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Business Retro Why Did Sega Fail? Did Piracy Kill the Dreamcast?

Kazza

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Jenovi, with another forensic look at Sega's past:



The video itself contains lots of interesting info and is well worth 20 minutes of your time, even if you feel you have already heard everything there is to know about the story of the Dreamcast. Still, I've summarised some of the most interesting parts below:

1. He doesn't believe that piracy killed the Dreamcast

His main argument against this often cited reason is the game attach rate as compared to other consoles of the time. As you can see, Dreamcast falls somewhere in the middle in this regard, doing better than the PS2 at a similar point in its lifetime cycle, but worse than others:





2. Ruinously expensive hardware/software development, combined with too low of a US launch price, was a greater factor:


He thinks that the story of Bernie Stolar setting the price at $199 against the wishes of SoJ probably has some truth in it, and resulted in every US Dreamcast having to sell 8 games to break even (as opposed to 5 at the originally planned price of $249). According to his sources, the machine was still costing as much as $250-285 per unit to manufacture two years after launch.

3. EA refusing to publish their games on the system wasn't such a big deal


He says that sales for NFL2K on Dreamcast were similar to Madden 2001 on the PS1 (901k for the former and 990k for the later) and much higher than the 661k that Madden 2001 sold on PS2. Combine that with the high critical and user acclaim that the NFL2K series was getting, and the whole EA thing doesn't seem likely to have had as big an effect as is sometimes claimed.

He thinks the main reasons as to why Sega had to prematurely retire the Dreamcast and exit from the console market are as follows:

1.
Decline in other revenue streams (primarily the premature killing of the Saturn in the US by Bernie "The Saturn is not our future" Stolar, which was largely responsible for a 59% decline in Consumer Division (i.e console hardware/software) sales from 1997-1999, plus a 26% fall in Amusement (i.e. arcade) Division revenues in 1999)
2. Overleveraging of assets in order to launch the Dreamcast
3. Inability to hold out financially until he Dreamcast could turn the corner of profitability

His sources are all listed in the video description. So long as they are all accurate, then I think his explanation of events is very convincing.
 
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Oct 2, 2019
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Attach rates always makes me laugh in an era where piracy was King, i know for a fact where I live there was no store and no houshold that had 50-60$ PS1-PS2 etc games.

That’s what made it popular since kids could regularly buy games with their allowance since they didn't cost more than 10$!

Nowadays it's different of course with tighter piracy measures and used games and digital sales along with parents who don't mind paying 60-100$ a month on their kids games.
 

Kazza

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See the lifespan of the Dreamcast. EA is more than Madden.

See EA PS2 games list :messenger_beaming:



Can't see much released pre-January 2001 (when Sega announced the discontinuation of the Dreamcast) that would have tipped the scales much. While I'm sure EA not supporting the system didn't help, as you said, any damage was probably more due to the vote of no confidence by a big publisher such as EA than any lack of games. It likely just added fuel to the fire that the Dreamcast wouldn't last the course. Too many consumers were taking a wait and see approach. Even this article in 1999 about the record breaking launch of the Dreamcast in North America has the ominous shadow of the PS2 hovering over it:


Sega has needed to shift as many as possible of the Dreamcast before the revamped rival, Playstation2, is launched in the autumn of 2000.

"Now the window of opportunity is narrowing because Sony will start stepping up the Playstation marketing and hype," said one analyst.

"Can Sega build up a base fast enough to keep developers happy and developing more software? One million units is great, but they need more. Sony is at 20 million units," he added
 

Thaedolus

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Dreamcast was a gamer’s console with no real killer app. Sonic Adventure was mediocre compared to Mario, there was no GTAIII, NFL2k was great but Madden on the PS2 was right around the corner, Shenmue ended up being for a really niche audience...where was the MGS2, Final Fantasy, Mario, Zelda, GTA?

Marvel vs Capcom 2 isn’t going to send units flying off the shelves
 
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The lack of a second analog stick had to matter.

I'm not sure it did at that time, honestly. Our current controls hadn't been standardized yet--every console had a completely different layout. No one expected dual sticks from what I remember.

When did it start? Xbox and PS2? Both well after Dreamcast launch.
 
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RoboFu

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Sega Killed Sega fromt he inside. The saturn didnt do well in the US but it did great in japan.

Before all th at though there was an internal struggle between japan and NA. Lots of split decisions and split mentality on the way forward. Dreamcast was dead before it launched.
 

