Dreamcast

Hayao Nakayama resigned as president of Sega in January 1998 in favor of Irimajiri, and Stolar became CEO and president of Sega of America. Following five years of generally declining profits, reporting a consolidated net loss of (). Shortly before announcing its financial losses, Sega announced the discontinuation of the Saturn in North America to prepare for the launch of its successor. Rumors about the upcoming Dreamcast—spread mainly by Sega—leaked to the public before the last Saturn games were released.

Development

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. Dreamcast development was unrelated. Sato and his group chose the Hitachi SH-4 processor architecture and the VideoLogic PowerVR2 graphics processor, manufactured by NEC, in the production of the mainboard. Initially known as Whitebelt, the 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),

Knowing the 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, but the selections of hardware were closer to personal computers than video game consoles, reducing cost. According to Damien McFerran, "the motherboard was a masterpiece of clean, uncluttered design and compatibility". To account for rapid changes in home data delivery, Sega designed the modem to be modular. Jointly developed by Sega and Yamaha, the GD-ROM could be mass-produced at a similar price to a normal CD-ROM,

The Dreamcast was finally revealed on May 21, 1998 in Tokyo. Sega held a public competition to name its new system and considered over 5,000 different entries before choosing "Dreamcast"—a portmanteau of "dream" and "broadcast". Former Sega executive Kunihisa Ueno confirmed in his biography that a branding agency called Interbrand created the logo for the console, with Kenji Eno volunteering to name the console. Eno was paid for his involvement and signed a NDA to prevent his involvement from going public.

The Dreamcast's startup sound was composed by the Japanese musician Ryuichi Sakamoto. Because the Saturn had tarnished its reputation, Sega planned to remove its name from the console and establish a new gaming brand similar to Sony's PlayStation, but Irimajiri's management team decided to retain it.

Launch

Japan

Despite a 75 percent drop in half-year profits just before the Japanese launch, Sega was confident about the Dreamcast. It drew significant interest and many pre-orders. 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 , and the 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 Dreamcast units could have been sold with sufficient supply.

Sega had announced that Sonic Adventure, the next game starring its mascot, Sonic the Hedgehog, would launch with the Dreamcast and promoted it with a large-scale public demonstration at the Tokyo Kokusai Forum Hall, but it and Sega Rally Championship 2 were delayed. Seaman, released in July 1999, became the Dreamcast's first major hit in Japan. Prior to the Western launch, Sega reduced the price of the Dreamcast to , effectively making it unprofitable but increasing sales. The reduction and the release of Namco's Soulcalibur helped Sega gain 17 percent on its shares.

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Working closely with Midway Games (which developed four North American launch games for the system) and taking advantage of the ten months following the Dreamcast's release in Japan, Sega of America worked to ensure a more successful US launch with a minimum of 15 launch games. With lingering bitterness over the Saturn's early release, Stolar repaired relations with major US retailers, with whom Sega presold 300,000 Dreamcast units. Sega of America's senior vice president of marketing 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. 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."

The Dreamcast launched in North America on September 9, 1999, at a price of , which Sega's marketing dubbed "9/9/99 for ". Sega set a new sales record by selling more than 225,132 Dreamcast units in 24 hours, earning in what Moore called "the biggest 24 hours in entertainment retail history". Significant launch games included Sonic Adventure, the arcade fighting game Soulcalibur, and Visual Concepts' football simulation NFL 2K.

Europe

Sega released the Dreamcast in Europe on October 14, 1999, By Christmas of 1999, Sega of Europe had sold 500,000 units, six months ahead of schedule. Sales did not continue at this pace, and by October 2000, Sega had sold only about one million units in Europe. As part of Sega's promotions of the Dreamcast in Europe, it sponsored four European football clubs: Arsenal (England), Saint-Étienne (France), Sampdoria (Italy), and Deportivo de La Coruña (Spain).

Australia and New Zealand

Through the regional distributor Ozisoft, the Dreamcast went on sale in Australia and New Zealand on November 30, 1999, at a price of . The launch was planned for September, but was delayed due to problems with Internet compatibility and launch game availability, then delayed again from the revised date of October 25 for various reasons. There were severe problems at launch; besides a severe shortage of the consoles, only six of the thirty planned launch games were available for purchase on day one with no first-party software included, and additional peripherals were not available in stores.

The Ozisoft representative Steve O'Leary, in a statement released the day of launch, explained that the Australian Customs Service had impounded virtually all the supplied launch software, including demo discs, due to insufficient labeling of their country of origin; Ozisoft had received them only two days before launch, resulting in few games that were catalogued and prepared for shipment in time. O'Leary also said that the Dreamcast's high demand in other markets had reduced the number of peripherals allotted to the region. Further complicating matters was the lack of an internet disc due to localization problems, and delays in securing an Internet service provider (ISP) contract, which was done through Telstra the day before launch. The online component was not ready until March 2000, at which point Ozisoft sent the necessary software to users who had sent in a filled-out reply paid card included with the console. The poor launch, combined with a lack of advertising and a high price point, produced lackluster sales in Australia; two large retail chains reported a combined total of 13 console sales over the first few days after launch.

