The Dreamcast (Japanese: ドリームキャスト Hepburn: Dorīmukyasuto?) is a home video game console released by Sega on November 27, 1998 in Japan, September 9, 1999 in North America, and October 14, 1999 in Europe. It was the first in the sixth generation of video game consoles, preceding Sony’s PlayStation 2, Nintendo’s GameCube and Microsoft’s Xbox. The Dreamcast is Sega’s final home console, marking the end of the company’s 18 years in the console market.
In contrast to the expensive hardware of the unsuccessful Sega Saturn, the Dreamcast was designed to reduce costs with “off-the-shelf” components, including a Hitachi SH-4 CPU and an NEC PowerVR2 GPU. Released in Japan to a subdued reception, the Dreamcast enjoyed a successful U.S. launch backed by a large marketing campaign, but interest in the system steadily declined as Sony built hype for the upcoming PlayStation 2. Sales did not meet Sega’s expectations despite several price cuts, and the company continued to incur significant financial losses. After a change in leadership, Sega discontinued the Dreamcast on March 31, 2001, withdrawing from the console business and restructuring itself as a third-party publisher. 9.13 million Dreamcast units were sold worldwide.
Although the Dreamcast had a short lifespan and limited third-party support, reviewers have considered the console ahead of its time. Its library contains many games considered creative and innovative, including Crazy Taxi, Jet Set Radio and Shenmue, as well as high-quality ports from Sega’s NAOMI arcade system board. The Dreamcast was also the first console to include a built-in modem for Internet support and online play.
Released in 1988, the Sega Genesis (known as the Sega Mega Drive in Europe and Japan) was Sega’s entry into the fourth generation of video game consoles. Selling 30.75 million units worldwide, the Genesis was the most successful console Sega ever released. The successor to the Genesis, the Sega Saturn, was released in Japan in 1994. The Saturn was a CD-ROM-based console that displayed both 2D and 3D computer graphics, but its complex dual-CPU architecture made it more difficult to program for than its chief competitor, the Sony PlayStation. Although the Saturn debuted before the PlayStation in both Japan and the United States, its surprise U.S. launch—which came four months earlier than originally scheduled—was marred by a lack of distribution, which remained a continuing problem for the system. Moreover, Sega’s early release was undermined by Sony’s simultaneous announcement that the PlayStation would retail for US$299—compared to the Saturn’s initial price of $399. Nintendo’s long delay in releasing a competing 3D console and the damage done to Sega’s reputation by poorly supported add-ons for the Genesis (particularly the Sega 32X) allowed Sony to establish a foothold in the market. The PlayStation was immediately successful in the U.S., in part due to a massive advertising campaign and strong third-party support engendered by Sony’s excellent development tools and liberal $10 licensing fee. Sony’s success was further aided by a price war in which Sega lowered the price of the Saturn from $399 to $299 and then from $299 to $199 in order to match the price of the PlayStation–even though Saturn hardware was more expensive to manufacture and the PlayStation enjoyed a larger software library. Losses on the Saturn hardware contributed to Sega’s financial problems, which saw the company’s revenue decline between 1992 and 1995 as part of an industry-wide slowdown. Furthermore, Sega’s focus on the Saturn over the Genesis prevented it from fully capitalizing on the continued strength of the 16-bit market.
Due to long-standing disagreements with Sega of Japan, Sega of America CEO Tom Kalinske became less interested in his position. On July 16, 1996 Sega announced that Shoichiro Irimajiri had been appointed chairman and CEO of Sega of America, while Kalinske would be leaving Sega after September 30 of that year. Sega also announced that Sega Enterprises cofounder David Rosen and Sega of Japan CEO Hayao Nakayama had resigned from their positions as chairman and co-chairman of Sega of America, though both men remained with the company. Bernie Stolar, a former executive at Sony Computer Entertainment of America, was named Sega of America’s executive vice president in charge of product development and third-party relations. Stolar did not support the Saturn due to his belief that the hardware was poorly designed and publicly announced at E3 1997 that “The Saturn is not our future.” After the launch of the Nintendo 64, sales of the Saturn and Sega’s 32-bit software were sharply reduced. As of August 1997, Sony controlled 47 percent of the console market, Nintendo controlled 40 percent, and Sega controlled only 12 percent. Neither price cuts nor high-profile games were proving helpful to the Saturn’s success. Due to the Saturn’s poor performance in North America, Sega of America laid off 60 of its 200 employees in the fall of 1997.
