part0018

After assuming the helm at Sega of America, a self-assured Peter Moore travelled to Japan, where Sega CEO Isao Okawa wasted no time in letting him know just how precarious the stakes were. While the full scope of the exchange will probably never be known, two important facts about what happened during that meeting have come to light. Moore left Japan with $500 million in his pocket for Sega of America and a single marching order: Make the Dreamcast a success in North America...or else. Did this mean Okawa would can Moore if he couldn't pull it off, given that the odds were as long as they were? To the contrary, Okawa had given Moore what amounted to Sega's last cash reserves. The Dreamcast had bombed in Japan and wasn’t doing much better in every other worldwide market save one. Dreamcast had proven to be a bigger-than-expected success in the United States, and was poised to take the #2 spot from Nintendo by Christmas of 2001. If there was any hope at all of pulling off the Dreamcast gamble, the best bet was North America, where the odds were shortest and the market most favorable. If they succeeded, Sega could stay in the console business for at least one more year, clean out its back inventory of hardware, and assume a better position to remake itself once the time came. If not... Well, there was one consolation prize: Sega would restore its tarnished reputation in the one market that really mattered. Moore's job wasn’t on the line – Sega’s very existence was at stake. 2000 had to be "the year of the Dreamcast," as far as the United States was concerned. Sega would not be able to survive if it wasn't. Armed with this knowledge and a serious chunk of change, a determined Peter Moore returned home to face the daunting task of single-handedly saving Sega before all was lost.

Sega of Europe, meanwhile, wasn’t waiting around for orders from above. It knew the situation as well as anyone else; besides, as the last of Sega's major markets to roll out the Dreamcast, it was constantly winding up on the tail end of directives from Japan. Not this time. Sega of Europe president Katsutoshi Miyake conferred with COO J.F. Cecillon and his staff as to how to start pushing Dreamcast sales. Thus, credit goes to Sega of Europe for leading the way in dropping the console’s price. On May 31, 2000, Sega of Europe cut the cost of the base Dreamcast to £150 for ten days during the British Bank Holiday. Although the move was a temporary one, it was a welcome one, and sales surged as a result. On June 12, 2001, Sega of Europe kicked off an $8 million advertising campaign based on the theme of international competition, as various representatives of the European Common Market battled it out for bragging rights as to who could both make and play the best Dreamcast games. While European software sales as a whole were paltry when compared with Japan and North America’s, Sega of Europe aggressively pushed the Dreamcast lineup – including the recently released megahit Resident Evil CODE: Veronica – for all it was worth. As it had done elsewhere, CODE: Veronica rose to the #1 spot on the charts, bringing other Dreamcast titles – such as MDK 2 and Zombie Revenge – along for the ride. It was a daring move, given the financial woes Europe's software development community was suffering at the time, but Sega of Europe had nothing to lose. Feeling left out of the loop with regards to the big decisions made by Sega corporate, they felt emboldened to try anything.

Sega of Europe's devil-may-care attitude was not without its consequences, though, which manifested in a rather unexpected and inconvenient manner. On June 22, the Independent Television Commission (ITC) of Great Britain pulled the plug on one of Sega UK's television commercials for its popular Sega Worldwide Soccer 2000 Euro Edition . The ad campaign had been deliberately designed to tap into the nationalistic fervor surrounding the Euro 2000 football (soccer) championships, and it was feared by the ITC that Sega’s in-your-face advertising would help promote more fan violence at the event than usual. Here's how SegaWeb reported the incident:

“The entire campaign is quite stereotypical in nature... In fact, they take xenophobia – not the cool arcade game – to a new low. We will show the ads here for illustrative purposes from which you can draw your own conclusions. The particular ad in question showed a German in a pronounced mullet stating, "Come and have a go if you think you're hard enough." The Independent Television Commission decided to have the ad pulled on Friday, a day before a grudge match between Germany and England in the Euro 2000 soccer championship. The ITC issued a statement late Friday, "The ITC believes the advertisement was calculated to tap into the current nationalistic fervor surrounding Euro 2000. There is considerable public concern about violence breaking out during this championship. In this climate we consider the provocation implied in the advertisement to be ill-judged and irresponsible." "We took the decision on Friday. What happened after Friday only served to show that we have taken the right decision," the regulator told CVG. A ban of England has been suggested by championship organizers in light of fan violence involving English fans due to Saturday's match. The UK government is even considering legislation meant to curb soccer violence... Currently, Sega has not voluntarily pulled any other advertisements in the series and has until Wednesday to make its case for the lifting of a ban on the Dreamcast Online ad.”

Approximately one month later, Sega of Europe’s COO J.F. Cecillon denied rumors that Sega was preparing yet another controversial ad campaign. Was he gun shy, after the reaction to the Euro 2000 ad campaign? Perhaps, but it didn't stop him from inking an exclusive contract with Virgin Games at the end of the month for distribution rights to Sega's online-capable Dreamcast games. It needed all the help it could get, too; in the words of one quip-throwing industry reporter, "European Dreamcast sales just plain suck."