OrtizTwelve

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I loved my Dreamcast and I had a lot of fun with it back in the day. It was a great console and it really felt like a home arcade system. A lot of good memories with it, some really great games for the times.

Sega and Dreamcast failed because of PS2. Sony launched a system with more advanced features and better third party support, and also the tremendous success with PS1 obviously helped it. I also believe DVD playback capabilities helped it become adopted by more people that otherwise wouldn’t purchase a game console, and by default maybe fell into gaming.

It’s sad because Dreamcast was great, but it wasn’t great enough. Also if I am correct Sega had really bad management at that time and they made a lot of mistakes.
 

onnextflix5

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They should have waited until ps2 launched, rather then lunching one year early, and they wasted so much money on shenmue and marketing.
 

OrtizTwelve

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They should have waited until ps2 launched, rather then lunching one year early, and they wasted so much money on shenmue and marketing.

I don’t think Dreamcast could ever compete with PS2 head on and survive. PlayStation just had much better third party developer support and their marketing was on point, and everybody wanted a PS2. It was like lightning in a bottle.
 
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SkylineRKR

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Piracy was an issue but didn't kill the system. The attach rate was still decent. Those pirates picking up a DC would otherwise ignore the system, I knew quite a few of those consumers, in fact. The fact it ran burned discs without a modification was attractive to them. They flocked to Xbox when you could flash it and put games on the HDD.

Dreamcast never had a chance, Sega's reserves weren't there and PS2 was this big thing everyone would eventually go to. The system was also in a very weird place. It lacked DVD storage, second analogue (which wasn't an issue when DC released, but the generation it kick started kind of required it rather soon), and certain graphical features. DC is from the same gen as PS2, GC and Xbox but feels a generation behind in almost everything. Its a step up above PS1 and N64 but a step behind those 3 newer systems. Early gen PS2 games were often ported from DC and looked worse on PS2, but they didn't show what PS2 could do at all and weren't vital to that system. If you look at MGS2, Rogue Leader, Halo I can't even imagine how DC could even run a fraction of those games. It was massively underpowered despite having some perks (AA, VGA). So even if Sega was rich enough to hold out I can't see how, probably much like Wii and Switch do, with its own distant library. And to be honest DC already had that, there are tons of exclusives and unique games found nowhere else (as of today a bit of them are ported over).
 

PhaseJump

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Sega burned too many bridges.

They pissed off fans by dropping Genesis, CD, 32X, Nomad support, as well as Gamegear, they launched Saturn at a high cost with no games ready, pissed off retailers and developers with it. They then killed the Saturn prematurely, coasted with nothing on the market for a year, and let Yu Suzuki bleed them dry by making Shenmue instead of some other new successful games.

PS2 was mostly all just marketing hype. The Dreamcast was cheap and powerful, playing the best versions of games from the PS1/N64 era, regaining momentum for the brand among gamers, but they then announced that they would stop console production, and that was it. The easy piracy came late to it.
 
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The hype surrounding the PS2 really smashed the Dreamcast, but I believe if the DC had a DVD drive it would have weathered the storm. At that time it was a massive deal for the PS2 to have DVD playback. I purchased a standalone player around that time, maybe just before PS2 launch and it was $179.99. PS2 was a no-brainer and easy to sell to the parents who got something out of it too.
 

Kokoloko85

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Id say it was games like MGS2, DMC, Final Fantasy X, Gran Turismo, Tekken that killed the DC.
DC 1st party was amazing.
So mostly 3rd party and bad strategy and timing against a stronger PS2.

PS2 was a monster plus the DVD player
 

SkylineRKR

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The hype surrounding the PS2 really smashed the Dreamcast, but I believe if the DC had a DVD drive it would have weathered the storm. At that time it was a massive deal for the PS2 to have DVD playback. I purchased a standalone player around that time, maybe just before PS2 launch and it was $179.99. PS2 was a no-brainer and easy to sell to the parents who got something out of it too.

Yes but the problem is that the DC was in a weird place. It was effectively finalized in 1998, even on shelves in Japan that year. DVD in 1998 would be impossible to offer for a decent price. Also, DVD didn't really catch on until 2000. Who knows it wouldn't catch on if DC premiered with it. Playstation had the brand recognition, I think DVD largely took off initially because of them.

