The Dreamcast Died Too Soon, but Its Legacy Lives On

Twenty years ago this week, Sega’s last console launched in North America, inaugurating a new generation of video game hardware and a new era of internet-connected consoles. The Dreamcast’s launch library was large, boasting an unprecedented 18 titles, including classics like SoulCalibur, Sonic Adventure, and NFL 2K. Consumer interest was strong: Sega sold close to a quarter of a million $199 units and generated almost $100 million in hardware and software sales on the Dreamcast’s debut date of 9/9/99, setting a Guinness World Record for most revenue generated in the entertainment industry in a span of 24 hours. Sega made it halfway to a million systems sold within two weeks and passed the million mark in November, easily outstripping the successful Sony PlayStation’s pace in 1995. In the fall of 1999, the affordably priced Dreamcast was the world’s fastest-selling, most powerful, and most innovative video game console.

It was also destined to be among the shortest lived. Only 16 months after the console’s acclaimed launch, Sega declared the Dreamcast dead, discontinuing production and transitioning to the software-only niche the company continues to occupy. The Dreamcast failed to save Sega, but in retrospect, its less-than-two-year tenure provided a preview of the next two decades in console gaming. “When you look back to prior and then certainly post that, I don’t want to say everything was incremental, but it was an evolving of the previous experience,” says Peter Moore, former president and COO of Sega of America. “I think the Dreamcast was revolutionary.”

To commemorate the star-crossed system’s debut, I spoke to the two executives who were most instrumental in the Dreamcast’s North American launch: Bernie Stolar, who served as Sega of America’s president from July 1996 until his resignation in August 1999, and Moore, whom Stolar hired to market the Dreamcast months before the system’s launch and who was promoted to president in May 2000, remaining in that role until January 2003. During previous or subsequent stints elsewhere in the industry, Stolar and Moore worked on other companies’ consoles: In Stolar’s case, the Atari Lynx and the PlayStation, and in Moore’s, the Xbox and the Xbox 360. But for both former Sega of America head honchos, the Dreamcast remains a source of particular professional pride. “It just ushered in something we take for granted now, which is online gaming, online communities, games as a service, games that you can’t finish because the content keeps coming,” Moore says, adding, “It was groundbreaking, but I think we broke the ground for somebody else.”

The Dreamcast was a make-or-break proposition for Sega because the company’s previous system, the Saturn, had almost ended its hardware efforts before the Dreamcast was conceived. Sega, which had started designing electronic games in the late 1960s and had profited from (and helped fuel) the arcade boom of the late 1970s, had pivoted to the home-consumer market with the SG-1000 and the Master System in the early-to-mid-’80s. Nintendo’s NES wiped the floor with Sega’s first two systems, but Sega stole a march on Nintendo by releasing its 16-bit successor, the Genesis, two years before Nintendo’s Super NES. Aggressive pricing, inspired advertising, and the appearance of mascot Sonic the Hedgehog in 1991 helped Sega to gain a majority market share in the U.S. by the beginning of 1992. Although the SNES eventually outsold the Genesis, Sega had temporarily knocked Nintendo out of the catbird seat it had sat in since the mid-’80s.

The Saturn squandered that goodwill and brand recognition. Although Sega again beat its competitors to market by launching the first fifth-generation, 32-bit console in Japan in November 1994 and North America in May 1995, the system was expensive, costing $400—close to $700 in present-day dollars. Its hardware was challenging to manufacture and even more difficult to develop for, and Sega failed to produce an original, 3D Sonic platform game to serve as a system-seller. By 1997, some analysts were speculating that Sega, which had laid off a large portion of its workforce, was on its last legs as a console supplier, and at that year’s E3, Stolar declared, “The Saturn is not our future.” In early 1998, the company pulled the Saturn in the U.S., ceding its meager 2 percent market share to Sony and Nintendo, both of which Sega had passed up opportunities to partner with or block from obtaining key hardware elements. “The Genesis days were the glory years, and then we disappointed with what I can only describe as a botched launch,” Moore says.

According to Stolar, Sega had lost close to $1 billion in the year before he was hired. “It had eight pieces of hardware going concurrently,” Stolar says, noting that “Sega management had greatly overextended themselves.” Shortly after his hiring, he downsized Sega of America from about 300 people to about 90 people and revamped the company’s marketing and sales staffs and strategies. “The people that were at Sega when I first got there, well, I don’t believe they had the ability to step up and be winners,” Stolar says. He set out to recruit “the best and brightest available,” including some of his former Sony colleagues and Moore, who left Reebok for Sega after the Saturn’s death spiral and was tasked with hyping the Dreamcast and trying to restore Sega’s lost luster and retailers’ lost trust. “Sega was nearly bankrupt,” Stolar says. “They needed a new console and they needed it quick. The only options were to go big or go home.”

