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Image: Nintendo Life

Sega's Dreamcast holds a special place in the history of home video game entertainment. It was an innovative beast, being the first home console to offer online connectivity out of the box and setting the modern trend for sourcing internal components from PC manufacturers. It also proved to be Sega's last entry in the notoriously difficult hardware development race and brought an end to the days when arcade conversions sold consoles. Released in 1998, the ill-fated machine would be culled just three years later by a Sega undergoing seismic internal restructuring that would ultimately see the company emerge as one of the world's leading third party software publishers.

The Dreamcast enjoyed a somewhat convoluted genesis. Back in late '90s Sega was still smarting from dismal hardware disasters such as the Mega CD and 32X, and its Saturn console was losing the 32-bit war against Sony's Playstation. As is usually the case when companies are against the wall, cracks began to appear inside Sega's corporate architecture. Newly appointed Sega of Japan president Shoichiro Irimajiri decided that the company's internal hardware development division was firing blanks and was determined to look elsewhere for the talent to create a new machine. This was not an entirely new stance; as early as 1995 there were rumours that the Japanese company would team up with aerospace firm Lockheed Martin to develop a new graphics processing unit, and while this proposed union came to nothing it set the wheels in motion for further excursions abroad in search of new hardware partners.

Around 1997 Irimajiri decided to enlist the services of Tatsuo Yamamoto from IBM Austin to work on a new hardware project. The idea was that the team would operate externally and therefore be unhampered by the internal politics that were pervading Sega's Japanese HQ at the time. Unsurprisingly, when Hideki Sato - head of hardware development at Sega Japan - caught wind of this he was less than happy and made it clear that any technical production should happen within the walls of Sega Japan. This resulted in two different teams working in secrecy on two different prototypes in two different parts of the world.

"Black Belt" was the original codename given to the machine being constructed in the US, which was based around 3Dfx Interactive's Voodoo 2 graphics technology. The Japanese counterpart was initially known as "White Belt" (later Katana) and made use of NEC/VideoLogic's PowerVR2 chip. Both machines utilized 'off the shelf' central processors, with the American team picking the IBM/Motorola PowerPC 603e and their Japanese competitors favouring the Hitachi's SH4. Ironically, despite Irimajiri's bold move of outsourcing development, it was Sato's team that ultimately won in the end with the Katana prototype being selected as the basis for the new machine. Naturally, rumours abound that Irimajiri's move was merely a bluff in order to give the Japanese hardware division a much-needed kick up the backside. A disgruntled 3dfx promptly sued for breach of contract, claiming that documents had been signed that stated that Sega would use their technology in the proposed "Black Belt" concept for the new console. The two projects, which had been kept top secret up till this point, were made known to the world thanks to 3dfx's lawsuit against both Sega and PowerVR2 manufacturer NEC. The former was reportedly furious about having its dirty washing aired so publicly and the legal impasse would later have to be settled out of court for an undisclosed sum. It was an inauspicious start for the life of the new super console.

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Image: Nintendo Life

With the technology decided upon, the next step was to give the new project a name. With Sega's stock pitifully low the company was well aware that the machine would have to represent a new beginning and distance itself from the tainted public perception created by the poorly performing Saturn. To the Sega management, this meant one thing – completely removing the Sega name from the console and establish a new gaming brand in the same way Sony had done with the successful Playstation. According to reports over 5,000 different names were considered, with the positive-sounding "Dreamcast" winning out. A combination of "dream" and "broadcast", this pleasant moniker hinted at the expanded connectivity the system would eventually bring to the home via its online services. Thankfully for fanboys, Irimajiri's management team would later wisely relent and permit the Sega logo to be included to the console's outer casing.

Internally the new system was a marvel of cost cutting, off the shelf componentry; Sega had certainly learnt valuable lessons from the failure of the Saturn. The Dreamcast's 32-bit predecessor was badly hampered by high production costs and the complex nature of the hardware made it difficult for programmers to get the most out of the system. With Dreamcast, Sega made sure the console was cheap to manufacture by using parts more commonly associated with PCs; the motherboard was a masterpiece of clean, uncluttered design and compatibility with Microsoft's Window's CE operating system meant that development would be a potentially pain-free exercise - although it should be noted that in the long term, programmers favoured Sega's own development tools over Microsoft's. In order to keep costs down, the decision was made not to include a DVD drive as the technology was still quite expensive at the time. Instead, Sega used its own proprietary GD-ROM format, which could store a gigabyte of data. Not including DVD compatibility would later prove to be a costly mistake.

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Image: Nintendo Life

If proof is needed to ascertain how serious Sega was about the new machine one only has to look at the amount of money involved in designing, creating and marketing the console. Around $500 million was earmarked for the Dreamcast worldwide, with roughly half of that figure being spent on creating the hardware and software. The rest was splashed on promoting the machine all over the globe. Irimajiri, who found fame and fortune in the automotive industry with Honda, jokingly commented a few months before the Japanese release that the figures baffled him – car manufacturers would spend roughly the same amount of creating a new automobile, yet here was Sega throwing millions at the production of a diminutive box that sits under your telly. Nevertheless, Sega's Japanese president was well aware that this was the amount of capital it took to get a new machine on the shelves and into the consciousness of the consumer.

