In celebration of the 15th anniversary of Dreamcast's North American launch, we're featuring this classic Gamasutra article about Sega's gone-but-not-forgotten console.
[In this ten-year Dreamcast retrospective, Gamasutra looks back at Sega's last effort in the console market through interviews with former president of Sega of America Bernie Stolar, former Sega of America COO Peter Moore, former SOA Vice President of Communications Charles Bellfield, and former vice president of Electronic Arts, Bing Gordon.]
For a console that broke entertainment retail records, made the Guinness Book of World Records, and laid the blueprints for today's online-centric consoles, it's striking to think the Dreamcast's lifespan was shorter than nearly any console in video game history.
Ten years after 9/9/99, the memorable date of the launch of the Dreamcast in North America, Sega's machine has left a lasting legacy in online gaming, retail history, and the sports genre. But the brief, fiery life of the Dreamcast was fraught with conflict, questionable executive decisions, and ultimately, a shocking and abrupt ending.
A Change in Attitude
The video game world into which Sega launched the Dreamcast was vastly different than today's highly connected wireless experience. The arcade market was still successful, 80% of consumers connected to the internet used a modem, and the PC market was at its peak -- and, more importantly, was the sole domain for online games.
After a successful Japanese launch in late 1998, Sega looked toward the North American market to achieve a head-start over its biggest competitor, Sony Computer Entertainment America, by growing a strong install base and by rebuilding excitement for its products.
In 1995, Sonic the Hedgehog was better known than Disney's Mickey Mouse, but the Sega Saturn, from its disappointing launch to its inevitable cancellation, had soured many gamers on Sega products.
In 1997, Sega hired Bernie Stolar, fresh from his role as president of Sony Computer Entertainment America, as the new president of Sega of America. Stolar was a shrewd, successful businessman who knew the games business from his time working at Sony, the arcades, and at Atari.
In a phone call with Gamasutra, Stolar, currently running Getfugu, Inc, explained how it all started. "Saturn, as you know, was a failure. I was brought in to help restructure and rebuild Sega of America. When I started, there were over 300 people; I trimmed the company down to about 90 people."
Among others, Stolar brought in 17-year Reebok executive Peter Moore, former Sony third-party executive Gretchen Eichinger, head of sales Chris Gilbert, and Charles Bellfield, as well as several other important figures.
Stolar's task was to wage an uphill battle with gamers, many who had bought the short-lived 32X, Sega CD, and the Saturn, and retailers, who were still wincing from Saturn sales and an exclusive launch that cut many retail chains out of the picture.
"We had to change the attitude of retail to believe we were a serious player," said Stolar. "And because of the whole Saturn thing, retailers really hated Sega. It took me a lot of work to change their minds. I went to every retailer and told them this was going to be a great system, it was going to have a modem, it was going to have online play, this was the content it was going to have, and this was what it was going to look like. They all bought into that. They all trusted me. Plus, they really liked the team I put together. They felt this was the right team."
Before Stolar could change anyone's minds, however, Sega had to make up its own mind.
In 1997, Sega of Japan tasked two engineering teams to compete for the design of the Dreamcast. Internally, Sega's President Shoichiro Irimajiri assigned Hideki Sato, who had designed the Saturn, to come up with a chipset design. Externally, Irimajiri created an 11-man "skunkworks" team outside of Sega to create a competing design, led by IBM alumnus Tatsuo Yamamoto; that project was codenamed Blackbelt.
Sato chose the Hitachi SH4 CPU architecture and VideoLogic's PowerVR2 graphics processing unit, manufactured by the Japanese company NEC. "The first version of the Dreamcast was water-cooled; they had a non-moving part, water-based cooling system. It was called Dural," said former Charles Bellfield, former Sega VP of communications (1998-2000) and VP, strategy & corporate affairs (2000-2003).
Yamamoto, based in the U.S. and initially kept secret from Sato's team, chose the IBM/Motorola PowerPC 603e, but was later asked to use the Japanese-made Hitachi SH4, and entered into a contract with the American graphics card maker, 3Dfx, to use a custom version of its Voodoo 3 card as the graphics processor.
"I was at that meeting on July 4, 1997, in Haneda, in the Sega Tokyo offices, where we were sent to present the PowerVR technology," explained Bellfield who, before working at Sega, was a brand manager at NEC Electronics.