Competition

thumb|The [[PlayStation 2|PS2 provided tough competition for the Dreamcast.]]

Though the Dreamcast launch was successful, Sony held 60 percent of the overall video game market share in North America with the PlayStation at the end of 1999. Sony estimated the PS2 could render 7.5 million to 16 million polygons per second, whereas independent estimates ranged from 3 million to 20 million, compared to Sega's estimates of more than 3 million to 6 million for the Dreamcast.

US Dreamcast sales—which exceeded 1.5 million by the end of 1999—began to decline as early as January 2000. Poor Japanese sales contributed to Sega's ¥42.88 billion ($404 million) consolidated net loss in the fiscal year ending March 2000, which followed a loss of ¥42.881 billion the previous year and marked Sega's third consecutive annual loss. Although Sega's overall sales for the term increased 27.4%, and Dreamcast sales in North America and Europe greatly exceeded expectations, this coincided with a decrease in profitability due to the investments required to launch the Dreamcast in Western markets and poor software sales in Japan. He and Sega's developers focused on the US market to prepare for the upcoming launch of the PS2. To that end, Sega of America launched its own internet service provider, Sega.com, led by CEO Brad Huang. Although Sega had previously released only one Dreamcast game in the US that featured online multiplayer, ChuChu Rocket!, the launch of SegaNet combined with the release of NFL 2K1, with a robust online component, was intended to increase demand for the Dreamcast in the US market. Sega employed aggressive pricing strategies around online gaming; in Japan, every Dreamcast sold included a free year of internet access, which Okawa personally paid for. Prior to the launch of SegaNet, Sega had already offered a $200 rebate to any Dreamcast owner who purchased two years of internet access from Sega.com. To increase SegaNet's appeal in the US, Sega dropped the price of the Dreamcast to (compared to the PS2's US launch price of ) and offered a rebate for the full price of a Dreamcast, and a free Dreamcast keyboard, with every 18-month SegaNet subscription. Instead of an expected profit, for the six months ending September 2000, Sega posted a () loss, with a projected year-end loss of . This estimate more than doubled to , and in March 2001, Sega posted a consolidated net loss of (). While the PS2's October 26 US launch was marred by shortages, this did not benefit the Dreamcast as much as expected; many consumers continued to wait for a PS2, while the PSone, a remodeled version of the original PlayStation, became the bestselling console in the US at the start of the 2000 holiday season. According to Moore, "The PlayStation 2 effect that we were relying upon did not work for us... People will hang on for as long as possible... What effectively happened is the PlayStation 2 lack of availability froze the marketplace." Eventually, Sony and Nintendo held 50 and 35 percent of the US video game market, while Sega held only 15 percent.

On May 22, 2000, Okawa replaced Irimajiri as president of Sega. Okawa had long advocated that Sega abandon the console business. His sentiments were not unique; Sega co-founder David Rosen had "always felt it was a bit of a folly for them to be limiting their potential to Sega hardware", and Stolar had suggested Sega should have sold their company to Microsoft. In September 2000, in a meeting with Sega's Japanese executives and the heads of the company's major Japanese game development studios, Moore and Bellfield recommended that Sega abandon its console business and focus on software, prompting the studio heads to walk out. Nevertheless, on January 31, 2001, Sega announced the discontinuation of the Dreamcast after March 31 and the restructuring of the company as a "platform-agnostic" third-party developer, although with continued Dreamcast software support for some time. After a further reduction to $79, the Dreamcast was cleared out of stores at . The final Dreamcast unit manufactured was autographed by the heads of all nine of Sega's internal game development studios, plus the heads of Visual Concepts and Sega's sound studio Wave Master, and given away with all 55 first-party Dreamcast games through a competition organized by GamePro. Okawa, who had previously loaned Sega in 1999, died on March 16, 2001; shortly before his death, he forgave Sega's debts to him and returned his worth of Sega and CSK stock, helping Sega survive the transition to third-party development. As part of this restructuring, nearly one third of Sega's Tokyo workforce was laid off in 2001.

Aftermath and reaction

9.13 million Dreamcast units were sold worldwide. In the United States, official game releases continued until the end of the first half of 2002. Many hardware developers that worked on the Dreamcast also joined pachinko and pachislot company Sammy Corporation, who soon merged with Sega. Hideki Sato pushed for leftover Dreamcast parts being used as displays in the machines that Sammy develops, including the very successful Fist of the North Star pachinko machines.

After five consecutive years of financial losses, Sega finally posted a profit for the fiscal year ending March 2003.