The company knew that it would take something special to regain market share from the dominant Sony. "We have the strength of a beaten company" Sega's PR guru Yasushi Akimoto commented at the time. But for all this bravado, the new hardware launch was undoubtedly a huge gamble. The poor performance of the Saturn had pushed Sega into the red, and even before the Dreamcast hit store shelves in Japan the distressed firm had posted a shocking 75 precent drop in half-year profits. With such a massive amount of money being devoted to doing battle in the console arena once more, the top brass at Sega knew that this could potentially be the last throw of the dice.

Nevertheless, as the console's Japanese launch grew ever closer there was a tangible sense of confidence in the Sega camp. Consumer interest was high and retailers reported that strong pre-orders were expected. However, this optimism was knocked slightly when NEC made the shock announcement that it was struggling with the manufacture of the PowerVR2 chipset. Issues were being encountered when the company mass-produced the chip at the required 0.25micron thickness, with 1-in-3 processors failing to meet production standards, and this invariably resulted in Sega having to halt Japanese pre-orders - which had reached around 80,000 by this stage - and reduce the projected number of units available at launch from 500,000 to 150,000. To make matters worse, several key titles such as Sega Rally 2 and Sonic Adventure were also hit by development delays.

The machine was finally launched in Japan on November 27th, 1998 and the 150,000 available units promptly sold out before the day was over. In an eerie precedent to the Saturn launch four years earlier - where Virtua Fighter sold almost on a 1-to-1 basis with hardware - the only title really worth bothering with on day one was Virtua Fighter 3: Team Battle. Unperturbed by the PowerVR2 production fiasco, Sega confidently predicted that it would sell half a million units by March 1999. When this target was missed and the news started to filter through that key software titles were failing to sell in the numbers expected - Capcom's stunning Power Stone was one high-profile commercial disaster, prompting a public apology from the developer, which wrongfully seemed to assume the end product wasn't up to scratch - those individuals inside the walls of Sega of Japan's boardroom started to worry. Prior to the Western launch the price of the Japanese console was reduced from 29,000 Yen ($240 / £165) to 19,900 Yen ($165 / £110), effectively removing all profit from hardware sales. The reduction had the desired effect and units started to sell in larger numbers, although this could have had something to do with the release of Namco's superlative Soul Calibur, which when confirmed as coming to Sega's 128-bit console caused a 17 percent jump in the value of Sega's stock market shares.

As the Dreamcast was struggling to maintain pace in its homeland, Sega's American and European divisions prepared to launch the console in their respective territories. The North American release occurred on September 9th 1999, with the European début taking place just over a month later. The US launch was an astonishing success with Sega struggling to meet the initial demand for the product. Half a million Dreamcast consoles found their way into US homes in the first two weeks alone – something the machine had failed to do in several months in Japan. The company proudly boasted that it made $98 million on software and hardware sales thanks to the September 9th launch; by anyone's standards it was an amazingly successful introduction and ranks as Sega's most accomplished hardware launch in the territory. In Europe the figures made for equally encouraging reading; by Christmas 1999 half a million units had been sold meaning that Sega Europe was six months ahead of the schedule it had set itself.

Given Sega's strong coin-op heritage, the Dreamcast unsurprisingly saw many arcade conversions during its lifespan. Shortly before the Japanese launch Sega announced that it would be replacing its popular Model 3 arcade hardware with a new standard called NAOMI (New Arcade Operation Machine Idea). NAOMI and Dreamcast were essentially the same systems, with the former possessing twice as much RAM and four times as much sound memory. This meant that home conversions were more often than not exact replicas of what was seen in the arcade, and for the first time since the days of the Neo-Geo AES the term "arcade perfect" actually meant what it said. A slew of Sega-produced ports arrived including Crazy Taxi, Outrigger, 18 Wheeler, Ferrari F355 Challenge, Dynamite Deka 2 and Virtua Tennis. Superb support also came from many leading Japanese arcade companies, most notably former Saturn ally Capcom, which not only released some excellent NAOMI titles (Capcom vs. SNK, Marvel vs. Capcom 2 and Project Justice to name but three) but also seemed to publish a new 2D fighter on an almost weekly basis, with titles like Street Fighter III, Darkstalkers/Vampire Chronicle and Jojo's Bizzare Adventure proving that the firm was as serious about supporting the Dreamcast as it had been with the Saturn.

Sadly, consolidating further third party support wasn't easy. Companies like EA had been burnt by the failure of the Saturn and ignored the Dreamcast throughout its life, choosing instead to stick with the far more profitable PlayStation. Others adopted a cautious "wait and see" policy towards the machine, commenting that they would review their stance when solid sales figures came through. Unfortunately, as positive as the Western launches had been, Sega struggled to keep the momentum going. With Sony's PlayStation 2 looming menacingly on the horizon, many gamers decided to stick with their current machine rather than upgrading to the Dreamcast, and as a result interest started to wane. Price cuts, like the one witnessed so early on in Japan, predictably followed in the US and Europe but these failed to be a long-term solution to the problem.

