned to Sega for a partnership for a CD Console, Sega America loved the idea of a jointly developed CD console. However,Sega Of Japan outright rejected the partnership, still having faith in their Mega CD. And, little did anyone outside of Sega Japan knew, Sega was creating it's Own CD-based system, the soon to be named, Sega Saturn
For this Add-On, Sega partnered with JVC and Launched the The Sega CD (called the Mega-CD in Japan) on December 1, 1991, initially retailing at 49,800 Yen. The CD add-on was launched in North America on October 15, 1992, as the Sega CD, with a retail price of $299
Europe sold get this Add-On too in 1993.
In addition to greatly expanding the potential size of its games, this Add-On upgraded the graphics and sound capabilities by adding a second, more powerful processor, more system memory, and hardware similar to that found in Sega's arcade games.
The Mega-CD sold only 100,000 units during its first year in Japan, falling well below expectations. Although many consumers blamed the Add-On's high launch price and lack of strong software library at launch. This was due to the long delay before Sega made its software development kit available to third-party developers.
Sales were more successful in North America and Europe, however, although the novelty of Full Motion Video (FMV) and CD-Enhanced games quickly wore off as many of the Sega CD's later games were met with lukewarm or negative reviews. To add to these issues, the load times for most of these games was slow.
The Sega CD died in Japan in Late-1993 and in North America in Late-1994.
As for Sony, After being rejected by both Nintendo And Sega, they've decided to create their Own CD-based Console, The Sony Playstation. And it was Way more Popular and Way More Profitable than The Sega CD. Selling 90,000 units on the First Day! Ouch!!
If that wasn't enough Headaches for Sega, let's chat about the 32X, their 2nd Add-On for the Genesis.
In January 1994, Sega began to develop an add-on for the Genesis, the
32X, which would serve as a less expensive entry into the 32-bit Era and bridge the gap between The Genesis and the Next Sega Console.
The decision to create the add-on was made by Hayao Nakayama and widely criticized by Sega of America employees, as they believed that the Genesis was doing fine on it's own and that the consumers can wait for the Next Gen. But Nakayama was adamant, and as Their Boss ordered them to create the Add-On. Sega America relented and did what Nakayama asked.
According to former Sega of
America producer Scot Bayless, Nakayama was worried that the Saturn
would not be available until after 1994 and that the recently released
Atari Jaguar would reduce Sega's hardware sales (it didn't, though another, more popular and famous console did). As a result, Nakayama
ordered his engineers to have the system ready for launch by the end of
the year.
Though The 32X was incompatible with the Saturn, they shared the same system architecture. Plus, the 32X could play Genesis titles ant a greater speed. The main reason for the Add-On's existence was to cater to players who couldn't afford a Saturn.
Because both machines shared
many of the same parts and were preparing to launch around the same
time, tensions emerged between Sega of America and Sega of Japan when
the Saturn was given priority. Sega released the 32X on November
21, 1994, in North America, December 3, 1994, in Japan, and January 1995
in Europe, and was sold at less than half of the Saturn's
launch price.
But, things were about to go Waaaaay South For Sega. Y'see, while They were busy with their 32-Bit Add-On, Nintendo was working on a game, with Rare, that would push the limits of the Super Nintendo. Zero Add-On's Needed!!!!!
And that game was, none other than, Donkey Kong Country. Soon, the 32X was losing big and many were questioning Why Sega would create this in the first place? As the Saturn's American release was just around the corner.
After the '94 holiday season interest in
the 32X rapidly declined. The Add-On died in North America in Mid-1995, while in Japan it died about a Month after it's release. Damn.
For the first time in a while, Nintendo managed to get the lead in the Console Wars and that lead never diminished.
Frankly, The 32X made Sega look greedy and Dumb to consumers, they were supposed to be the Cool Kids.
Sega's credibility and reputation took a major hit after the release of the 32X...and it would get even more damaged later with the premature release of the Sega Saturn.
The 32X library managed to grow to 40 Games, some of which players needed to the Sega CD for. These were called the 32X CD games.
And since the Sega CD was dead at this point....there was just no Hope for this Add-On.
Well, still not wanting the tech to go to total waste, Sega of America decided to salvage it into a Stand Alone Console, The Sega Neptune...which never got released.
Now, before we talk about The Sega Saturn, let's talk briefly about the The Sega Channel and The Sega Nomad.
The Sega Channel was unleashed in December of 1994 in North America in a partnership between Sega, TCI, and Time Warner Cable The Service had Fully Playable Games (including exclusive ones), News, and even Tips and Tricks. The Service was discontinued in July of 1998.