At the same time, though, a number of Sega's most important third-party houses in Europe were suffering financially, and seriously reconsidering their Dreamcast commitments. The France-based Infogrames, Europe's largest software distributor, posted a net loss for fiscal year 1999 to the tune of $320.7 million due to "...changes in internal management and write-off of excess inventory." Eidos Interactive, creator of the popular Tomb Raider franchise and an early Dreamcast supporter, was buried beneath a mountain of debt. It was enduring both the ignominy of one buy-out offer after another, and the unwelcome presence of government investigators checking to see whether or not Eidos executives had planted rumors of unprofitability in order to score some quick and easy stock profits. These and other troubles with Sega of Europe's third party providers would continue through the rest of the year, although they did result in one unexpected and rather ironic side effect. Due to limited funds and the cloud hanging over the console's future, a number of Europe-produced Dreamcast software titles would not make it overseas. Thus, Sega of Europe could finally, proudly proclaim that it had exclusives its own, including Agartha, Headhunter , and Sega Worldwide Soccer 2K1 .

Back in America, the Dreamcast’s summer didn’t get off to a very good start. Moore may have had the money and Okawa’s diktat , but he still had to contend with fallout from the console's end-of-spring slump. Internet gaming, one of the lynchpins upon which the console’s success rested, was months behind schedule – and still slipping. The Dreamcast Network was supposed to have launched in March, but had been plagued by numerous technical delays and would not be ready until the end of summer. Frontier , the multiplayer space shooter that was supposed to have launched the Dreamcast Network in the States, was quietly cancelled, and by summer’s end another high-profile title would be lost, as well: Baldur's Gate , Microsoft's multiplayer RPG based on the world of AD&D was cut, too. Several imports from Japan were being delayed due to problems with their networking features, which in a few notable instances were removed altogether in order to meet shipping deadlines. While 63% of Internet gamers surveyed by PC Data confirmed the Dreamcast as their choice for most popular online gaming console, Dreamcast's online gaming potential remained just that, and most industry analysts and reporters treated SegaNet’s "free Dreamcast" promotion as the joke it eventually turned out to be. Far too few gamers took advantage of the offer; pundits blamed this on "a weak, ineffectual advertising campaign that is simply not doing its job." To be fair, it was hard to advertise for a network that at that time still had practically no content besides its browsers. U.S. Dreamcast gamers had Chu-Chu Rocket , but little else, and many were fed up with being limited to playing cat and mice games online. "So then, what do we have?" quipped SegaWeb's Eric Barzeski. "Sega falling flat on its face as far as promotions. What else is new?"

To his credit, Peter Moore and his new staff tackled these problems head-on. The old "It's Thinking" ad campaign was quickly ditched in favor of a new one: "Opponents Are Everywhere." Moore and his staff constantly sang the praises of Dreamcast's networking potential in public, and persistently pressured their Japanese counterparts for network-capable hardware and software in private. Moore wanted more to offer to Internet-hungry Dreamcast gamers, and he eventually got it. By the middle of June, all three of the world's best first-person shooters – Half-Life, Quake III: Arena , and Unreal Tournament – were confirmed for release on Dreamcast by the end of 2001. The entire Sega Sports lineup would have network play added; NFL 2K1 and NBA 2K1 would both have it out-of-the-box in the fall. The promotional campaign became so intense that for a while it seemed that every other Dreamcast game Sega of America announced would have online gameplay. In the meantime, it worked to ensure it would finally, actually meet its Dreamcast online gameplay goals. By August 8, everything was finally in place for full-scale beta testing of the system. Both the hardware and software were in place to make Isao Okawa's dream of Internet gaming a reality.

Dreamcast's second generation of games continued to roll out in splendid fashion throughout the summer of 2000. Dozens of titles were announced, spanning a wide variety of genres. One in particular from that summer release schedule deserves special mention: Ecco the Dolphin: Defender of the Future , a 128-bit revamping of the 16-bit Genesis classic. It retained the quirky, difficult controls older gamers remembered, but the graphics had received a major overhaul. The stunningly realistic aquatic environments, replete with bubbles, shadowing, and light and water effects, were so mesmerizing that many game shops looped the demo in order to tout the power of the Dreamcast. While there were other, more playable Dreamcast games out there – and with graphics every bit as good – no other title at the time managed to so perfectly convey just how powerful the console's graphics capabilities could be in the hands of skilled programmers. The RPG crowd hadn’t been forgotten, either, with more games being imported to meet player demand. There was UbiSoft's Evolution 2: Far Off Promise (a graphically-improved sequel to 1999's first decent Dreamcast RPG), Kenji Eno's D2 , Infogrames’ Silver , and rumors of yet another full-blown RPG courtesy of Game Arts, creators of the Sega CD's beloved Lunar franchise. Dreamcast even got what was arguably the best port of the hottest "extreme sports" game around, just in time for summer. Tony Hawk's Pro Skater by Crave Entertainment would do for its genre what CODE: Veronica had done for survival horror fanatics: bring them en masse to Dreamcast. The PlayStation original had been declared the best skateboarding video game ever made; until, that is, the graphically superior Dreamcast version hit store shelves on the last day of spring. It may not have offered any new gameplay features, but to play the game in full 128-bit graphical glory was a temptation few could ignore, and it remains to this day one of the select few Dreamcast titles to move consoles all on its own.