Invariably, as sales started to diminish, more and more developers chose not to bring their product to the troubled console, and even those that had previously provided vital support began to lose interest. Namco – an essential partner and the company responsible for the system-defining Soul Calibur – dropped Dreamcast support almost as swiftly as it had taken it up. Therefore, throughout the life of the machine it fell largely to Sega to produce quality software, but while the company was undoubtedly adept at producing engaging coin-op experiences, it struggled to cater for a new audience of gamers that had been weaned on deeper, more feature-packed titles on Sony's PlayStation. Sega's coin-op ports were unquestionably arcade perfect, but in the eyes of many critics that was proving to be the problem; arcade machines are designed to entertain in short bursts and do not usually stand up to prolonged play within the home. Contemporary reviewers complained of lightweight coin-op ports and even the feature-rich world of Shenmue couldn't alter the often-erroneous perception that the Dreamcast was a machine packed with titles that failed to keep your attention for more than a few hours.

Dreamcast's ace in the hole - online connectivity – could have arrested such a sorry slide, but Sega never really managed to exploit this facet to its fullest potential. The company was unforgivably slow in getting online services up and running in the three major territories, and when the promise of playing against "6 billion players" (a rather lofty boast made by Sega Europe which seemingly assumed that everyone on the face of the planet would buy a machine) finally came to fruition, it was found to be quite underwhelming due to the slow speed of the bundled modem.

When the PlayStation 2 launched in March 2000 after a series of troublesome delays, it became obvious that the writing was on the wall for Sega's 128-bit challenger. Ironically, the PS2's initial line-up of software was arguably inferior to what was being released on the Dreamcast at the time, but Sony's brand was so strong it sold on the name alone. In the US the Dreamcast was given a shot in the arm as Sega announced that it would grant a $150 rebate – basically the price of a Dreamcast system – to anyone who signed up to the SegaNet online service for two years. Another price cut followed and these two manoeuvres resulted in an astonishing 156 percent rise in hardware sales. However, it's always worth looking at the bigger picture when quoting numbers like these; the Dreamcast still only held around 15 percent of the US gaming market, with Sony and Nintendo out in front with 50 and 35 percent respectively.

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Image: Nintendo Life

Sega was in dire financial straits before the Dreamcast arrived on the scene, but the disappointing performance meant the company was in even more trouble. It clearly couldn't continue and although the announcement in 2001 that Sega would be discontinuing Dreamcast production and moving into third party publishing came as a shock to hardcore fans (and also the US and European offices, who had to face the ignominy of learning about the future of their parent company in the same manner as the average person on the street), most industry experts had been predicting the move for months beforehand. Sega was quick to point out that games were still in development for the Dreamcast, but for all intents and purposes the Japanese firm had taken its eye off the struggling system and was looking very much to the future.

However, the Dreamcast's connection with NAOMI proved to be a crucial lifeline. The arcade system was incredibly popular and Japanese coin-op developers, finding their earnings diminishing as the industry began to shrink, gladly took up the low-cost solution that NAOMI provided. Over the next few years these companies would keep the memory of the Dreamcast alive with a series of shooting titles that, after successful arcade runs, were granted small-scale domestic releases. Titles such as Radilgy, Trizeal, Under Defeat and Trigger Heart Exelica all found their way onto the system, and G-Rev's Border Down was so highly sought-after that it recently received a welcome reprint.

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Image: Nintendo Life

Pinpointing exactly why the Dreamcast failed is trickier than you might imagine. Was it lack of third party support? Over-reliance on arcade conversions? Poor support of online services that could have set it apart from its rivals? Lack of a DVD drive? The impending release of the PS2? Poor marketing in key territories? The most likely answer is that it was a combination of all these factors, but when dissecting the troubled history of the console it's easy to overlook just how potent a gaming platform it really was.

The thrill of playing Crazy Taxi in the arcade knowing full well that a pixel-perfect conversion (and not some cut-down port) was set to arrive on the Dreamcast is an experience gamers are unlikely to witness again. Rudimentary as it was, online play with a console was nothing short of revolutionary at the time, and Sega basically offered the access to the internet for under £200 / $290 – something that PCs of that era were asking an awful lot more for. With titles of the calibre of Sonic Adventure 2, Rez, Jet Set Radio, Daytona USA 2001, Dead or Alive 2, House of the Dead 2 and Skies of Arcadia, the Dreamcast was unquestionably a heaven for video gamers that appreciated the finer things in life. Sadly, out of those "6 billion" potential players that Sega spoke about, the message only seemed to filter through to a lucky few.

This feature originally appeared in its entirety in Imagine Publishing's Retro Gamer magazine, and is reproduced here with kind permission.