"We lined up a series of games running on the PowerVR technology on PCs, which included Tomb Raider, a game called Ultimate Race from Kalisto, and Looking Glass' Flight Unlimited. The presentation basically messaged that the PowerVR technology would deliver high performance at a low cost."
According to Bellfield, part of the selling point of PowerVR was its tile-based rendering solution. Polygons that were not seen on the screen were not rendered, which reduced CPU overhead. The PowerVR solution, unconventional for developers at the time, in theory was a high performance and low cost solution. Bellfield added: "Sega's relationship with NEC, a Japanese company, probably made a difference too."
The Dreamcast also included a modem. However, Sega executives internally argued over whether or not to include it. Sega's decisions on the system architecture and the modem were based on a number of factors ranging from industry ties with chip manufacturers to the ratio/cost from a given manufacturer.
"It turned out they had two different projects going on, but they didn't tell us that," said Bing Gordon, now a partner at the venture capital firm Kleiner Perkins Caufield & Byers; from 1998 to 2008, he was chief creative officer at EA. "They told us they were trying to decide if they would include a modem or not. Our advice was, 'You've got serious competition [referring to Sony and Nintendo], so a modem is a really good idea. If you do a modem, we'll build a whole product line for it.'"
In 1996, 3Dfx began building wide acclaim for its powerful graphics chips, one of which ran in arcade machines, including Atari's San Francisco Rush and Wayne Gretzky's 3D Hockey. In 1997, 3Dfx went public, announcing its IPO. In the process it revealed the details of its contract with Sega, required by U.S. law. The announcement, however, had undesired effects. It publicly revealed Sega's blueprint for a new, unannounced console, and angered executives at Sega Japan.
Numerous reports indicate Yamamoto's Blackbelt chipset using the 3Dfx chips was the more powerful of the two. Sega executives, however, still fuming at 3Dfx, severed their contract with the chip maker. (Soon thereafter, 3Dfx sued Sega and both companies settled out of court.)
In the end, Sega of Japan selected Sato's design, codenamed it "Katana," and announced it publicly on September 7, 1997. To this day, it's unclear whether Sega would have chosen the Blackbelt 3Dfx solution, had 3Dfx not revealed Sega's plans publicly.
"They said they looked at 3Dfx, but decided against it," said Gordon. "They went with some other 3D chip that we had never heard of, and they went with a weird processor. We looked at this and asked ourselves, 'Why did they make these choices? It's gotta be some kind of political thing because these are dumb choices.'"
"I felt the US version, the 3Dfx version, should have been used. Japan wanted the Japanese version, and Japan won," said Stolar. "I lost that argument."
Why Electronic Arts Shunned the Dreamcast
With games like Madden NFL, Road Rash, NHL, and a slew of other popular titles, Electronic Arts successfully teamed with Sega to compete against Nintendo in the 16-bit era. The Redwood City publisher supported all of Sega's short-lived systems after Genesis, from the 32X, Sega CD, Game Gear, to the Saturn.
"EA had a deep love affair with the Sega Genesis/Mega Drive, because it was the platform that brought EA into the big time," said Gordon. "EA leaders shared loyalty and affinity with Sega and it over-invested to help Sega make Sega CD and 32X into winners."
But Electronic Arts didn't support Sega's Dreamcast. At EA, there were three groups that had a stake in voting on whether to support a console: developers, sales, and business. They would get together, collect information on any given console, and discuss its virtues and weaknesses.
"We would get together and say, 'Okay, are we going put 10 games together and be there at launch, and put our corporate will behind this, or not?'"
At the time, EA had invested stock in 3Dfx. Did EA's investment in 3Dfx influence its decision? Gordon says it didn't. "If Sega had picked the direct competitor to 3Dfx at the time, it would have been fine. But they picked someone we had never heard of. It was somebody's friend of somebody's friend at a Japanese country club. It was a head-scratcher, like, 'What are they doing?' That was mostly it."