The Dreamcast first launched in Japan, where Sega had historically struggled to compete with Nintendo. The system undershot Sega’s sales expectations on its home turf thanks to manufacturing shortfalls, a Sonic Adventure delay, and a limited selection of launch games available on the console’s debut date of November 27, 1998, which caused a Japanese rating agency to lower the company’s credit rating to “one notch above junk status.” Those disappointing Japanese sales figures—coupled with the news that Electronic Arts, whose Madden football franchise had made its console debut on the Genesis, wouldn’t make games for the Dreamcast—upped the pressure on Sega of America to deliver a hit. The company invested many of its remaining resources in the last-ditch effort: Stolar told the Times that Sega had (perhaps over-optimistically) promised to spend $100 million on the U.S. introduction (twice what Sony had spent on the PlayStation’s debut), another $100 million on product development, and additional funds on defraying some of the cost of creating games for outside developers.

Graphically speaking, the Dreamcast was an easy sell: Its 128 bits and high polygon counts represented large leaps over the industry’s status quo, and the visuals made an even more convincing case than the tech specs. I’ve owned most of the major consoles dating back to the NES, and only the leap from 2D to 3D in the Saturn/PlayStation/N64 generation impressed me more than my first exposure to the Dreamcast. Naturally, today’s titles look a lot prettier than the Dreamcast’s did, but subjectively speaking, Dreamcast games still seem comparable to today’s in a way that PlayStation and N64 games don’t. Twenty years after the system launched, the Dreamcast’s debut marks the cutoff between retro and modern.

“We played very heavily in that period of time on the graphics, on the smoothness of the experience, with both the CPU and GPU being unprecedented in their power,” Moore says, adding, “The way things moved, the reaction time from controller input to action on the screen, all of it felt revolutionary. And we knew we had a huge opportunity on our hands if done right.”

One thing Sega of America did right this time around was offer a Sonic game at launch, which became the Dreamcast’s best seller. “We used Sonic Adventure, obviously, as the tentpole title,” Moore recalls. “It showed speed, it showed rendering, smoothness of graphics. [The] colors were bright and vibrant, [and it was] truly three-dimensional because of the nature of the game mechanic.” As one of the first gaming geeks in my small seventh-grade class to get a Dreamcast, I showed off my new possession’s power by running each of my friends through Sonic Adventure’s gravity-defying “Speed Highway” stage, as if I were a Sega salesman doing demos at E3. High polygon counts couldn’t make me cool, but they could command a captive audience.

In the months leading up to the launch, Moore had increased anticipation for the Dreamcast’s futuristic feats by spearheading an iconic ad campaign in partnership with ad agency Foote, Cone & Belding. “The belief was that there was enough technology in the console and enough AI and enough memory in the virtual memory unit all coming together that the more you played, the more the console would understand who you were, how you played, what your gaming habits were,” Moore says. Hence the campaign’s tagline, “It’s thinking.”

The mysterious, somewhat unsettling 15-second spots that started the campaign didn’t explicitly reference the console, relying on the viewer to make the connection. The subtle approach “landed well,” Moore says. “It treated the gamer as a mature individual because you had to ‘think’ about it, no pun intended. And it also played a little bit more on the technology than I think previous campaigns had done.” The minute-long launch spot was more explicit, depicting the thinking Dreamcast thwarting the efforts of a spy by hacking security cameras and traffic lights and commandeering and rerouting an airplane so that it would topple a communications tower. In 1999, the notion of a console becoming sentient and seizing control of vital technology was, perhaps, more exciting and less scary than it is today, decades into the privacy-sapping, sense-of-safety-disrupting internet age.

The Dreamcast heralded the dawn of that internet age in the living room; as a Times reviewer reported, the system “blurs the distinction between PC and game console.” Through the “It’s thinking” campaign, Moore says, “We had recaptured the quirkiness of Sega, the irreverence of Sega, the thumb-your-nose-at-the-other-guy that is Sega.” But it was Stolar’s insistence on selling the system with a built-in 56K modem—a first for a console at launch—that backed up the campaign’s claim.

