Some people have always lived in a world where Sonic the Hedgehog shows up on PlayStation, Xbox, and Nintendo platforms, but it wasn’t always that way. In January 2001, the company announced it would stop making its own hardware and go third-party.
Yes, that actually happened.
This story was originally posted on October 30, 2015. We’re reuploading it today to commemorate the fifteenth anniversary of March 31, 2001, which is the day Sega officially discontinued the Dreamcast. Long live the Dreamcast.
There were long-running rumors about Sega making games for other platforms, but they gained steam thanks to Japanese newspaper Nihon Keizai Shimbun.
Per an IGN report from January 23:
“Rumors have once again surged to the forefront of the Dreamcast newswire: the typically reputable Nihon Keizai Shimbun reports that Sega has concrete plans to cease production of its Dreamcast hardware in March, and will move forward with plans to develop for other hardware platforms, specifically, Sony’s PlayStation 2 and Nintendo’s GameBoy Advance platforms at the start of fiscal year 2001.
The story goes on to say that Sega will continue to market the Dreamcast console, but will cut off sales as soon as it gets rid of its existing inventory. The Japanese newspaper also indicates that Sega will continue to support the Dreamcast via software in 2001, with some 100 titles expected to hit the console over the course of the year.”
Sega immediately denied this was happening in a statement to the LA Times:
“We totally, utterly confirm our commitment to the Dreamcast technology and platform,” said Charles Bellfield, director of marketing for Sega of America Inc. in San Francisco, the U.S. arm of Sega Enterprises of Japan.
Bellfield was even more straight forward with IGN, however:
“Obviously it’s a very slow news day, and people are very bored.”
At the time, Microsoft hadn’t released the Xbox, but the company was quoted as saying “Sega games would look great on Xbox,” which only stoked the flames.
That Sega would consider ditching the Dreamcast wasn’t shocking, though. It went head-to-head with the PlayStation 2, even launching a full year ahead of Sony’s machine, and it didn’t make a difference. Sony was clobbering Sega, and the writing was on the wall. It was only a matter of time before they gave up.
Again, per the LA Times:
Sega’s Dreamcast fell to a meager 15% of new game consoles sold last year in the U.S., compared with 47% for Sony and 37% for Nintendo. In 1999 the Dreamcast claimed a 22% share, said the NPD Group Inc., a market research firm in Port Washington, N.Y.
Sega was poised to lose hundreds of millions of dollars as it struggled to stay afloat. Committing to the Dreamcast could have sunk the company. Sales for Dreamcast were so sluggish that Kmart actually stopped stocking it.
In the months prior, legitimate reports suggested Nintendo would buy Sega, with The New York Times writing negotiations had been going on for months:
According to executives close to the negotiations, the two companies are holding discussions that could lead to Nintendo acquiring Sega for about $2 billion, though the terms of the transaction are still being negotiated.
The talks have been going on in fits and starts for months, the executives said, and the deal could still collapse.
A Sega spokesman, Munehiro Umemura, strongly denied a deal was in the works. He said the idea was “absolutely outrageous” and used a Japanese word that can mean unfounded rumor or outright falsehood.
A spokesman for Nintendo laughed when asked whether the companies were in talks. “In this industry there are various kinds of rumors.”
Supposedly, Sega had also talked to Microsoft about a possible sale. No dice.
The New York Times’ sources pointed to management disarray as one reason Sega had struggled in recent years, as the company wondered whether it should double down on software, not hardware. This idea had been discussed before.
In a recent interview with the Yomiuri Shimbun, Mr. Okawa [Sega’s founder] said the company was likely to abandon the hardware business altogether. “I have worked in software all my life, and I feel uncomfortable being in the hardware business,” he told the newspaper. “In fact, when I became chairman of Sega in 1997, I said we should stop producing hardware.”
On January 24, 2001, the company finally fessed up to the rumors, announcing it was in negotiations with Sony and Nintendo about developing for the PlayStation 2 and Game Boy Advance. It claimed to be committed to the Dreamcast, promising more than 100 games were coming in the following year. It was also hoping to license the Dreamcast’s architecture to other devices.
It was only a week later, on January 31, that it announced plans to halt production of the Dreamcast, effective immediately. The dream was dead.
Per an SF Gate story at the time:
The Japanese firm, whose U.S. headquarters are in San Francisco, will immediately halt Dreamcast production. The move brings to an end a 36-year run in the game hardware business, which began in 1965 with a lowly pinball machine.
Beginning Sunday, Sega will sell Dreamcast for $99 dollars — down from $150 — in an effort to clear remaining units from inventory by March 31.
“When you look at the cost of creating a hardware brand in the face of our competitors, with the war chest of Nintendo and the $500 million Microsoft is spending on Xbox, Sega can’t compete with those companies at that game,” said Sega spokesman Charles Bellfield.
Sega, which has faced an uphill battle since its market share in the hardware business slid from 50 percent to less than 1 percent in the mid-1990s,
Not long after, the company released more details about its plans.
“Sega is a company that has always dared to innovate and push this industry forward,” said Peter Moore, president and COO, Sega of America. “Sega will continue to do so with its new strategy, and the result for consumers will be what you would always expect from a ‘rules-breaker’ like Sega, a library of pioneering, jaw-dropping content now available any way you want to play.”
If Peter Moore rings a bell, it’s because he’s COO of Electronic Arts these days.
Sega’s first third-party games were to be Virtual Fighter 4 on PlayStation 2, which was never released on the Dreamcast. It also revealed Chu Chu Rocket, Puyo Puyo, and Sonic the Hedgehog Advance were headed to Game Boy Advance.
The company even made a cute logo to “celebrate” the occasion:
Sega would eventually announce exclusives for the Xbox and GameCube, as it began to put the Dreamcast to bed and become a full third-party developer.
The company stuck to its word, and hasn’t produced a new console since. That doesn’t stop rumors of a Dreamcast 2 every few years, though. Hey, if they can bring The X-Files back, why not revive the Dreamcast, as well? I want to believe.
That Actually Happened is a weekly series at Kotaku in which we highlight interesting moments in gaming history. So far, we’ve revisited when Sonic kissed a human, a live game show on Xbox 360, and Sony throwing a God of War party with a dead goat. If you have any suggestions for future entries, please let us know in the comments below!