DC should've come out sooner. If you kill the Saturn on the spot, have a successor ready for that year. Perhaps it would've worked if the thing launched in 1997, with the likes of VF3 still more in demand than in late 1998/1999. They would've blindsided Sony and would likely have the more powerful system by a good 2 years.
 

Nikana

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As a child I thought it looked cool but I never had a stellar time with anything from sega after the genesis. I have to imagine adults at that time felt the same way.
 

Mokus

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Wasn't selling nearly as much as SEGA hoped. Only SEGA loyal customers bought it and that was not enough. Everybody else was waiting for the PS2.
 
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Yes but the problem is that the DC was in a weird place. It was effectively finalized in 1998, even on shelves in Japan that year. DVD in 1998 would be impossible to offer for a decent price. Also, DVD didn't really catch on until 2000. Who knows it wouldn't catch on if DC premiered with it. Playstation had the brand recognition, I think DVD largely took off initially because of them.

DC should've come out sooner. If you kill the Saturn on the spot, have a successor ready for that year. Perhaps it would've worked if the thing launched in 1997, with the likes of VF3 still more in demand than in late 1998/1999. They would've blindsided Sony and would likely have the more powerful system by a good 2 years.
True. I also didn't consider that Sony may have been loss-leading(pretty sure they did this to a crazy degree with PS2/PS3) with PS2 to get that DVD support at $299. Sega launching in '98/'99(9/9/99 here in the US) with a DVD drive at even $299 might have been so far out of budget it was impossible.

Getting a Dreamcast early on with Soul Calibur was still one of the best gaming moves I've ever made. Plenty of amazing games for such short lifespan.:messenger_heart:
 

Azelover

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Sega made mistakes on a number of fronts..

I don't subscribe to the idea that the PS2 killed the Dreamcast though..
 

teezzy

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It would have been awesome to have a fourth pillar in the industry. Dreamcast was cool and all, but it'd have gotten eaten alive by PS2, Xbox, and Gamecube - even if they had stuck in the race. PS2 and Xbox especially.
 
Oct 2, 2019
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LOL no but somewhere similar in games and consoles prices, people in the US had it easy really with rentals and advertisements, magzines and games localized in their language and companies competing for their attention and money but i can't really complain, if it wasn't for games and movies I'd never be here talking to you in what's obviously not my native tongue.
 
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What killed the Dreamcast was a lot of things. Some big, and some small but they all added up.

The Saturn failed in the West and they rushed the Dreamcast to market in a time where people were super hyped about the PlayStation 2. PlayStation just came off of a huge success and took the world by storm, and Sega came off of a dud (in the West at least, I know it did pretty well in Japan) but that's just one piece of the puzzle. Sony didn't kill the Dreamcast, Sega killed the Dreamcast similar to how Sony killed the Vita.

I would love for Sega to have stayed the third pillar in the console race alongside Nintendo and Sony. I love quite a few Xbox games, and have huge amounts of nostalgia for the OG Xbox, but Sega was better then Microsoft. Just imagine a world with a new Sega console with Yakuza/Persona/SMT/Sonic exclusive games.
 
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Amiga

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was a Sega fanboy back then, even though I played on SNES and PS more (so I know how Xbox fans feel :messenger_beaming: )

The business side maters, Sega failed because of bad planning and not enough capital to cover mistakes. Xbox can recover because of MS. Sony was big enough to recover from PS3. Nintendo didn't have big capital like MS and Sony but they had good planning. as N64 and GC lost the home market, Nintendo recovered by dominating handhelds. Nintendo also had the best 1st party production.
 

RAIDEN1

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Sega failed due to the fact they had next to no margin for error with the Dreamcast, after the debacle of the 32x and Saturn....also the fact that as soon as MGS 2 was shown its days were numbered....(though having said that just how much worse a port MGS2 would have been on the Dreamcast would be interesting to see...) We can only imagine how much money Sega lost on both Project Saturn and Mars...
 
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dusty_cookies

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Marketing for dreamcast was awful. I remember seeing seaman on demo at several locations. Lamest game ever, it is likely what killed all excitement for the system early on. The easy to pirate thing became well known a bit after the the writing was on the wall for the dreamcast.
 
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Yes Sony fanboys.

You won't admit it because people love and truly respect SEGA.

But what killed SEGA is Sony.

Because DVD and stupid casual gamers and sheeps, "buy Playstation it's better because it's better".

Playstation = IPhone of gaming nothing else.

PS1 and PS2 killed the Saturn and Dreamcast.

I was there.