And what of traditional sports video game fans, still awed by what they had seen the past holiday season? The one game Sega Sports fans eagerly awaited most that summer was the Dreamcast incarnation of World Series Baseball (WSB 2K1). They knew it was coming, because it was the only major U.S. sport that Visual Concepts hadn’t yet touched. When it was finally released in August it was instantly snapped up, but soon earned a reputation for being the worst of the Sega Sports games due to poor controls. In spite of the negative press, WSB 2K1 proved to be one of Sega of America’s best sellers that season. And there was more. Lacking all of the pre-launch hype surrounding WSB 2K1 , Sega's Virtua Athlete came out of nowhere, and went on to earn a reputation of its own. Essentially an upgraded remake of the Saturn multi-event sports game Decathalete, Virtua Athlete wasn’t even slated for a U.S. release, until Sega found an eager and willing distributor in Agetec. Virtua Athlete was not Sega sports programming at its best, and its graphics hearkened back to its Saturn roots. Nevertheless, the gameplay was solid enough to help round out the Dreamcast’s sports software library. Given that the summer Olympics took place the same year – and that former Sega licensee Konami made an about-face, porting its own multi-event sports game to Dreamcast (Sydney 2000 Olympic Games ) – it was a good thing Sega's effort made it out the door, after all. It may not have looked as good as Konami's game, but it certainly played better. Without dispute, though, the Dreamcast’s dark horse sports hit of the summer of 2000 was Sega's own Virtua Tennis . It was so good that even those who didn’t care for tennis (like this author) found themselves playing the game for hours on end. The players and environments looked real, the game engine was spot-on perfect, and the controls were easy to master. The only thing gamers faulted it for was the lack of any female players to choose from. Sega would later address this oversight in the form of Virtua Tennis 2 , which it delivered by the end of the year. But in spite of that notable omission, Virtua Tennis went on to become the biggest Dreamcast game of that summer.

It was around this time that Electronic Arts rubbed salt in an old wound with some rather nasty public comments by EA president John Riccitello. In an article with Forbes Magazine concerning the company’s support for various systems, Riccitello refused to admit the mistake made in not developing software for Dreamcast. Instead, he inadvertently revealed that EA's exclusive and profitable contracts with Sony would have been jeopardized had it decided to go through with its already announced Dreamcast development plans. Sega's Peter Moore was justifiably upset at the revelation, as were gamers like Tom Moore, who snarled in an interview with IGNDC, "For every dollar EA would have spent on the DC, they'd have gotten over ten back. Losers." That fact was made painfully clear at the end of July, when EA's first quarter 2000 earnings statement was made public. The company had suffered a staggering 30% drop in revenue during that particular period, all because they’d refused to back the Dreamcast. But the PS2’s U.S. launch was right around the corner – and so far as Riccitello and EA were concerned – it would pay to wait.

Even then, it was easy to understand Riccitello's attitude – it was just the way he expressed that really grated on the ears of Sega fans. Despite the massive amount of positive spin Sega of America was pumping out regarding its summer efforts, all was not well for Dreamcast. Every month that went by that summer saw the loss of yet another high-profile title or port: Soul Calibur 2... Max Payne... Galleon... Rayman 3... Anachronox... Messiah... Supreme Snowboarding ... One by one, major vendors began shutting down their Dreamcast efforts, often citing the platform’s uncertain future in the face of the PS2’s impending arrival that fall. And despite a massive marketing effort – including heavy promotion on MTV – Tetsuya Mizuguchi's rhythm and dance game Space Channel 5 failed to catch on with the American gaming public. Later that summer, a spokesperson for Bandai announced that it would not be exporting any more Dreamcast games based on its popular Gundam anime franchise to the U.S. market due to sluggish sales of Gundam Side Story 0079 . Yes, there were still a lot of impressive games on Sega of America's summer release schedule, but Dreamcast was still in a faster downward slide than could be explained away by the normal summer doldrums. Former Sega executive Bernie Stolar, now working for Mattel Interactive, summed up the situation as well as anyone. "I have financial concerns about Sega's marketing model, and until that's addressed to me, I have to wait and see." Many others – both within and without the industry – were more blunt. Brian Farrell of THQ, one of the more notable software houses of the day, expressed it this way:

It should be noted that earlier doubts about the future of Dreamcast had prevented THQ from supporting the platform in the first place. Nevertheless, such comments were not lost on Sega bloggers and perceptive gamers, with SegaWeb, one of the prominent Sega-oriented web sites at the time, putting it this way:

I happened to be writing the first half of this book at that time, as well as monitoring current Dreamcast marketing trends, and felt the same way. Here’s what I said at the beginning of that fateful summer in a monthly Dreamcast newsletter to the folks at the Eidolon's Inn website:

“Dreamcast has got one good year left in the U.S., maybe two at the outside – especially if they can pull off their Internet plans as expected. After that, it's all over. One verse, maybe a chorus, and that's it. End of song. I don't care how you look at it and from what angle. If you'll just sit down and honestly run the numbers, then this conclusion is inevitable... The problem is not in the hardware, it's not in the software, it's not in the advertising, and it's certainly not in the user base. It's in Sega's market strategy. It's not yesterday's console market anymore. It's today's, and it's quite a different animal than yesterdays. It nailed Sega of Japan right between the eyes. Sega of America is in the clear for now, but their turn is coming within mere months. ”

It was widely known that Dreamcast console sales were trailing well below Sega of America's intended sales targets. And it wasn't just the hardware that was suffering; software sales in the summer of 2000 were also significantly impacted, but for an entirely different reason. We’ll get to why Sega of America's second and subsequent generations of Dreamcast software never quite managed to meet sales expectations later. First, it’s best to understand what tune Sega of Japan was fiddling while Sega's Western fortunes were beginning to burn.