According to Gordon, Sega had flip-flopped over whether to include a modem, but it also picked the wrong chipset. "I remember our CTO (chief technology officer) talking about the processor and going, 'Oh my God, I don't know anybody who has even heard of this chip. It's non-standard and there are no libraries for it.' It was kind of a slap in the face. But even then, at first blush, EA is thinking, 'It's Sega. We've got to support them.' You know, we went to war with them on Genesis and did great things. So the chipset alone was not enough to stop EA from working on it."
Ultimately, Sega's various hardware and business decisions lined up like a row of red flags for EA. According to Gordon, the indecision over the chipset was one thing, the flip-flopping over whether to include a modem was another, but the final straw was Sega's hardball tactics during negotiations over licensing.
"There was a push from Sega, which was having cash flow problems, and they couldn't afford to give us the same kind of license that EA has had over the last five years. So EA basically said, 'You can't succeed without us.' And Sega said, 'Sure we can. We're Sega.'
"And at that point during negotiations -- when someone is trying to call your bluff -- you have to question whether you want to knuckle under or not. And because of the way they had flip-flopped on the configuration, and because the Dreamcast became the system that EA developers least wanted to work on the in the history of systems at EA, that was pretty much it. In the end, it felt like Sega was not acting like a competent hardware company. I was the person who got quoted in the press as saying, 'Dreamcast can't succeed without EA.' The Dreamcast people hated me for that."
Contrary to Gordon's account, however, Stolar said there was a much simpler reason EA denied the Dreamcast. And licensing negotiations, chipsets, and modems, while somewhat relevant, didn't play a significant role.
"Sega didn't play hardball," Stolar countered. "I was the one who led the negotiations between EA and Sega. The royalty licensing deal was done between me and [EA's then-president] Larry Probst, and nobody else. And there was a real significant reason why it didn't happen. That reason was never really public. You ever hear of a company called Visual Concepts?"
The Sports Situation
To launch a console in North America in 1999, console manufacturers had to lead with their own sports games. EA was used to competing with a host of other sports products made by Nintendo, Konami, Namco, Acclaim, and eventually Sony.
To launch the Dreamcast in North America, Stolar had done his due diligence on a company called Visual Concepts. With Sega of Japan's approval, Stolar bought Visual Concepts for $10 million.
"Visual Concepts was a very, very key part of this because they made all the sports titles," said Stolar. "And if you looked at the sports titles on Dreamcast, they far surpassed EA's sports titles. Our football game at the time, NFL 2K, was far superior to Madden. Everybody agreed to that once they came out."
In 1999, during a lunch meeting on neither Sega nor EA turf, Stolar and Probst discussed terms of a potential EA and Sega deal.
"This is what happened, very clearly," explained Stolar. "Larry came to me and said, 'Bernie, we'll support Dreamcast, but this is what I want.' And I thought, 'Great, I know Larry, I know the company real well, I can negotiate this,' I thought he was going to ask for smaller royalties. I would have given him smaller royalties, no question about that."
In the late 1990s, EA was a keen observer of console launches. It knew that striking a deal with hardware companies while they were building their system -- when, according to Gordon, they were worried about costs and putting the company at risk -- was to EA's advantage. "That's when you strike your five-year licensing deal," Gordon said. Probst saw a field of competitors going against EA's growing sports franchises and wanted something more.
"'We want to be the only sports brand on Dreamcast,'" Stolar recalled Probst saying. "'We want the exclusive rights to be the only sports brand on Dreamcast.'"
This surprised Stolar, whose strategic planning included Visual Concepts as a key element in making Dreamcast a success.
Stolar countered. "I said, 'Larry, I'll tell you what. As a third party, I'll agree to that. But I'm not going to agree to that for first party. I bought Visual Concepts for $10 million. So you can compete with Visual Concepts. We'll have Visual Concepts sports titles and we'll have EA sports titles, and that will be it.'"
Probst didn't budge.
"No, I don't even want to compete with Visual Concepts," Probst told Stolar, who replied, "'Forget it then, end of story.' That's what it was all about, right there."
Weeks after Stolar's and Probst's lunch meeting, Japan tried to change EA's mind, but it didn't work, said Stolar. "Sega tried to lower royalties but EA wouldn't budge."
Considering EA's built-in customer base, did Stolar make the right decision?
"Look what Visual Concepts brought to the table, look what they brought to Sega. If you look at those games today, everybody will tell you those games looked better than EA's games. So I would not have changed my opinion."