The announcement of Sega's exit from hardware was met with enthusiasm. According to IGNs Travis Fahs, "Sega was a creatively fertile company with a rapidly expanding stable of properties to draw from. It seemed like they were in a perfect position to start a new life as a developer/publisher." Game Informer, commenting on Sega's tendency to produce under-appreciated cult classics, wrote: "Let us rejoice in the fact that Sega is making games equally among the current console crop, so that history will not repeat itself."

Technical specifications

Hardware

thumb|Die shot of the Dreamcast's ASIC

The Dreamcast measures and weighs . clocked at 200 MHz with an 8 kB instruction cache and 16 kB data cache and a 128-bit graphics-oriented floating-point unit delivering 1.4 GFLOPS. Special editions were created for Seaman and Resident Evil – Code: Veronica. Color variations were sold through the Dreamcast Direct service in Japan. Toyota also offered special Dreamcast units at 160 of its dealers in Japan. In North America, a limited edition black Dreamcast was released with a Sega Sports logo on the lid, which included matching Sega Sports-branded black controllers and two games.

Controllers and accessories

thumb|The Dreamcast controller has two dock connectors for use with multiple accessories, like the [[VMU.]]

thumb|upright|Dreamcast mouse accessory

The Dreamcast has four ports for controller inputs, and was sold with one controller. The controller is based on the Saturn 3D controller and includes an analog stick, a D-pad, four action buttons, start button and two analog triggers. and "lame" by Game Informers Andy McNamara. IGN wrote that "unlike most controllers, Sega's pad forces the user's hands into an uncomfortable parallel position". Both the analog joystick and triggers uniquely used Hall effect sensors, which requires less calibration and leads to fewer issues with joystick drift.

Various third-party controllers, from companies such as Mad Catz, include additional buttons and other features; Mad Catz and Agetec created racing wheels for racing games. but some third party light guns were available. Although it was designed for fishing games such as Sega Bass Fishing, The Dreamcast can connect to SNK's Neo Geo Pocket Color, predating Nintendo's GameCube – Game Boy Advance link cable. The original Japanese model and all PAL models have a transfer rate of 33.6 kbit/s, and consoles sold in the US and in Japan after September 9, 1999, feature a 56 kbit/s dial-up modem. Broadband service was enabled through the later release of a broadband accessory in 2000 in Japan, and early 2001 in the US.

Sega also produced the Dreameye, a digital camera that could be connected to the Dreamcast and used to exchange pictures and participate in video chat over the internet. Sega hoped developers would use the Dreameye for future software, as some later did with Sony's similar EyeToy peripheral. In addition, Sega investigated systems that would have allowed users to make telephone calls with the Dreamcast, and discussed with Motorola the development of an internet-enabled cell phone that would use technology from the console to enable quick downloads of games and other data.

Storage

In contrast to the Sega CD and Sega Saturn, which included internal backup memory, non-volatile memory, a D-pad and four buttons.

Sega officials noted that the VMU could be used "as a private viewing area, the absence of which has prevented effective implementation of many types of games in the past". in GD-ROM format. In Japan, the Dreamcast was launched with Virtua Fighter 3tb, Pen Pen TriIcelon, Godzilla Generations, and July. In North America, it launched with 19 games, including the highly anticipated Sonic Adventure, Soulcalibur, and NFL 2K. In Europe, it was planned to launch with 10 games; this increased to 15 after the launch was delayed.

The Dreamcast's game library was celebrated. In a retrospective, PC Magazines Jeffrey L. Wilson referred to Dreamcast's "killer library" and said that Sega's creative influence and visual innovation had been at its peak.

Some journalists have compared the demise of the Dreamcast with changing trends in the video game industry. In 1001 Video Games You Must Play Before You Die, Duncan Harris wrote: "One of the reasons that older gamers mourned the loss of the Dreamcast was that it signaled the demise of arcade gaming culture ... Sega's console gave hope that things were not about to change for the worse and that the tenets of fast fun and bright, attractive graphics were not about to sink into a brown and green bog of realistic war games." Jeremy Parish, writing for USgamer, contrasted the Dreamcast's diverse library with the "suffocating sense of conservatism" that pervaded the gaming industry in the following decade. According to Sega's head of product implementation, Tadashi Takezaki, the Dreamcast would have been Sega's last video game console no matter how it sold because of the changes in the market and the rise of PCs. He praised the Dreamcast for its features, saying in 2013, "The seeds we sowed with the Dreamcast are finally bearing fruit at this point in time. In some ways, we were going by the seat of our pants, but it was part of the Sega credo at the time — if it's fun, then go for it."

The Dreamcast remains popular in the video game homebrew community. By 2014, unlicensed Dreamcast games formatted for MIL-CD, a multimedia-enhanced format developed by Sega and supported by the Dreamcast, continued to be released. After Sega shut down the official Dreamcast servers, hobbyists developed private servers to allow games such as Phantasy Star Online to continue being played online. Hobbyists have restored online functions for over 50 Dreamcast games as of 2026.