And if Sony didn't entered the console market, SEGA would still be there today.

("olol but it's SEGA fault" NO it's Sony fault. N64 and GameCube floped too because of Sony).
 
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yurinka

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Common localization to several European countries made PS1 and PS2 way more popular than the other consoles in Europe (the biggest PS market since then), which combined with a way bigger quantity and diversity of the top quality games made them way more popular in worldwide sales than any other consoles released before.
 
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Ten_Fold

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The Saturn launch messed up a ton of money for sega, along with the ps2 being able to play DVD’s killed the Dreamcast imo.
 

Futurematic

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Any chance for the Dreamcast to succeed was lost half a decade earlier. Sega would have had to run a flawless operation from like 1993 at the very latest to have enough resources to fight Sony. They most certainly didn’t lol.
 

Breakage

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The Dreamcast felt as if it was trapped somewhere between gen 5 and gen 6. The tech would have struggled to keep up with the Xbox, GC and PS2 in the long run.
 
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eastcoastkody

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Nintendo and Sony deballed Sega. And Sega was no longer popular after Genesis. Saturn games weren't great. So even tho Dreamcast was clearly better than anything else. Especially just having Soul Calibur and great sports games...(and being the first online console for me and others). It didn't matter. Just like How Xbox will not overtake Sony again. Once ur name got that stink on it. It doesn't wash off.
 

S73v3

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The sega cd, 32X and saturn rollout and timeline killed the dreamcast.
 

Neff

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They pissed off fans by dropping Genesis, CD, 32X, Nomad support, as well as Gamegear, they launched Saturn at a high cost with no games ready, pissed off retailers and developers with it. They then killed the Saturn prematurely, coasted with nothing on the market for a year, and let Yu Suzuki bleed them dry by making Shenmue instead of some other new successful games.

All of this. I would also add not bending over backwards to have an original Sonic game for Saturn as one of Sega's most catastrophic failures.

As great as NiGHTS is, it's not the game Sonic Team should have made at that point in time.
 

DT MEDIA

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What killed Dreamcast? In a single word, hype. Massive, staggering, bewildering hype for Sony's Playstation 2.

From my own experience in Minneapolis, Dreamcast was really popular in 1999. Sega appeared to achieve a successful comeback after five years of fading away. Most kids never knew the Saturn even existed and simply stopped caring after the Genesis days were over. DC was bright, stylish, the console looked terrific, and most importantly, Sonic was back and US Football was back. I cannot emphasize how important that was. Add in excellent show-off hits like NFL/NBA2K, Ready 2 Rumble, Power Stone, Hydro Thunder and especially Soul Calibur, and Sega was back in the groove. The future looked bright.

Then the year 2000 rolled in and everything just dropped dead.

Sony were masters of hype. They did a great job overselling the original Playstation (500k polygons, the dinosaur demo) and they steamrolled into overdrive on Playstation 2. Just take a look at their famous 1999 tech demo that drove gamers into a frenzy:




We were told that these were actual games that were coming out for PS2, that these were the kind of graphics you would get, not pre-rendered, but in-game. How's that for a bullpucky sales pitch? And then we were told the system could generate 88 million polygons per second. By comparison, gaming magazines were constantly telling you that Dreamcast could only draw 3 million. "Only three million" became the DC's "can't doo three dee."

My favorite line was when Sony claimed that they might not be able to bring PS2 to the USA, because the machine would have to be classified as a "supercomputer." The PS2 was so powerful, in fact, there were rumors that Saddam Hussein wanted to steal the technology for use in his secret nuclear weapons program. These things that actually happened.

When PS2 finally launched, supplies were low and it was hard to find one. That only added to the frenzy, as the console became this almost-legendary relic. One night, somebody brought their newly-bought PS2 to the Dinkytown Pizza Hut where I worked and the guys were just crowded around it, like those apes with the monolith in 2001. It didn't matter that there were only three games available at launch, while Dremcast had a large and growing software library. Aside from NFL2K1, Virtua Tennis and Crazy Taxi, Sega was already tossed aside and forgotten.

And, of course, let's not forget Sony's secret weapon: DVD. This was a massive win, as the new format was just beginning to take off and PS2 was the cheapest player on the market. You can thank The Matrix for making that happen. "Does this thing play DVD?" the kids would ask of Dreamcast. The answer was no. "Sorry, not interested."

Moving along for other subjects to blame...