By the end of June, 2000, worldwide Dreamcast sales were poised to break the six million mark – but less than one million of those were in its home country of Japan. With the exception of certain popular franchise titles such as Sakura Taisen , very few Dreamcast games stayed on any of the weekly Top 10 Console Games charts for more than a week or two. Add to that all of those brand new PS2s out there – even if most Japanese consumers had (by their own admission) bought them as DVD players, first – and the conclusion was clear: Sega's days on the home console market were numbered. It was only a matter of when , not if . Sega CEO Isao Okawa was already mulling over the issue, having tipped Sega of Japan's hand back in December of 1999 when he said Dreamcast would be Sega's last home video game console. It was in the following year Sega’s new direction would be confirmed.

The first clue had already appeared on April 13, 2000, with Okawa's blessing. Sega of Japan announced it was splitting its highly profitable arcade division into five wholly-owned subsidiaries in an attempt to increase profitability and offset continuing console division losses. Sega was taking huge losses with the Dreamcast, and had to make up the difference elsewhere. "Elsewhere" quickly became "everywhere else" just two weeks later, when another press release announced intentions to cut operational expenditures by some ¥30 billion across the board. Three days later, a story "from inside sources" leaked on the Internet that Sega lacked the funds to continue development on NAOMI/Dreamcast successor hardware, rumored to have been well underway for months. As the fiscal axe began its long and ponderous swing across all of Sega's worldwide operations, its development divisions began to ponder possibilities that just a few months before would have seemed unthinkable.

The May 23 resignation of CEO Shoichiro Irimajiri was similarly significant. It was he who – in true Japanese fashion – became the fall guy, personally taking the blame for the Dreamcast’s failing to achieve a significant foothold in Japan. Under his watch – and despite his best efforts – Sega had only sold about 600,000 Dreamcasts in Japan, instead of the 1.1 million it had originally forecast. It wasn't Irimajiri's fault – amongst other things, there was the problem with the PowerVR 2DC chip shortage – but he accepted responsibility nonetheless and stepped aside, with Okawa assuming the role of CEO. Not since Hayao Nakayama had one man assumed the dual roles of corporate chairman and CEO at Sega. Okawa again confirmed – for the record – that Dreamcast would be Sega's final home video game console, but that was all he would say. Far more apparently went left unsaid, for knowledgeable sources tipped off the Nippon Keizai Shinbun that a lot more fixing was about to take place within Sega corporate. "The company isn’t just going to abandon Dreamcast," reported the newspaper's sources. "Sega will eventually abandon the console hardware business altogether." The very same day, a Sega press confirmed its long-standing plan to break up its revered software development divisions into nine independent entities, reiterating its recent announcement regarding the reorganization of its arcade division. Sega’s investors promptly praised the move as a wise one, enabling greater flexibility in its future plans beyond Dreamcast.

To anyone paying attention to the news out of Japan, it was clear that something major was afoot at Sega. In fact, it been for months. Okawa was no fool; he could read the numbers as well as anybody. That was why he eventually focused Sega's remaining Dreamcast marketing efforts on North America, more or less leaving Europe to its own devices. Back in Japan, he had already put out the word inside Sega to "maintain face" – while at the same time to start evaluating the potential of developing for (or porting to) the competition’s platforms. The final decision about which of these to support would not be made until the summer; but Sega's R&D dutifully began evaluating one console after another. PC porting and development was a no-brainer – Sega had been doing this for years in one form or another – but the new next-gen consoles were another matter entirely.

Yuji Naka and his fellows at Sonic Team expressed open contempt for Sony’s system. "I do not think much of PlayStation 2," Naka was later quoted as saying. Instead, they were intrigued by the possibilities that Nintendo's latest gaming hardware had to offer. Having already developed a 16-bit Sonic game for the failed NeoGeo Pocket, they were candidly eyeing the prospect of porting to both the GameBoy Advance and the soon-to-be-launched GameCube. Perhaps the public admiration by Nintendo über-producer Shigeru Miyamoto for Sonic Team's recent Dreamcast efforts had something to do with it. Perhaps it was simply Naka's personal familiarity – and years of unauthorized experimentation – with Nintendo hardware. Perhaps it was something else altogether. Whatever the reason, Sonic Team began gravitating towards Nintendo platforms for the bulk of their future efforts. Not surprisingly, other programmers at Sega – most notably Toshiro Nagoshi and his team over at the Amusement Vision division – echoed the sentiment.

Not everyone shared Naka and company’s hardware inclinations. Yoot Saito and his staff – who were then working on a sequel to their hit, Seaman - were gravitating toward Windows-based PCs, and also evaluated the prospect of porting the planned Seaman sequel to Sony's next-gen console. "What's important is installed user base," Saito later shared with reporters as to the reasons behind his decision. Yu Suzuki and AM2 found themselves siding with the quirky Saito insofar as PC and PS2 porting and development went, toying with the possibilities Microsoft's XBox might offer, but that was about it. On the other hand, Hisao Oguchi and his crack team of programmers at Sega's Hitmaker division were so excited at the possibility of developing for XBox that they were already beginning to jot down ideas. Eyeing the competition's hardware for potential porting and development was not limited to Sega of Japan. In America, Sega Sports – who had also seen the writing on the wall – were salivating at the prospects of releasing their flagship titles on both Microsoft and Sony’s consoles as soon as possible.