In 1995, The Sega Nomad was created, as Sega's Final Handheld, but unlike the Game Gear, The Nomad was designed to play Genesis games on the go. But, if you thought that the Game Gear had poor battery life, it was Nothing compared to the Nomad.
If you wanted extended play, ya had to use an AC Adapter. On the bright side, You can use the Nomad as a Genesis, as you can hook it up to your TV And it even has a port for a 2nd Controller.
The Nomad sold well, but only for a brief period. And was Only Available in North America.
In Late-1996, The 16-Bit Console Wars ended...with Nintendo the Victor. While the MegaDrive died in Japan 1995, The Genesis died in North America in 1996.
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Chapter 9 - Saturn From Saturn and The Downfall.
Development on The Sega Saturn, started over two years before the system was showcased at the Tokyo Toy Show in June 1994. The name "Saturn" was the system's codename during development in Japan, but was chosen as the official product name.
According to Tom Kalinske, Sega of America "fought against the architecture of Saturn for quite some time". Seeking an alternative graphics chip for the Saturn, Kalinske attempted to broker a deal with Silicon Graphics, but Sega of Japan rejected the proposal. Silicon Graphics instead collaborated with Nintendo on the Nintendo 64.
Publicly, Kalinske defended the Saturn's design: "Our people feel that they need the multiprocessing to be able to bring to the home what we're doing next year in the arcades."
In Late-1993, Sega restructured its internal studios in preparation for the Saturn's launch. To ensure high-quality 3D games would be available early in the Saturn's life, and to create a more energetic working environment, developers from Sega's arcade division were asked to create console games. New teams, such as Panzer Dragoon developer Team Andromeda, were formed during this time.
Sega released the Saturn in Japan on November 22, 1994, at a price of 44,800 Yen [roughly $150] Virtua Fighter, a faithful port of the popular arcade game, became the System's best Seller in the early going and Most Japanese Youth bought a Saturn, Just to play Virtua Fighter at home. Fueled by the popularity of Virtua Fighter, Sega's initial shipment of 200,000 Saturn units sold out on the first day, and was more popular than the PlayStation in Japan....at least for the moment.
And now...we get to the beginning of Sega's Downfall.
In March 1995, Sega of America CEO Tom Kalinske announced that the Saturn would be released in the U.S. on "Saturnday", Saturday September 2, 1995. However, Sega of Japan mandated an early launch to give the Saturn an advantage over the PlayStation, which was gaining momentum in Japan.
Kalinske argued that an early launch would damage the Saturn's reputation, especially with few of the promised launch titles. But, Nakayama was adamant. So, the Saturn's North American Launch was moved ahead from September of '95 to May of '95.
At the first Electronic Entertainment Expo (E3) in Los Angeles on May 11, 1995, Kalinske gave a keynote presentation in which he revealed the release price of the Saturn at $399 (including a copy of Virtua Fighter), and described the features of the console. He then told everyone that the Sega Saturn was available Now, which shocked everyone. Not to mention Pissed off Developers and Localizers, who were promised to have their Games available at launch, but couldn't due to the games not being ready by that time. The announcement also upset retailers who were not informed of the
surprise release, including Best Buy and Walmart, KB Toys
responded by dropping Sega from its lineup.
Kalinske also revealed that, due to "high consumer demand", Sega had already shipped 30,000 Saturns to Toys "R" Us, Babbage's, Electronics Boutique, and Software Etc. for immediate release.
But that's not All, at the the Same Event, Sony of America announced that the Sony Playstation would be available in September And would be 100 Dollars Cheaper than the Saturn. During his final words on the Playstation, Sony America's President Steve Race, instead of giving a speech, he uttered these words "299".
It was the Price heard around the World and another Major Blow to Sega.
The Saturn's U.S. launch was accompanied by a reported $50 million advertising campaign that included coverage in publications such as Wired and Playboy. Early advertising for the system was targeted at a more mature, adult audience than the Sega Genesis ads.
Because of the early launch, the Saturn had only six games (all published by Sega) available to start as most third-party games were slated to be released later. Virtua Fighter's relative lack of popularity in the West, combined with a release schedule of only two games between the surprise early launch, prevented Sega from capitalizing on the Saturn's early timing.
Within two days of its September 9, 1995, launch in North America, the PlayStation sold more units than the Saturn had in the five months following its surprise launch. On October 2, 1995, Sega announced a Saturn price reduction to $299. Notwithstanding a subsequent increase in Saturn sales during the 1995 holiday season, new games were not enough to reverse the PlayStation's decisive lead. By 1996, the PlayStation had a considerably larger library than the Saturn, although Sega hoped to generate interest with upcoming exclusives such as Nights into Dreams.