“I thought the Saturn was a mistake as far as hardware was concerned. The games were obviously terrific, but the hardware just wasn’t there.”
—Bernie Stolar, former president of Sega of America giving his assessment of the Saturn in 2009.
As a result of the company’s deteriorating financial situation, Nakayama resigned as president of Sega in January 1998 in favor of Irimajiri. Stolar would subsequently accede to president of Sega of America. Following five years of generally declining profits, in the fiscal year ending March 31, 1998 Sega suffered its first parent and consolidated financial losses since its 1988 listing on the Tokyo Stock Exchange. Due to a 54.8% decline in consumer product sales (including a 75.4% decline overseas), the company reported a consolidated net loss of ¥35.6 billion (US$269.8 million). Shortly before announcing its financial losses, Sega revealed that it was discontinuing the Saturn in North America, with the goal of preparing for the launch of its successor. This decision effectively left the Western market without Sega games for over one year. Rumors about the upcoming Dreamcast—spread mainly by Sega itself—leaked to the public before the last Saturn games were released.
As early as 1995, reports surfaced that Sega would collaborate with Lockheed Martin, The 3DO Company, Matsushita, or Alliance Semiconductor to create a new graphics processing unit, which conflicting accounts said would be used for a 64-bit “Saturn 2” or an add-on peripheral. Development of the Dreamcast was wholly unrelated to this rumored project. In light of the Saturn’s poor market performance, Irimajiri decided to start looking outside of the company’s internal hardware development division to create a new console. In 1997, Irimajiri enlisted the services of Tatsuo Yamamoto from International Business Machines to lead an 11-man team to work on a secret hardware project in the United States, which was referred to as “Blackbelt”. Accounts vary on how an internal team led by Hideki Sato also began development on Dreamcast hardware; one account specifies that Sega of Japan tasked both teams, while another suggests that Sato was bothered by Irimajiri’s choice to begin development externally and chose to have his hardware team begin development. Sato and his group chose the Hitachi SH-4 processor architecture and the VideoLogic PowerVR2 graphics processor, manufactured by NEC, in the production of their mainboard. Initially known as “Whitebelt”, this project was later codenamed “Dural”, after the metallic female fighter from Sega’s Virtua Fighter series.
Yamamoto’s group opted to use 3dfx Voodoo 2 and Voodoo Banshee graphics processors alongside a Motorola PowerPC 603e central processing unit (CPU), but Sega management later asked them to also use the SH-4 chip. Both processors have been described as “off the shelf” components. In 1997, 3dfx began its IPO, and as a result of legal obligations unveiled its contracts with Sega, including the development of the new console. This angered Sega of Japan executives, who eventually decided to use the Dural chipset and cut ties with 3dfx. According to former Sega of America vice president of communications and former NEC brand manager Charles Bellfield, presentations of games using the NEC solution showcased the performance and low cost delivered by the SH-4 and PowerVR architecture. He further stated that “Sega’s relationship with NEC, a Japanese company, probably made a difference [in Sega’s decision to adopt the Japanese team’s design] too.” Stolar, on the other hand, “felt the US version, the 3Dfx version, should have been used. Japan wanted the Japanese version, and Japan won.” As a result, 3dfx filed a lawsuit against both Sega and NEC claiming breach of contract, which would eventually be settled out of court. The choice to use the PowerVR architecture concerned Electronic Arts (EA), a longtime developer for Sega’s consoles. EA had invested in 3dfx but was unfamiliar with the selected architecture, which was reportedly less powerful. As recounted by Shiro Hagiwara (a general manager at Sega’s hardware division) and Ian Oliver (the managing director of Sega subsidiary Cross Products), the SH-4 was chosen while it was still in development and following a lengthy deliberation process because it was the only available processor that “could adapt to deliver the 3D geometry calculation performance necessary.” By February 1998, Sega had renamed the Dural “Katana” (after the Japanese sword), although certain hardware specifications such as random access memory (RAM) were not yet finalized.