“There were three things that I wanted in Dreamcast: an online network (for multiplayer and digital downloads), DVD support, and internal storage,” Stolar says. “I had to argue for everything.” Stolar won one of the three arguments. “At one point,” he continues, “I had to ensure the modem didn’t get dropped from the U.S. version. Online was most important to me. So, I chose that over DVD and internal storage because my plan was to add those later.”

Stolar believed that DVD was only a stopgap in gaming. The future, he foresaw, was digital downloads and massively multiplayer online gaming. “I saw network play and the internet evolving, and I knew cloud gaming was coming,” he says, adding that online play was what would “define Dreamcast in the marketplace.” He was right, but Sega’s proprietary GD-ROM format put the Dreamcast at a disadvantage by providing the least storage space of any sixth-gen system, inviting disc defects, rendering its software vulnerable to piracy, and depriving the Dreamcast of the PS2 and Xbox’s ability to play DVD movies and function as the centerpiece of a home entertainment system. Stolar says Sega simply couldn’t afford to include the more expensive DVD drive, and the promised Dreamcast DVD add-on never materialized.

Stolar says he also pushed for a dual joystick controller, similar to the model the PlayStation adopted, and that he led discussions with an early DVR company about releasing a cable box—similar to the LodgeNet system often installed in hotels—that would enable players to download Dreamcast titles and games from previous Sega systems. Neither of those efforts came to fruition, whether because of budgetary constraints or resistance to change. “The biggest challenges were internal politics, not the system itself,” Stolar says.

Even so, the Dreamcast’s hardwired internet connectivity allowed it to stake the first claim to fertile, transformative territory, beginning with its first game to permit online play, ChuChu Rocket!, which came out in November ’99. Sega’s online service, known as SegaNet in Japan and Sega NetLink in the U.S., launched in September 2000—belatedly, for Dreamcast owners who’d had the system since launch, but years ahead of Xbox Live and the PlayStation Network. The service supported online voice chat, which would soon be a staple of multiplayer console gaming. Phantasy Star Online, released in December 2000, was the first online RPG for consoles, introducing a genre previously reserved for PC players to an enormous new audience.

The Dreamcast also pioneered the concept of downloadable content on consoles. Although later systems would make much more extensive use of DLC than the Dreamcast did, the system still introduced console gamers and developers to the idea that games could get bigger and better after they came out. As Stolar confidently proclaimed in his keynote address at the 1999 Game Developers Conference, “Dreamcast is as alive as the games you develop.” Dreamcast software’s capabilities could be expanded via files downloaded to the Dreamcast’s Visual Memory Unit (VMU), a quirky, Tamagotchi-style device that could play standalone minigames or display stats during regular gameplay. The VMU helped demonstrate the potential of second-screen gaming, which lived on via apps and Nintendo systems such as the DS and Wii U.

During the Dreamcast’s brief heyday, Moore recalls, online, mano-a-mano multiplayer modes in sports games—specifically the football, basketball, baseball, and hockey titles developed by Visual Concepts, which Sega acquired in 1999—were the easiest way to wow committed console gamers. “Nobody needed to explain it, it wasn’t an MMORPG, it was very clearly competition, and the competition had moved from the couch to the internet,” he says. Moore, who later headed the sports division at EA, continues, “You can maybe draw a straight line from all of the stuff that FIFA now enjoys as a billion-dollar-plus annual franchise back to what we did with NFL 2K1.”

The Dreamcast paved that path, but it didn’t last long enough to reap the rewards. “I coined the phrase during that period, ‘We’re taking gamers where gaming is going,’” Moore says. “And I knew damn well gaming was going there. Whether Sega would be there to take them is a whole different story.”

The Dreamcast was done in, Stolar says, by “bigger players with bigger bank accounts entering the arena.” Sony’s PlayStation 2, which would exceed the Dreamcast’s power and duplicate its internet connectivity, was due to debut in Japan in March 2000 and North America in October 2000. Sega, which had been willing to take potshots at Nintendo during the 16-bit era, did the same with Sony several years later, hiring a plane to tow a banner advertising the Dreamcast (and unleash a Sonic mascot on a golf cart) at a Sony-sponsored golf tournament in August ’99 and buying a billboard to offer mock condolences for Sony’s hardware shortages in November 2000. But Sony had more money and the power of the PlayStation brand. “They embarked upon a FUD campaign of fear, uncertainty, and doubt and wanted to make sure that we wouldn’t get the traction, we wouldn’t be able to leverage the head start we had,” Moore says, recounting that “their basic premise was that you might want to buy a Dreamcast, but if you do, recognize it’s a transitional platform. You’ll want the real thing when the PlayStation 2 ships.”