And so 2000 unfolded, with each of Sega's development houses evaluating and then picking those of its competitors' systems it liked the most. By the time summer rolled around, everything was in place to proceed. On June 6, 2000, Sega of Japan penned a deal with Motorola to develop Internet- capable games for a new generation of cell phones soon to hit the Japanese market. A few days later, it was revealed that Sega titles old and new would be making the transition, including the venerable Columns and several games based on Sega's flagship Sonic the Hedgehog franchise. Many industry watchers at the time shrugged it off – considering it no more impactful than the NeoGeo Pocket rendition of Sonic Adventure – and went about their business. Had they paid more attention, they’d have seen a portent of things to come.

It was not until the end of June that Dreamcast console sales in Japan finally broke the one million mark. But by then, other news from Sega corporate eclipsed any recognition of that dubious milestone. On June 20, 2000, Sega officially released all of its software development divisions to develop for whatever platforms they chose. The move was welcomed by practically everyone within the industry and correctly interpreted for what it was – this was merely public acknowledgement of what had been quietly brewing inside Sega for the past half-year or so. In swallowing its pride, Sega could reach a much wider user base, increasing sales and dramatically improving chances of a return to profitability. Word had it – accurately – that Sega was already developing ports of hit Dreamcast titles for both XBox and GameCube. Strangely, though, the possibility of Sega’s developing for Sony's PS2 was discounted – even though it had already licensed a PS2 port of its own Crazy Taxi 2 to Acclaim. Security surrounding the home console version of the latest incarnation of Yu Suzuki's Virtua Fighter was so tight that no one knew for sure just which platform it would appear on.

About a year later, company co-founder David Rosen – who had long ago disassociated himself from Sega over the way its Japanese branch had treated Tom Kalinske back in 1996 – made the following comments over Sega's divestment plans:

“At one point in time, Sega had the best software publishing ability by far. We had 600 to 700 people just dedicated to software development. Even more than that… at one point there were 800 to 1,000, and they were the best, as proven by what they achieved in coin-op [the arcade business]... [Today's Sega] could have been designing for other systems, thereby having a universe to sell into that was not limited by Dreamcast. Whether it’s three million or five million, or seven million, they could have had a universe to sell in to that was 70 million PlayStations... I have been advocating the idea that Sega should become a content provider, providing software for all existing systems and systems to come such as Xbox. Hardware has been such a drag on Sega. Selling software on one system is to limit your mobility. Why put yourself to a disadvantage to the Electronic Arts, THQs, and other companies who have the ability to sell software to all systems?... I've been advocating this for more than seven years now and always felt it was a bit of a folly for [today's Sega] to be limiting their potential to Sega hardware... Unfortunately, it took the situation that they are going through today to make them realize that they had to make a change. ”

It can’t be said that Sega of Japan’s executives lacked a sense of humor as to the precarious predicament the company was now in. At the annual stockholder's meeting on June 21, 2000, all 62,239 Sega corporate shareholders received (or were mailed) their own "Poo-Chi" electronic dogs, products of the company's Sega Toys division. The custom Sega shareholder version came with its own exclusive bone, which some were quick to quip symbolized their growing frustrations with a company that was still sucking bilge-water at the bottom of the Nikkei stock exchange. Others took it in stride – after all, it was one of the few Sega ventures generating a profit. The toy had proven a phenomenal hit in Japan, and was soon exported worldwide to moderate success, driving desperately-needed cash into Sega's ever-dwindling coffers. Not soon enough for Sega of Japan employees, though, who saw their annual bonus checks slashed by 20% as a result of the company's financial predicament. And it wasn't about to get better. Dreamcast console sales results for Japan had just come in, and showed an alarming downward trend: from over 80,000 units sold per month at the beginning of the year down to just over 34,000 units per month by the end of May. With 282,238 units sold to date that year, Dreamcast was now the #3 console on the Japanese video game market. It had edged out the original PlayStation for the spot, but was still over 800,000 units per month behind GameBoy Advance. The number one slot, of course, went to the PS2, with 1,924,581 units sold. Sega’s console sales were going in the toilet and dragging software right along with them. Even such highly-anticipated titles as Genki's racer Shukoto Highway Battle 2, Sega's unconventional Jet Set Radio, and the console port of Yu Suzuki's arcade racer F355 Challenge stayed on the Dengeki Top 30 charts for just a few weeks before slipping off, never to return. It was a pattern that would become all too familiar to Japanese Dreamcast gamers as the months dragged on.

As of June 30, 2000, new shares of Sega corporate stock were no longer issued in the name of Sega Enterprises, Ltd. Instead, they were issued in the name of Sega Corporation, or just plain SEGA for short. Why the name change? Sega was now a household word. Most people neither knew nor cared how the company got its name; that's what it was called, so it was more convenient to change the name than continue wasting money on ink printing out the older, longer one. It was not without precedent. Back in the 1980s, the American Telephone and Telegraph Company had its name legally changed to its corporate abbreviation – the AT&T by which we still know and call the company today. If anything, it was confirmation that the Sega brand and identity were now firmly ensconced in the world consciousness. This, after all, was one of the things that Isao Okawa hoped to accomplish in his determined drive to rebuild his beleaguered company. Their finances might have been in the toilet, their profit projects still in the red, but at least the Sega name still bore a reputation for excellence and innovation – a trait that would prove crucial to the company's future plans as the first half of the first year of the new millennium came to a close.