Stolar may have been right about Visual Concepts' talents as a sports developer, but even before the Dreamcast launched in the US, Sega was found itself in third-party trouble. The largest independent third-party publisher wasn't going to support Sega? When Gordon unequivocally said, "Dreamcast can't succeed without EA," the press jumped on the story.
The message couldn't have been clearer. Sega would struggle on without its long-term software partner and confront Sony and Nintendo with a giant question mark associated with its new system.
Bellfield put the loss into perspective: "The fact that EA didn't support us was a ding against us. But I'm not sure what breakthrough game EA would have given the platform from September 1999 through January 2001 that we hadn't already got in the same genre," said Bellfield. "Sports, the power of the Madden brand, sure. But NFL 2K had a breakthrough experience."
"I'm very proud of what we built with the 2K series," said Moore. "I think it actually made the sports genre bigger and healthier. It created a lot more interest in the genre because of the ferocious competition. That was the flip side of EA not supporting the Dreamcast."
Marketing the North American Launch
In March 1999, Stolar hired Peter Moore, a vice president at the successful shoe company Reebok. Aside from fathering an 11-year old boy who owned a Genesis and a Saturn, Moore knew little about video games; but his enthusiasm, confidence, and vision while at Reebok was exactly what Stolar was looking for.
"I was a great fan of the Sega brand before I joined the company," said Moore. "I loved Sega's attitude. Do you remember the Sega scream? Sega was part and parcel of what video games were. In those days we talked about Sega and Nintendo and Sega was the pre-eminent brand. Going back to the movie Swingers, I always remember seeing Vince Vaughn playing NHL '94 and the social impact that games were having."
While Stolar was busy building support among retailers, Peter Moore, hired just six months before the Dreamcast launch, dove head-first into his first console launch.
"There was a lot of negativity with how the Saturn went down," said Moore. "But there was still an incredible love for what the Sega brand was, its irreverent attitude, and everything we stood for."
In his first week at Sega, Moore sat at his new desk and researched how to develop the console's ad campaign. By week's end he met with the advertising team, Foote, Cone, & Belding, and PR team Access Communications.
"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," Moore said. He landed on the ad campaign, "It's Thinking," which started with a series of 15-second TV ads.
"We tried to catapult gamers into thinking that this was going to be a new level of artificial intelligence, a new level of hardware power, and would generate games that were really different than what you were seeing on the PlayStation or the N64," said Moore. "It was mysterious. First of all, if you didn't know, maybe we didn't want to talk to you. And if you did know, you were absolutely intrigued to be inside the core group of people who knew what was coming."
Sega followed the "It's Thinking" ads with the innovative "In the Box" ads, which blended professional athletes (including NFL and NBA pros Gary Payton, Penny Hardaway, Brian Grant, Allen Iverson and Randy Moss) with models and assets from actual Dreamcast games. Moore and his teams won awards for the ad series.
9/9/99: Dreamcast Lands in North America
Leading up to the North American launch, Sega worked every angle. It teamed with retailers so consumers could pre-order the Dreamcast. Pre-ordering a console, like pre-ordering a game, ensured you could pick up a console the day it launched, an idea that has perpetuated itself.
North America retailers successfully pre-sold a record 300,000 hardware units. Some, such as Babbages, posted press releases before the launch, announcing their own pre-order records to hype the machine.
"We've passed the 100,000 mark in Dreamcast pre-orders," said Dan De Matteo, Babbage's Etc. president in a press release a week before launch. "We are expecting the biggest single day in our chain's history on September 9 and want to open early to accommodate the many gamers who can't sleep until they own a Dreamcast."
On September 9, 1999, Sega released a highly advanced console with graphics far beyond what the PlayStation could do, the potential for online gaming out of the box, and a lineup of 18 games. At the inexpensive MSRP of $199.99 ($100 less than the PlayStation launch price), gamers could buy Soul Calibur, NFL 2K, Sonic Adventure, Power Stone, Hydro Thunder, and Trickstyle, among others.
The system, the games, and the combined sales culminated in a remarkable moment in video game history. In 24 hours, Sega had sold more than 225,132 units (an industry record), raking in $98.4 million dollars.