The question of Electronic Arts has long been debated, and while we cannot prove that their withholding support from Dreamcast killed the console, that perception immediately took hold and it had long-reaching repercussions. According to Peter Moore, the sticking point was Visual Concepts. EA wanted to have exclusivity on all sports titles and specifically demanded that NFL2K and NBA2K be cancelled. Sega refused and EA walked away from negotiations. Two years later, DC is cancelled, Sega bows out of the hardware market and EA earned a reputation as stone-cold killers. Within a few years, Sony and Microsoft killed their own sports franchises in order to keep the mobsters happy. After all, you saw what those guys did to Sega. And let's not get into that whole 2005 NFL licensing catastrophe, which killed off the NFL2K series for good.

Piracy is another controversial issue surrouding Dreamcast, and it's one with a very deep irony, as the very thing that caused piracy to explode on the system--the lack of any copy protection--is what created the console's post-2001 indie gaming scene that flourishes to this day. Indeed, in the last two decades, new videogames are created for nearly every classic console and home computer format. The idea of playing new games for "old" or "obsolete" systems was unimaginable before Dreamcast. Today, it's as common as snow on Christmas Day, and nobody even bats an eye when they learn of an indie programmer or software team publishing games on older formats.

In 2000, software piracy exploded on Dreamcast as someone (whose name I've long since forgotten) learned how to rip the original discs and compress the files to fit onto a CD-R. This quickly spread like wildfire and there were many websites where you could download everything. And this was happening just as Napster was spreading like wildfire across college campuses, so we all had this new idea that we could get literally anything we wanted off the internet for free. That had to have impacted software sales, if only a little.

Peter Moore once remarked that Dreamcast was actually selling pretty well by the start of 2001, around 50K units per week. It just wasn't enough to cover the staggering losses suffered in Japan, where the console pretty much tanked. For that, you can definitely blame Sega of Japan's bosses, who clearly learned nothing from the Saturn era and made the exact same mistakes: to few launch games, nothing in popular genres like RPGs (you'd think they'd port over Shining Force 3, Wachenroeder or Panzer Saga), an over-reliance on Virtua Fighter 3 to save the day. Sonic Adventure was rushed to market and plagued with glitches and bugs, Virtua Fighter 3 didn't even have a proper two-player mode (or any modes at all). Honestly, if I were living in Japan in 1998-99, I wouldn't have bothered with Dreamcast. Saturn had all the best videogames.

Another notable issue: Sega's toxic reputation with gamers. Magazines and websites were convinced that Dreamcast was about to be dumped at any minute. "Sega's going to quit the hardware business!" "They're going to release a Dreamcast 2!" And can you blame gamers for feeling paranoid? After Sega CD, CDX, Menacer, Activator, Pico, Game Gear, 32X and Saturn, anyone would feel a bit skittish about buying a Sega system. The 32X especially left players feeling burned and betrayed and although it seems a bit overblown in retrospect, it caused a real and lasting grudge at the time.

Finally, I will offer one more culprit for Dreamcast's demise: the hardware. Compared to PS2, Gamecube and Xbox, Sega's console is the weakest of Generation 6, and it's not even close. In fact, the system could almost be classified as Gen 5.5, and if you really want to be brutal, you could say the machine was built for upgraded PSX and N64 ports. Which is precisely what we got. Yes, Soul Calibur looks fantastic, as does Skies of Arcadia, Shenmue, Jet Set Radio, Ferrari F355, Crazy Taxi, Test Drive Le Mans and Phantasy Star Online. But look how quickly Playstation 2 surpassed them with Madden 2000, SSX, Metal Gear Solid 2 and Gran Turismo 3. Gamecube was still further ahead. And Xbox was in another league entirely.

Dreamcast just couldn't compete. That was obvious by the end of 2000, and when you look at what followed several years later, well...have you seen Shadows of the Colossus, Halo 2 or Zelda Twilight Princess lately?

Here's my own controversial pet theory: Dreamcast was never meant to last for more than a couple years. Sega was hoping to put their finances in order, repair their damaged reputation and--most importantly--find a buyer. The videogame industry was becoming too expensive and they simply didn't have the chips to remain in the poker match. The success of Sony, the threat of Masushita and I'll bet a million dollars they were looking for Microsoft to buy them out, and I'll bet another million dollars that MS today wishes they made that purchase 20 years ago. You sell the Xbox in Japan under the Sega banner, with exclusive access to their vast software library? That would have been a game changer.