And to make matters worse, The Planned Sonic The Hedgehog game for the System, Sonic X-treme was canceled after delays and other unforeseen issues. I may talk more about that game another day. So, instead of Sonic X-treme, Sega Made an enhanced port of Sonic 3D Blast in 1997.
Anyway, Within its first year, the PlayStation secured over 20% of the entire U.S. video game market. On the first day of the May 1996 E3 show, Sony announced a PlayStation price reduction to $199, a reaction to the release of the Model 2 Saturn in Japan at a price roughly equivalent to $199. On the second day, Sega announced it would match this price, though Saturn hardware was more expensive to manufacture.
Despite the launch of the PlayStation and the Saturn, sales of 16-bit hardware/software continued to account for 64% of the video game market in 1995. Sega underestimated the continued popularity of the Genesis in the U.S., and did not have the inventory to meet demand for the product.
Sega was able to capture 43% of the dollar share of the U.S. video game market and sell more than 2 million Genesis units in 1995, but Kalinske estimated that "we could have sold another 300,000 Genesis systems in the November/December timeframe."
Despite this, though, the Super Nintendo still continued to dominate the Genesis in both North America And in Japan.
Nakayama's decision to focus on the Saturn over the Genesis, due to the Saturn's popularity in Japan, has been cited as the major contributing factor in this miscalculation. According to Sega Technical Institute head Roger Hector, after Sony's release of the PlayStation, the atmosphere at Sega became political, with "lots of finger-pointing".
Due to long-standing disagreements with Sega of Japan, Tom Kalinske lost most of his interest in his work as CEO of Sega of America and on July 16, 1996, Shoichiro Irimajiri was appointed chairman and CEO of Sega of America, while Kalinske would leaving the company after September 30 of that year.
As a former Honda executive, Irimajiri had been actively involved with Sega of America since joining Sega in 1993. Sega also announced that David Rosen and Hayao Nakayama had resigned from their positions as chairman and co-chairman of Sega of America and Sega of Japan respectively, though both men remained with the company.
Bernie Stolar, a former executive at Sony Computer Entertainment of America, was hired as Sega of America's executive vice president. Stolar, who had arranged a six-month PlayStation exclusivity deal for Mortal Kombat 3 and helped build close relations with Electronic Arts while at Sony, was perceived as a major asset by Sega officials. Finally, Sega of America made plans to expand its PC software business.
Stolar had little to no faith in the Saturn or it's chances of recovery. He believed that the Saturn's hardware was poorly designed and it's American Launch was botched beyond fixing. So at E3 '97 He publicly announced that "The Saturn is not our future."
Despite this, Stolar continued to push for quality games for the system, and reflected that "we tried to wind it down as cleanly as we could for the consumer." At Sony, Stolar opposed the localization of certain Japanese PlayStation games that he felt would not sell well in North America, and advocated a similar policy for the Saturn during his time at Sega, although he later sought to distance himself from this perception.
These changes were accompanied by a softer image that Sega was beginning to portray in its advertising, including removing the "Sega!" scream and holding press events for the education industry.
By 1997, Sega was being Murdered by Nintendo in the 16-Bit front, and Decimated by Sony in the 32-Bit front. Plus, Sega's credibility and reputation was damaged even more thanks to the Saturn's botched launch. Things needed to change. While Sega of America was planning to salvage the reputation and legacy of the Sega Saturn, and in turn salvage their own, Sega of Japan had their Own idea.
To boost the popularity of the Saturn in Japan, Sega introduced a new fictional spokesman, Segata Sanshiro, played by Kamen Rider Actor, Hiroshi Fugioka. Sanshiro was wild and unpredictable Karate Guy who would advertise Sega's Saturn products in His own crazy way.
This guy became popular with Sega Fans. Plus he had his Own Theme Song and his own Video Game, released only in Japan for the Saturn.
While Sega struggled greatly with its consumer division during the Saturn years, its arcade divisions remained profitable, with annual arcade revenues increasing year-on-year throughout the late 1990s. This was despite a market slump in the late 1990s, caused by the increased popularity of home video game consoles.
In January 1997, Sega announced its intentions to merge with Bandai, a Japanese toy maker that was Japan's largest and the world's third largest at the time. The merger, planned as a $1 billion stock swap whereby Sega would wholly acquire Bandai, was set to form a planned company known as Sega Bandai, Ltd. Plans for the merger were necessitated by the struggling financial state of both Sega and Bandai, with Bandai announcing their anticipated loss for the fiscal year and Sega announcing a lower than expected profit.
