10 Reasons Why The Sega Dreamcast Failed

In anticipation of the Dreamcast’s launch, Sega purchased sports game developer Visual Concepts, (the company that would become responsible for the “2K-series” of videogames), in order to produce sports games for their new console. Electronic Arts, the publisher behind the popular Madden, NBA Live, and FIFA series, among others, informed Sega that they would not be supporting the Dreamcast unless they had the exclusive rights to produce sports titles for the console.

Sega scoffed and decided to continue with their original plan. This turned out to be unwise, as EA titles were growing in popularity, and the Madden brand in particular was becoming a console-seller. The 2K series would prove to be critically acclaimed, but the mass public never got to experience these titles because they were drawn to EA’s brand on competitors’ consoles. NBA 2K lives on but Visual Concepts sold the rights to Take-Two Interactive. Sega no longer profits from the series and this decision to alienate EA hurt them dearly during the Dreamcast generation.

Sega ran television spots non-stop, advertising the Dreamcast in anticipation of its launch. The console was innovative and powerful, yet the advertising did not focus on the right selling points. The commercials didn’t even sway consumers away from the PlayStation brand. Instead, they ran with the slogan “It’s thinking.”

This silly slogan would go on to be mocked by many in the industry, as it didn’t accurately point out the benefits of Sega’s Dreamcast and the slogan itself was unclear in its meaning. When Microsoft entered the console war, they focused heavily on their games. Their advertising showed the console’s power and focused on the giant “X” on the center of the console, branding it very well. Sega failed to attract much lasting interest in their console and advertising was a key culprit.

After a successful North American launch, Dreamcast sales steadily declined despite several price drops. These price drops, in an attempt to compete with Sony, caused the console to be sold at a significant loss. Sega could not afford these losses, as their poor sales in Japan added very little to their revenue stream. With the console losing money, Sega had to reduce their R&D development. They were unable to continue the broadband experiment they were expecting to venture into with the system, no longer housing dedicated servers. They began to lose third party support and the losses affected everything in their bottom-line.

Unable to continue with these financial woes, Sega decided it was time to abandon the Dreamcast. Had the console been built slightly cheaper, they likely could have gotten away with selling it at such a low price early on. Deciding to opt for expensive components proved fruitless however, as Sony’s inexpensive build was able to be sold at a cheaper price while attracting a much larger audience.

One of the more impressive features of the Dreamcast was its online capabilities. The first console to include a built-in modem for internet support and online play, the Sega Dreamcast was truly ahead of its time. Sega even released a Broadband adapter for the console post-release (the build-in modem was 56K) but unfortunately, Broadband internet had not expanded to the level Sega had anticipated, with many areas in 1999 still not even offering broadband access. Factor in the millions of consumers who had not yet made the choice to move to broadband and one of Sega’s distinctive features was rendered practically obsolete. The Dreamcast’s online play was well received in critical circles, but was unable to attract casual consumers to purchase the console. Ironically, only a few short years later, internet access would come to be a must-have feature in consoles. Sega had the right idea, but the Dreamcast simply launched too early.

The Dreamcast’s controller was innovative thanks to its Visual Memory Unit (VMU), a screen/memory card hybrid which could be detached and offered portable play with some titles. The controller was comfortable and its analog stick was solid and well-built, however, the lack of a second stick on the right side gave the controller the appearance of being a step back from the PlayStation’s DualShock. Sony launched its dual stick controller in 1997, so Sega had no excuses not to include a second analog stick two years after the fact. The lack of a second stick made first-person shooters inferior on the console and made adventure games more difficult to play due to the lack of a proper rotating camera. 3D game engines were still relatively new when the Dreamcast arrived, but Sega still had a full two years to see how beneficial Sony’s second analog stick was in this space. When comparing the controllers side-by-side, the Dreamcast was simply missing an essential component.