Four days after launch, 372,000 hardware units had been sold, tallying $132 million. The remarkable 24-hour sales numbers put Sega in the Guinness Book of World Records at that time for most revenue generated in the entertainment industry in 24 hours, and thrilled its publishing and retailer partners.
Electronics Boutique stated in a September 14 press release the Dreamcast "resulted in the company's largest single day of sales in its 22 year history." EB President Joseph Firestone added, "Traditionally, our strongest day of the year coincides with the Christmas holiday. To have sales of this magnitude in September is truly an event."
Two weeks after launch, Sega announced at the Intelliquest Brand Tech Forum in San Francisco it had sold more a half million units in less than two weeks, totaling 514,000 units -- well ahead of Sony's original PlayStation, which took four months to the same mark.
Shortly after launch, Sega decided to put its numbers up against the first day releases in the movie and music industries. Comparing its first 24-hour sales with the best numbers Hollywood had put up, Sega compared its launch to George Lucas' Star Wars The Phantom Menace.
"The biggest sales day in movie history was Star Wars: The Phantom Menace. And we beat it," said Moore. "Video games prior to that had either not held themselves up in the same regard, or the numbers didn't warrant it. It was a shot across the bow, not to the industry, but to a broader spectrum. Our success was picked up by the New York Times and the Washington Post and all of the national dailies that this was the biggest 24 hours in entertainment retail history."
"We made this a monstrous entertainment and cultural phenomenon that extended way past just gamers. People were aware of the Dreamcast, and even if they had no intention of buying one, they knew it was coming on 9-9-99. Certainly, the next day we let everyone know about the numbers. And I think it was a wake-up call for the broader popular cultural press, if you will, that video games were big, they were here, and they were here to stay."
The North American Dreamcast launch, by any measure, was a huge success.
The Beginning of the End
Buoyed by its North American launch success, Sega, along with its publishing partners, published dozens of games that ran the gamut of genres and styles between September 1999 and March 2001.
Titles ranged from Visual Concepts' award-winning sports games, to experimental titles such as the quirky Seaman and the artsy Rez, to breakthrough arcade titles, such as Crazy Taxi. Sega dug into its console catalogue and revived Genesis franchises such as Ecco The Dolphin.
The company also innovated with games such as the slick Jet Set Radio, cult maracas-based music title Samba de Amigo, and Shenmue, Yu Suzuki's enormously expensive and ambitious adventure game. During the first year, companies like Acclaim, SNK, Ubisoft, Midway, Activision, Infogrames, and Capcom thrived on Sega's system, cranking out originals and ports from PlayStation, PC, and arcades.
"I would say to you to that companies like Ubisoft, in my perception at the time, were created on Dreamcast," said Bellfield. "Companies like Acclaim survived a lot longer because of Dreamcast; Activision as well. Capcom was hugely successful on the platform. The first year we were widely and successfully supported."
Fulfilling its promises to provide online gaming, in September 2000, Sega launched the online network SegaNet. The first online Dreamcast games included Sonic Team's ChuChu Rocket! and NBA 2K, and were shortly followed by Ethernet-supported games such as Bomberman Online, Phantasy Star Online, Quake III Arena, all of Visual Concepts' 2K2 slate, and Unreal Tournament.
"In September 2000, we had NFL 2K up and running and playing between players in San Francisco and New York," recalled Bellfield. "That, on a console, through a telephone connection, was unheard of at the time."
Before the end of 2000, however, Sega's Dreamcast found itself in trouble. Sony's original PlayStation grabbed a majority of console market share, and the PS2 was building substantial press for its October 26, 2000 North American launch. Even though the PS2 launched in spring in Japan with only six titles -- all of which were unimpressive -- Sony capitalized again and again on Sega's perceived weaknesses.
From trumpeting the PS2's Emotion Engine processor and partnering with Steven Spielberg in trade shows, to getting EA's support, to corralling 29 games for launch day, Sony, most importantly of all, outspent Sega in marketing dollars.
In September of 2000, one year after the North America launch, Sega's American executives came to a realization. Despite initial great sales in North America, Sega lacked the marketing dollars to compete with Sony and Nintendo, and it was witnessing Sony's arrival even before it had arrived, with decreased sales going into the fall season. Additionally, Sega heard rumors that Microsoft, which had partnered with Sega to make its Windows CE platform work on Dreamcast, planned on entering the business.