Initially planned to be finalized in October of that year, the merger was called off in May 1997. Opposition to the merger had grown in the ranks of Bandai's midlevel executives, with reasons cited including cultural differences with Sega's corporate culture colliding with Bandai's family-run business. This opposition had become so great that Bandai's board of directors called a meeting to discuss the situation and decided to cancel the merger, although they did agree to a business alliance with Sega.
The following day, Bandai president Makoto Yamashina resigned his position, taking responsibility for the failed merger and apologizing publicly for his inability to get the merger completed. In a separate press conference, Hayao Nakayama elaborated on his reason for agreeing to cancel the acquisition of Bandai, stating, "We will not be successful working together if Bandai's management cannot take hold of people's hearts."
As a result of the company's deteriorating financial situation, Nakayama resigned as president of Sega in January 1998 in favor of Irimajiri. It has been speculated that Nakayama's resignation was in part due to the failure of the Sega Bandai merger, as well as Sega's 1997 performance. Bernie Stolar would subsequently accede to become CEO and president of Sega of America.
Aside from the Saturn and Arcade, Sega made forays in the consumer PC market with the 1995 establishment of SegaSoft, which was tasked with creating original Saturn and PC games. The most notable games being ports of Sonic 3 and Knuckles in 1995 and Sonic CD in 1996.
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Chapter 10 - Sega Casts a Dream
The Saturn failed to take the lead in the market as its predecessor had. After the launch of the Nintendo 64 in 1996, sales of the Saturn and its games were sharply reduced, while the PlayStation outsold the Saturn by three-to-one in the U.S. in 1997, all thanks to Final Fantasy 7.
As of August 1997, Sony controlled 47% of the console market, Nintendo 40%, and Sega only 12%. Price cuts and high-profile game releases didn't help against the Power of the Playstation and Final Fantasy 7.
After several years of declining profits, Sega had a slight increase in the fiscal year ended March 1997, partly driven by increasing arcade revenue. However, in March of 1998, Sega suffered its first financial loss since its 1988 listing on the Tokyo Stock Exchange.
Shortly before announcing its financial losses, Sega announced that it was discontinuing the Saturn in North America to prepare for the launch of its successor. The Saturn would last a bit longer in Japan and Europe, before being discontinued in late-1998.
The decision to abandon the Saturn effectively left the All-Important Western market without Sega games for over one year. Sega suffered an additional billion consolidated net loss in the fiscal year ending March 1999, and announced plans to eliminate 1,000 jobs, nearly a quarter of its workforce.
With lifetime sales of 8 million units, the Saturn is considered a commercial failure, although it did remain popular in Japan for a while. In the Biggest and Best Market, however, things were the opposite. Thanks to the botched launch and lack of distribution, the Saturn failed in The U.S. and was not very popular, with many American Gamers opting to skip buying the Saturn to save their money for The Sony Playstation or Nintendo 64 instead.
Despite taking massive losses on the Saturn, Sega felt confident about its new system and got to work on in in late-1997. Codenamed "Katana" in development, the System was built to be better and more powerful than the Saturn with high-end graphics and amazing sound, plus a better library of games. Sega eventually gave the console a name "Dreamcast".
The Dreamcast attracted significant interest and drew a lot of pre-orders. Sega soon announced that Sonic Adventure, the next game starring company mascot, Sonic the Hedgehog, would arrive in time for the Dreamcast's launch and promoted the game with a large-scale public demonstration at the Tokyo Kokusai Forum Hall.
However, Sega could not achieve its shipping goals for the Dreamcast's Japanese launch due to a shortage of PowerVR chips caused by a high failure rate in the manufacturing process. As more than half of its limited stock had been pre-ordered, Sega stopped pre-orders in Japan.
But, On November 27th 1998, the Dreamcast launched in Japan at a price of 29,000 Yen, and the entire stock sold out by the end of the day. However, of the four games available at launch, only one was a success, the port of Virtua Fighter 3, which was the most popular arcade game Sega ever released at that point.
Sega estimated that an additional 200,000–300,000 Dreamcast units could have been sold with sufficient supply. Shoichiro Irimajiri hoped to sell over 1 million Dreamcast units in Japan by February of 1999, but less than 900,000 were sold, undermining Sega's attempts to build up a sufficient installed base to ensure the Dreamcast's success. Prior to the Western launch, Sega reduced the price of the Dreamcast to 19,900 Yen, effectively making the hardware unprofitable but increasing sales.