Third party support is a very important factor in a gaming platform’s success, as Nintendo has learned the hard way on multiple occasions. Supporting a console with first party games is beneficial as they are more profitable, but in order for a console to make real headway in terms of sales, providing more games is the simplest way to attract customers. When multiple competing consoles offer the same popular game but that game is missing from Sega’s library, that’s a problem. For the Dreamcast, Sega did acquire plenty of third party support; the problem was that the biggest developers of the time shunned the Dreamcast. EA Sports and Squaresoft were the notable omissions and Rockstar North chose not to support the Dreamcast either. Claiming the console was difficult to develop games for, many companies decided it wasn’t worth producing titles on the Dreamcast (and it didn’t help that the console’s install base wasn’t very high either).

A major reason for the Dreamcast flopping in Japan was the controller’s size. Japanese consumers preferred a smaller controller, with the PlayStation’s DualShock proving to be the perfect proportion. The Japanese public would also shun the original Xbox controller however, Microsoft quickly launched a remodeled version titled the “Controller S”  a more compact version that closely resembles the controller design of the company’s current console, the Xbox One. Sega never redesigned the Dreamcast’s controller and its large size alienated a very large consumer base.

In North America, the controller’s size was also criticized, but it’s in Japan where this truly hurt Sega. Hardly even breaking into the territory, Sega was forced to rely on the North American market, which led to devastating financial losses and the eventual decision to discontinue the Dreamcast entirely. While it by no means would have reversed the console’s fortunes entirely, a redesigned controller may have helped to stop the bleeding, at least a little bit.

After incurring massive financial losses with the Saturn, Sega’s previous home console, development on the Dreamcast began with a view toward the future. As previously mentioned, the console would prove to be innovative, offering online play and a VMU for a second screen on its controller. The console featured great titles such as Shenmue and Soul Calibur, and yet it failed to sell. This can largely be attributed to momentum or a lack thereof, as gamers were let down by the Saturn and many no longer desired to support Sega.

This came on the heels of the Sega brand also being tarnished by several other failures, such as the Game Gear, 32X, and Sega CD. Sega attempted to brush these consoles aside with the revolutionary Dreamcast but it simply did not work. There were gamers who enjoyed the Saturn and felt disrespected when Sega discontinued that system so early in its lifestyle. Consoles were expensive and with the knowledge that Sega may abandon one early in favor of something new, many consumers chose not to take a gamble on Sega’s new console. With the PlayStation brand receiving positive momentum at the same time, this was an obstacle that Sega just couldn’t overcome.

For similar reasons to the Nintendo GameCube’s ultimate failure, the Sega Dreamcast fell flat in the face of the PlayStation 2 and later the Xbox due to its lack of built-in DVD playback support. DVD playback was a novel feature at the time, as many households did not yet have a DVD player in their possession. DVD players were still quite expensive, therefore purchasing a console that could both play games and play DVDs was enticing. The PlayStation 2 was a relatively inexpensive DVD player at the time even without accounting for its ability to play games. Sega could not compete with this feature when they opted to use a proprietary disk format, GD-ROM. GD-ROMs were less expensive to produce, but only held 1 GB of data (compared to 4 GB for a DVD). Unsurprisingly, the lack of a built-in DVD player was a dagger for Sega.

The Dreamcast was released in Japan in November 1998 and nearly a year later in North America. This was an odd release window, as the PlayStation 2 would release in Japan in March of 2000 and was announced around the time the Dreamcast released in North America. Had the Dreamcast launched in 1998 in all territories, they likely would have seen more success. However, failing to get a foothold in Japan against Japanese competitors Sony and Nintendo, the North American market was always going to be essential to the Dreamcast’s success.

When consumers heard the popular PlayStation brand would receive an update — one that featured DVD playback, had the controller they preferred and more popular game series they were accustomed to — the Dreamcast suffered. Many consumers decided to wait to purchase their next console, as the later release date had many thinking the PlayStation 2 would be significantly more powerful than the Dreamcast (in reality, it was actually pretty similar). For those deciding not to wait, the PlayStation 1 and Nintendo 64 were being sold at budget prices and were an attractive proposition  as consumers waited for their successors. The Dreamcast was simply not released at a good time, as it arrived in-between console generations, which caused confusion and reduced its appeal.