What Went Wrong With The Sega Dreamcast?

Sega’s fifth foray in the home console industry would be its last with the Dreamcast — and it was a relatively quick flame out at that. Sega released the console at the tail end of 1998 before discounting it in March 2001 after a meager 28-month shelf life.

The Dreamcast had promise upon launching, too. Of course, Sega was at the time a prominent name in the video game market with years worth of built-up brand equity. The console was also the first to feature a built-in modem for online play, which would turn out to be an industry-changing feature.

So what went wrong with the Dreamcast? Why did Sega’s console business evaporate like a bad poker player’s pot of money at a Canadian-based sports betting platform? Welp, that’s the subject of this very article as we attempt, with the benefit of hindsight, to pinpoint Sega’s biggest stumbles with its home console business.

“The Sega Dreamcast” by Wikimedia is licensed under CC BY-NC-SA 2.0

Missing Out On The DVD Wave

DVDs first hit the market in late 1996, but the technology was already in development the year before. In due time, DVDs would become the dominant form of home entertainment for both movie-watchers and gamers.

Sony had the foresight to see this upcoming shift in media and built its Playstation 2 system around the new format. Consequently, consumers flocked to it because it was an all-in-one entertainment system capable of both gaming and movies. Sega, on the other hand, completely missed the boat.

For its Dreamcast, it instead used a proprietary disc, GD-ROM, for its games. GD-ROM had a fraction of the data capacity of a DVD, which hand-cuffed game developers big time. Speaking of games, that leads us to the next dagger that sealed Sega’s fate…

Lack of Game Support

Given the hassle of the GD-ROM format, many third-party game developers shunned SEGA completely during the Dreamcast days. Big-time studios such as Electronic Arts, Rockstar, and Squaresoft didn’t release titles on Sega’s platform whatsoever, instead opting for Sony and Nintendo systems.

“The Sega Dreamcast magazine page” by Wikimedia is licensed under CC BY-NC-SA 2.0

This lack of external support put all the pressure on SEGA to create its own first-party titles. And while they had a number of classics — Crazy Taxi, Skies of Arcadia, Sonic Adventure — it wasn’t enough to make up for not having hits like Madden, FIFA, Grand Theft Auto III, among others.

Price Slashing

While the Dreamcast sold well out of the gate, it’s momentum quickly fizzled. To make up ground against competitors, SEGA slashed the cost of its Dreamcast plenty and often. All these price cuts led to the new console being sold at retail for a steep loss.

Selling consoles below its manufacturing cost is not unheard of in the industry. However, console-makers can make up those losses through the sales of ancillary products like accessories and first-party games. Unfortunately, SEGA was unable to do so.

These losses soon ran the well dry for SEGA, which was forced to cut costs elsewhere like research and development or game creation. Even then, the financial problems didn’t stop, which eventually forced SEGA’s hand in discontinuing the console.

Too Many Consoles, Too Little Time

This is less of a knock against the Dreamcast and more a knock on SEGA’s console strategy as a whole, which was magnified with the Dreamcast release. Simply put, SEGA oversaturated themselves.

Between the years 1983 to 1998, the company released five major home consoles — there were also spin-offs like a handheld device and educational console for kids. Still, accounting for that 15-year stretch, SEGA released a new major system every three years on average. For comparison sake, SEGA’s main competitor, Nintendo, came out with only three home consoles during the same 15-year window.

SEGA just never gave enough time to one of its consoles to become ingrained with at-home gamers because they were onto the next replacement too often and too quickly. Eventually that caught up to them with the Dreamcast, which lacked a hardcore base of players to sustain the system.

While we can probably name another five problems that did SEGA in during the Dreamcast era, we’ll bite our tongue. Instead, we choose to remember the good aspects of SEGA’s home console business, which shaped an entire generation of gamers.

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