In America, Sega of America's new senior vice president, Peter Moore, a fan of the attitude previously associated with Sega's brand, worked with Foote, Cone & Belding and Access Communications to develop the "It's Thinking" campaign of 15-second television commercials, which emphasized the Dreamcast's hardware power and coolness.
According to Moore, "We needed to create something that would really intrigue consumers, somewhat apologize for the past, but invoke all the things we loved about Sega, primarily from the Genesis days."
On August 11, Sega of America confirmed that Bernie Stolar had been fired, leaving Moore to direct the launch. Prior to the Dreamcast's release, Sega was dealt a blow when EA, the largest third-party video game publisher, announced it would not be developing games for the system.
EA executive Bing Gordon claimed "[Sega] couldn't afford to give us the same kind of license that EA has had over the last five years", but Stolar recounted that EA president Larry Probst wanted "exclusive rights to be the only sports brand on Dreamcast", which Stolar would not accept due to Sega's recent $10 million purchase of sports game developer, Visual Concepts.
While the Dreamcast would have none of EA's popular sports games, Sega formed their Own sports brand, "Sega Sports.
The Dreamcast launched in North America on September 9, 1999, at a price of $199, which Sega's marketing dubbed "9/9/99 for $199". Eighteen launch games were available for the Dreamcast in the U.S, compared to the 4 titles of the Japanese Launch. Sega set a new sales record by selling more than 225,000 Dreamcast units in 24 hours, earning the company $98.4 million in what Moore called "the biggest 24 hours in entertainment retail history".
Within two weeks, U.S. Dreamcast sales exceeded 500,000. By Christmas, Sega held 31% of the North American video game market share. On November 4th, Sega announced it had sold over one million Dreamcast units in the U.S.. However, things didn't go as smoothly, due to a glitch at one of Sega's manufacturing plants, which produced defective GD-ROMs.
Sega soon released the released the Dreamcast in Europe on October 14th, 1999 and sold 500,000 units in the region by Christmas 1999. Unfortunately, things were not as great over in Europe, as Sega sold less than 1 million Dreamcasts by the end of 2000.
Though the Dreamcast launch had been successful, Sony still held 60 percent of the overall video game market share in North America And Japan with the PlayStation at the end of 1999.
The Dreamcast was doing Great in The Biggest and Best Market in the World, but Sony was about to spoil things.
On March 2, 1999, in what one report called a "highly publicized, vaporware-like announcement" Sony revealed the first details of its next console The Playstation 2, which Ken Kutaragi claimed would allow video games to convey unprecedented emotions.
And on top of that, it was later revealed that The System would be 100% Backwards comparable with the PSX/PS1 Library and Peripherals. Plus, have DVD support. In Japan, the DVD market was lukewarm, but after the PS2's launch, The DVD market there Boomed.
In the same year, Nintendo announced that its next generation console would meet or exceed anything on the market, and Microsoft began development of its own console.
In 2000, Sega restructured its arcade and console development teams into nine semi-autonomous studios headed by the company's top designers. Studios included United Game Artists, Hitmaker, Smilebit, Overworks, Sega AM2, Sonic Team, WOW Entertainment, Amusement Vision, and Sega Rosso.
Sega's design houses were encouraged to experiment and benefited from a relatively lax approval process. This resulted in games such as Rez, Seaman, and Segagaga. Sega also revived franchises from the Genesis era, such as Ecco the Dolphin. AM2 developed what Sega hoped would be the Dreamcast's killer app, Shenmue, a "revenge epic in the tradition of Chinese cinema."
However, Shenmue went over budget and was rumored to have cost Sega over $50 million. As the first fully 3D platforming game starring Sega's mascot, Sonic the Hedgehog, Sonic Team's Sonic Adventure was considered "the centerpiece of the [Dreamcast] launch". Adventure garnered criticism for technical problems including erratic camera angles and glitches, but was praised for its "luscious" visuals, "vast, twisting environments" and iconic set pieces. It has been described as the Sonic series' creative apex.
However, it failed "to catch on with players in nearly the way that [Nintendo's] Mario 64 had done", perhaps due to a perceived lack of gameplay depth. In sports, Visual Concepts' NFL 2K football series and its NBA 2K basketball series were critically acclaimed. Additionally, with the release of Sega's NAOMI arcade system board, the focus of the arcade divisions shifted to produce games that could easily be ported to the Dreamcast.
To Be Concluded in Part 3.