In fact, Sega of Japan managed to surprise everyone – including itself – by pulling a rabbit out of its hat the following month. On July 5, 2000 – after three straight years of heavy losses – internal projections showed Sega eking out a first-quarter profit for to the princely figure of ¥5 billion ($47 million). If the projected profit held, and Sega finally made it back into the black, it would be entirely due to Isao Okawa and the drastic cost-cutting measures he’d implemented earlier in the year. It was only a projection, but of course Sega trumpeted this unexpected bit of good news for all it was worth. And who could blame them? Encouraged by its unexpected turn of good fortune and overflowing with new product to show, Sega elected to follow the lead of both Nintendo and SNK and skip the Fall 2000 Tokyo Game Show, and hold its own in-house event instead. It had the programmers, it had the product, but – most importantly – it looked as if it finally had some profits once again.

Even so, there was no question who’d won the 128-bit console war in Japan. Sony was easily selling nine times as many consoles as Sega, despite less time on the market. Sony held 65.3% of Japan in comparison to Sega's dismal 11.1%, and even that small share was being whittled down by a resurgent Nintendo. Sega may have sold nearly six million Dreamcast consoles, but it was taking a ¥10,000 ($95) hit per console sold… and selling less and less consoles every day. Factor in software sales’ falling far short of expectations, and the course was clear, as far as Sega of Japan was concerned: So on enough, the time would come to leave Dreamcast behind and develop for other platforms. Daily Radar put it best in its online article "Sega's Chances" when it said, "If Dreamcast does fail, it will not be because there were no good games available for it. Few if any consoles have been blessed with such an astonishing catalog of games so early in their lives as the Dreamcast has. No, if Sega suffers defeat, it will be because other machines are backed with more cash."

Developers weren’t waiting around to see how Dreamcast's fortunes fared, making a steady exodus from the Sega fold throughout the summer of 2000. SNK and then Koei were the first to go, in June; SNK due more to bankruptcy than anything else, Koei to a lukewarm reception of its war sims with Dreamcast gamers. That same month, Namco officially discounted the possibility of Soul Calibur 2 for Dreamcast – due to sales of the first game not meeting projected expectations. Gathering of Developers swore up and down that Max Payne would never be released, for any home console – including Dreamcast – and then quietly got to work porting it to PS2. Confounding Factor's long-anticipated, first-person RPG Galleon was suspended, then "delayed indefinitely" due to "development issues." UbiSoft quickly quieted rumors of another Rayman title being released for Dreamcast, quietly began killing off all of its remaining Dreamcast projects one by one... And, of course, Bandai publicly dashed all hopes for any additional Gundam titles arriving in the West. The slow bleeding of Dreamcast developer support that had begun at the beginning of "the year of the Dreamcast" was rapidly becoming an unstoppable hemorrhage. And in spite of all this, Sega plowed right on with its plans, seemingly undaunted by the mounting red ink, apparently oblivious to departures from its third-party fold, and unsympathetic to the howls beginning to arise from its supporters. I remember well how I felt as the summer of 2000 wound down, and again I quote from my old Internet newsletter:

“I think it was ODCM (Official Dreamcast Magazine) who recently noted that Sega's new mascot should be Samba the monkey. After thinking about it for a while, I kinda agree with them. Samba just dances right along with that stupid yet infectious grin on his face, without a care in the world, not really aware of what's going on around him but not giving a flying, er, flip either. All he knows how to do is dance, and he does it very well, so that's all he does in the face of trouble – dance. Kinda like Sega. All they know how to do is video games, and they do them very well, so they plow merrily along, seemingly oblivious to what's happening to their markets.”

The wake-up-call would come far sooner than Sega dared hope; and when it did, it came as a direct assault on its projected year 2000 profit margins, from which it would never recover.

The one marketing front on which Sega was still nervously chewing its nails was Dreamcast software. Why? Software piracy. So far, Sega had been incredibly lucky in that no one had been able to pirate Dreamcast games. The custom GD-ROM format Sega employed for Dreamcast software thwarted efforts by the best Asian software houses to duplicate it in a cost-effective manner. Despite rumors of pirated Dreamcast games showing up in all of the usual places (Hong Kong, Malaysia, Taiwan, etc.), few had actually seen, let alone bought, a Dreamcast bootleg. The GD-ROM format required specially modified CD-R/RW drives to duplicate, and would not play in a standard CD-ROM drive. Sega thus enjoyed 100% of the profits from Dreamcast software sales – low as they were – for the simple reason that piracy was practically non-existent. Sega was so confident that the status quo would hold that future software sales predictions didn't take piracy into account, as Sega had managed to prevent Dreamcast bootlegs from being released for nearly two years now. It was an unprecedented accomplishment in recent video game history: Piracy of PlayStation CD-ROMs, and so-called "mod chips" enabling their use on stock consoles was rampant and had been for years. Even so, and despite their best efforts, the sands of Sega's hourglass were about to run out. Ironically enough, it was none other than Sega of Japan who had made Dreamcast piracy not only possible, but an inevitable reality.