Moore says Sony’s messaging worked, slowing Sega’s momentum. The PlayStation 2’s first-day sales smashed the Dreamcast’s record, and the brand-new system, along with the popular, repackaged PSone, combined to crowd out the reduced-price Dreamcast during the 2000 holiday season. That defeat, coupled with the impending launches of Microsoft’s Xbox and Nintendo’s GameCube, sealed the least deep-pocketed company’s fate. On January 31, 2001, Sega announced that it would abandon the Dreamcast and slash the system’s price to $99 in hopes of liquidating the existing inventory. The news caused the beleaguered company’s stock price to climb. “In the end you go, ‘Look, we can’t continue,’” Moore says. “You make the hard decision … and then you move on. Then your next goal is all of the people you’ve been battling with, I’m calling up and asking for dev kits. Those were humbling times.”

For Stolar, Sega’s surrender wasn’t a surprise. He had moved on due to differences of opinion with the late Sega chairman Isao Okawa, who had forced out president and CEO Hayao Nakayama not long before Stolar’s departure. Nakayama and Stolar were devoted to the Dreamcast, but Okawa, Stolar says, “really wanted Sega to just be a software company.” That shift in mission enabled Sega to survive, but it also ensured that the Dreamcast would represent both the beginning and the end of an era. It was fitting that Sega began selling a Dreamcast Broadband Adapter the same month it disclosed that its hardware was a dead Dreamcast walking; the internet’s infrastructure had caught up to Stolar and Moore’s vision, but too late to save the ambitious system.

As developers prioritized the PlayStation 2, third-party support for Sega’s final console had slowed, depriving the Dreamcast of what could have been an even more legendary library. Stolar says Sega was in talks about bringing blockbusters World of Warcraft, Grand Theft Auto III, and Max Payne to Dreamcast, as well as Peter Molyneux’s Black & White and Fable and PC ports like Half-Life and System Shock 2. None of those possibilities panned out.

Even so, the Dreamcast crammed a wealth of great games into its fleeting lifespan, which contributed to its current cult-classic status. “There will never be a launch lineup like the Sega Dreamcast launch lineup of titles, both first party and third party,” Moore says. Even in decline, the Dreamcast continued to attract eccentric, sui generis, genre-spanning games like Jet Set Radio, Shenmue, Skies of Arcadia, Seaman, Samba de Amigo, Space Channel 5, Ikaruga, Rez, and Power Stone (and its sequel), all of which were originally exclusive to that console or developed with Dreamcast in mind. And because the Dreamcast’s architecture was developed in tandem with Sega’s NAOMI arcade system, which also arrived in 1998, arcade hits like Crazy Taxi and House of the Dead 2 could easily be ported and played at home. The system’s library, Moore says, embodies “diversity, uniqueness, wackiness, irreverence, [and] pure unadulterated fun. And I don’t think many consoles since have captured that since the Dreamcast.”

For a system that disappeared so quickly, the Dreamcast has enjoyed an unusually long afterlife. In some ways, its restless spirit survived via the Xbox and Gamecube, but long after those consoles passed into obsolescence, its legacy is still strong. #Dreamcast trended for much of Monday, the anniversary of the North American launch. A book about the Dreamcast is due out later this year, as is Shenmue 3. Developers still reminisce about the best games on the system, and some indie designers still make new, crowdfunded Dreamcast games available via digital download.

Stolar says he’s not surprised by the continued affection for the Dreamcast, whose reputation has been bolstered not only by nostalgia, but by appreciation for its prescience and its into-the-breach, trailblazing boldness. “Great units like that do not just fade away,” Stolar says. “It was a superior hardware system, ahead of its time, that drove great content.”

Stolar is still in the video game industry, serving as executive chairman of Zoom Platform Media. Moore has made his second major career change, leaving EA in 2017 to become CEO of the Premier League’s Liverpool Football Club. “I’m a great believer in, you have a crank of the reinvention wheel every 20-odd years,” he says. Maybe gaming is also due for another disruption; Google Stadia is set to start streaming games this November, and Microsoft and Sony (which surprisingly partnered in May to develop streaming solutions) are rumored to be considering cloud-based platforms of their own. But even if the internet upends the industry again, the evanescent Dreamcast’s dignity will endure. After all, Sega saw the cloud coming.