Knowing that the Sega Saturn had been set back by its high production costs and complex hardware, Sega took a different approach with the Dreamcast. Like previous Sega consoles, the Dreamcast was designed around intelligent subsystems working in parallel with one another, but the selections of hardware were more in line with what was common in personal computers than video game consoles, reducing the system’s cost. According to Damien McFerran, “the motherboard was a masterpiece of clean, uncluttered design and compatibility.” Chinese economist and future Sega.com CEO Brad Huang convinced Sega chairman Isao Okawa to include a modem with every Dreamcast despite significant opposition from Okawa’s staff over the additional $15 cost per unit. To account for rapid changes in home data delivery, Sega designed the Dreamcast’s modem to be modular. Sega selected the GD-ROM media format for the system. The GD-ROM, which was jointly developed by Sega and Yamaha Corporation, could be mass-produced at a similar price to a normal CD-ROM, thus avoiding the greater expense of DVD-ROM technology. As the GD-ROM format can hold about 1 GB of data, illegally copying Dreamcast games onto a 650 MB CD-ROM sometimes required the removal of certain game features, although this did not prevent copying of Dreamcast software. Microsoft developed a custom Dreamcast version of Windows CE with DirectX API and dynamic-link libraries, making it easy to port PC games to the platform, although programmers would ultimately favor Sega’s development tools over those from Microsoft.
Sega held a public competition to name its new system and considered over 5,000 different entries before choosing “Dreamcast”—a combination of “dream” and “broadcast”. According to Katsutoshi Eguchi, Japanese game developer Kenji Eno submitted the name and created the Dreamcast’s spiral logo, but this claim has not been verified by Sega. The Dreamcast’s start-up sound was composed by the Japanese musician Ryuichi Sakamoto. Because the Saturn had tarnished Sega’s reputation, the company planned to remove its name from the console entirely and establish a new gaming brand similar to Sony’s PlayStation, but Irimajiri’s management team ultimately decided to retain Sega’s logo on the Dreamcast’s exterior. Sega spent US$50–80 million on hardware development, $150–200 million on software development, and $300 million on worldwide promotion—a sum which Irimajiri, a former Honda executive, humorously compared to the investments required to design new automobiles.
Despite taking massive losses on the Saturn, including a 75 percent drop in half-year profits just before the Japanese launch of the Dreamcast, Sega felt confident about its new system. The Dreamcast attracted significant interest and drew many pre-orders. Sega 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 chipsets 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. On November 27, 1998, the Dreamcast launched in Japan at a price of JP¥29,000, and the entire stock sold out by the end of the day. However, of the four games available at launch, only one—a port of Virtua Fighter 3, the most successful arcade game Sega ever released in Japan—sold well. Sega estimated that an additional 200,000-300,000 Dreamcast units could have been sold with sufficient supply. Key Dreamcast software titles Sonic Adventure and Sega Rally Championship 2, which had been delayed, arrived within the following weeks, but sales continued to be slower than expected. Irimajiri hoped to sell over 1 million Dreamcast units in Japan by February 1999, but less than 900,000 were sold, undermining Sega’s attempts to build up a sufficient installed base to ensure the Dreamcast’s survival after the arrival of competition from other manufacturers. There were reports of disappointed Japanese consumers returning their Dreamcasts and using the refund to purchase additional PlayStation software. Seaman, released in July 1999, was considered the Dreamcast’s first major hit in Japan. Prior to the Western launch, Sega reduced the price of the Dreamcast to JP¥19,900, effectively making the hardware unprofitable but increasing sales. The price reduction and release of Namco’s Soul Calibur helped Sega to gain 17 percent on its shares