Although Sega's arcade business was still thriving, the company, as a whole, was strapped for cash. "I wasn't privy to the numbers at the time, but Sega announced it would spend $100 million in marketing from day one, and I don't think it was half of that," speculated Bellfield.
As a result of its financial issues, Sega bought fewer advertisements in magazines and on TV, let innovative games come and go with little marketing support, and couldn't spend money to get publishers to make exclusive levels for games or to put their games exclusively on Dreamcast.
Moore's Manifesto of the Future
In September 2000, well before the year's biggest sales months had taken place, Peter Moore and Charles Bellfield wrote a report called the "Manifesto of the Future," which they presented to all of Sega of Japanese executives and the studio heads in Japan, including creative heavyweights such as Yu Suzuki (AM2), Yuji Naka (Sonic Team), Rikiya Nakagawa (AM1/Wow Entertainment) and Toshihiro Nagoshi (AM4/Ausement Vision) among others.
"As you can imagine, what was happening was that we were very close to the business," said Moore. "The writing ultimately was on the wall regarding the challenges to sustain the hardware business in the face of the financial difficulties Sega had at the time and the impending launch of the PS2. So we went over there as responsible business people should do and presented what was going on in North America."
"I remember it like it was yesterday," said Bellfield. "We presented a strategy in September 2000 that said we were not viable as a hardware player in the States beyond Christmas 2000 and that we needed to get out of the hardware business. That meeting was the first time Japan had ever heard that we could not be successful against the power of Microsoft, who had not yet announced their intention to come into the space, but we knew they were."
"They were hearing from the one region, the US, that had been successful with the Dreamcast launch, that the future of the Dreamcast was not going to be rosy. North America was the one lifeline that they had left -- that maybe success in the US would allow them to bridge doing another hardware platform, or to extend the life of this platform, or allow it to be reinvented in Japan and Europe."
"When we told them that staying in the hardware business was not our advice, the next thing that happened was all of the heads of all the studios got up and walked out without saying a word. That, in the Japanese culture, is pretty rude. But they were shocked."
Moore's document stated that Sega was arguably one of the greatest software companies ever, and it should focus on its major strength: software. The industry was going through a significant transition which created a quandary: Japanese content was becoming less and less relevant to the West, and Western developers were growing in stature.
One of the major keys was mature games. As the video game player aged, so did his tastes. Game development was less about Sonic the Hedgehog and more about upcoming games like Grand Theft Auto III.
Moore argued that the new generation of hardware enabled gamers to play more realistic-looking games. "Video game companies like ourselves needed to be in line with gamers' tastes, and quite frankly, that meant creating more mature content that was a reflection of what they were watching in the movies and TV."
In a meeting that shocked even those who suspected Sega was in trouble, on January 31, 2001, Sega announced it would end manufacturing Dreamcast by March 2001, and transition into a third-party software publisher. Approximately 50-plus titles would still be published, capped by Visual Concepts' March release of NHL 2K2.
Lessons Learned From the Dreamcast
In the short span of 19 months, Sega went from an industry-leading, record-breaking console comeback to company that would halt production of its final console and transition to a third-party publisher. Sega would ultimately publish Sonic the Hedgehog on its former rival's hardware. Sonic the Hedgehog on a Nintendo system? How did such a prominent, creative and thriving company meet with such heartbreaking results?
Looking back at Sega's Dreamcast, Stolar, Moore, Bellfield, and Gordon each offered the lessons they learned from Sega's final console.
Peter Moore: "The presentation Charles and I presented wasn't something that was purely my opinion, it was what the data was leading us toward. From the moment we shipped, we faced stiff competition. At Sega of America, we did our utmost as a team to drive the business forward and keep the momentum going, but in the end, it was too little too late. It may hinge on timing. You have to have the right combination of technology, be ready with the right software, the right price point, and maybe be ahead of the curve from a tech point of view, rather than somewhat behind the curve."
Bernie Stolar: "Great content drives hardware."
Bing Gordon: "I think there is a lesson to be learned about inappropriate overconfidence by creative people. So there is a difference between people who have been successful once and people who have been successful twice. The emotion at Sega was