Let’s back up a bit, to mid-1998. Sega of Japan's R&D divisions were finishing up their work on the Dreamcast. Incorporated into its system firmware is the ability to read a select variety of disc formats, in addition to the proprietary GD-ROM format used for Dreamcast games. One of these, designated MIL-CD, is designed as an "enhanced audiovisual format" which would allow the streaming of both compact disc digital audio (CDDA) and playback of full-motion video (FMV) on Dreamcast hardware. This is known in digital audiophile terms as ‘mixed-mode playback,’ as both CDDA (standard CD audio tracks) and FMV (usually in the data track) are present on the disc. The chief problem in developing the format was that the Dreamcast's proprietary disc loading routines had to be bypassed in order to make it work. In other words – and this is important – Dreamcast had to be able to recognize and read a compact disc in normal mixed-mode CD-ROM format. These MIL-CD routines were something no one outside of Sega and its licensed developers were supposed to know about. And as no one else – in theory – would ever find out about them, Sega failed to include any kind of protection against the MIL-CD routines being used for “unauthorized purposes.” Thus Sega set itself up for what eventually happened, two years later. After all, it was only a matter of time before a sufficiently skilled console hacker would uncover those hidden MIL-CD routines – and figure out a way to use them. Once they figured out how to enable MIL-CD read mode, making a stock Dreamcast read normal mixed-mode CD-ROMs instead of proprietary GD-ROMs, well then... As the saying goes, "Bar the door, Sally!"

The first public indication that hackers were closing in on cracking open the Dreamcast's secrets was on June 19, 2000, when RealWorld Technology released the Dreamcast Debug Developer. It was a wonderful piece of reverse engineering, and gave this team of German hackers everything they needed to crack the console's firmware. It was a pure hardware hack – interfaced to a Wintel-based PC or high-end Amiga computer running appropriate host software – but it was still quite an accomplishment, and worked as advertised. Those who saw the Dreamcast Debug Developer in action were suitably impressed, rightly guessing that it wouldn’t be long before a Dreamcast hacking scene developed.

In fact, it was already underway. Early iterations of the Dreamcast Debug Developer had already been available to interested parties for at least three months before that. It was back in April of 2000 that a German hacker using the handle ‘Skywalker’ released what became known as the A.E.G. Demo, demonstrated to the public at the annual "demo scene" meet at the Mekka & Symposium 2000 in Bad Fallingbostel, Germany. These hacker demos were designed to showcase as much of a given system's hardware as possible, and were often accompanied by a synthpop or techno soundtrack – also generated on the same hardware. They’d been a part of the European hacker scene since the 8-bit personal computer days of the 1980s. The A.E.G. Demo generated immediate interest. It was now possible to hack the Dreamcast; soon enough, it would also be possible to copy and pirate its highly desirable video games. The only limiting factors were how to fit all of the game data from a 1 gigabyte GD-ROM onto a standard 650 MB CD-ROM, and how to enable said copied game to boot on a stock Dreamcast.

The first part was easy enough. Now that the Dreamcast firmware had been cracked, those hidden MIL-CD loading routines could be enabled to allow any stock Dreamcast to read game data and audio from a normal mixed-mode CD-ROM. Sega had even "thoughtfully" left in support for extended-mode 700 MB discs, and the hackers soon discovered it could even read so-called "overburn" discs. These could hold up to 800 MB – extending all the way out to the edge of the disc – but were highly dependent on the quality of media used. Later, as the Dreamcast piracy scene continued to develop, ways were found to reduce the size of game content, by lowering the bitrate of the CDDA audio, or recompressing any FMV cut-scenes at a lower resolution to take up less room. With various solutions to the first challenge found, it was on to the next one: How to boot a Dreamcast game that's been copied onto CD-ROM?

On June 23, 2000, a different group of German hackers – Team Utopia – stunned the scene by releasing the first ever so-called "DC backup" onto the Internet. It was nothing more than the popular Dreamcast arcade fighting game Dead or Alive 2, copied off of a GD-ROM and onto a CD-ROM, but this change in format now allowed the game to be copied and distributed at will. It required a special boot disc for the console, which was also distributed on the Internet alongside the illegal bootleg (and quickly made available for sale by a shadowy Chinese firm named Lik-Sang). Other "Utopia backups" of games like Soul Calibur and Resident Evil CODE: Veronica followed within days, with both backups and Utopia Boot Disc rapidly spreading across the back corners of the Internet.

Approximately one month later, on July 21, 2000, in a joint press statement with the IDSA's Douglas Lowenstein, Sega of America's Charles Bellfield made a public statement concerning the sudden rise of the Dreamcast piracy scene: more than 60 Internet sites and over 125 online auctions had been shut down due to the presence of illegal DC "Utopia bootlegs." Bellfield also announced that Sega had formed alliances with many leading service providers to ensure that its intellectual property would continue to be protected under the newly-enacted Digital Millennium Copyright Act of 1998 (DMCA). This marked the first time a U.S. video game vendor had invoked the DMCA to go after Internet piracy. It was a bold move by Sega, who wasted no time in pursuing the swift prosecution of any offenders it could find – but the bootlegs continued. The day after Bellfield made his statements to the press, Dreamcast release group Kalisto unleashed the bootleg version of World Series Baseball 2K1 on the Internet – intentionally timed to hit the Internet on the same day the game appeared on retail store shelves. By the following week, Sega of Japan had joined the legal battle, working with Japanese law enforcement in cracking down on the hundreds of illegal "ROMz sitez" on the Internet promoting Dreamcast bootlegs. It proved futile, and Dreamcast piracy ran rampant. By end of July, the company was begging anyone who could (or would) provide information regarding the production and distribution of Dreamcast bootlegs to contact them immediately.

The conflict between Sega and the Dreamcast pirates continued straight through the summer of 2000. On August 1, online retailer Amazon.com earned a ringing endorsement from Sega for thwarting Dreamcast piracy in all forms via its website. Not to be outdone, hackers quickly learned how to circumvent the copy protection that Sega was now encouraging its third-parties to include with their games; Kalisto’s "ripped" release of Toy Story 2 was the first such result from that effort. Two weeks later, Kalisto had heads spinning again, when it announced it had succeeded in combining both the Utopia Boot Disc's bootloader code and a Dreamcast bootleg onto a single CD-ROM. This left a little less space for the pirated game on the disc, but that was fine – for the pirates – and self-booting Dreamcast bootlegs quickly became the standard format for distribution. Needless to say, Kalisto’s opting to use Sega's own Virtua Fighter 3tb and Dynamite Cop to showcase the accomplishment left the company less than impressed.

On August 25, eBay shut down all auctions involving "Dreamcast backups," promising swift legal action against any customer who used its site to deal in the so-called "infringing goods." Kalisto abruptly left the scene one week later, but their shoes were quickly filled by the release group Echelon – and the steady stream of Dreamcast bootlegs available online continued unabated. Echelon made the self-booting tools widely available on the Internet on September 25 and – as if to add insult to injury – leaked and pirated copies of both of Sega's Dreamcast SDKs that had begun making the rounds back in June. No one knew how they had been made available, and no one cared. They represented a prize hard-sought, almost as eagerly as the more popular games. With these tools and the right skills, anyone could rip and hack their favorite Dreamcast games .

Team Utopia, who started it all, were arrested by German police on July 5, 2000 and charged with multiple counts of copyright violation. Their true identities were eventually discerned because they – somewhat incredibly – included a picture of themselves on the Utopia Boot Disk. Kalisto's abrupt disappearance from the scene in early September was the subject of many rumors, but the one given the most credence on "the scene" at the time was that Sega had learned their true identities and essentially "bought them off." That turned out not to be quite right; instead, they’d turned to pirating PS2 games. Not that it mattered. Echelon and many others sprang up in their wake, and the Dreamcast piracy scene would continue long after the console itself was no more.

Sega’s fight against the Dreamcast pirates was a losing battle, the outcome predictable. Every month or two, Sega would succeed in shutting down nearly all of the major Dreamcast bootlegging sites on the Internet. Within a few weeks, new ones would appear, many with the latest releases. Sega could never stop the millions of hits on UseNet, IRC, FTP, FXP, and other Dreamcast pirate sites. For every site or auction Sega and the IDSA managed to shut down, at least three or four more sprang up in their wake. It remained dreadfully easy to find Utopia backups, provided you knew where to look and were willing to endure the hassles and posturing of the many strange denizens inhabiting the darker corners of "the scene." C. H. Phoon, president of Hong Kong's Golden Harvest Studios, described the problem with a metaphor. "Combating piracy is like pushing water uphill. We are talking about piracy in 10 or 12 different countries around the region, all with their own legal systems and interpretations of copyright laws. You can solve a problem in one market and it just moves to another." For their part, the pirates claimed their actions were justified because they’d helped increase Sega's dismal console sales, with some of them claiming as much as a 20% boost. The number sounds ridiculously inflated (11% sounds more reasonable, based on my own independent research at the time), but in the end it really didn't matter. Why? Because the pirates were hitting Sega in the one spot where profit mattered: Dreamcast software sales.

If you were an Internet-savvy Dreamcast owner in 2000, and knew how and where to get Dreamcast bootlegs, one question was obvious: "Why pay for a game when I can download it for free? Sure, it's illegal, but I've got better ways to spend $50 than on a game I might only play for a few weeks." Many gamers around the world chose to set their morals aside and do just that. Some games, especially out-of-market releases, could not be obtained in any other way save through pricey export shops. Few gamers were willing to pay up to $100 for a game – in a language he or she couldn't read – when it could be downloaded for free off the Internet. It has been estimated by the Dreamcast bootleggers themselves that they averaged between one and three million hits a day on their file servers whenever popular Dreamcast titles, such as Shenmue, Grandia 2, Resident Evil 2 or the various Sega Sports games appeared on the Dreamcast bootleg release schedule. For the most part, the millions of people illegally downloading Dreamcast games from the Internet didn't care that Sega was losing millions in lost software revenue as a result of their actions. In the words of one proud FXPer, "F--K SEGA I'LL LEECH THEM DRY."

Debate rages even today as to how much piracy really impacted the life of the Dreamcast. A common claim among Sega fans, both then and now, is that piracy actually benefitted Sega in the long run, in promoting sales of the console itself. After all, consoles cost a lot more than games. They point to ever-increasing numbers of consoles sold, as dutifully reported by the trades of the day, and also point to the rampant piracy that took place with the original PlayStation and its successors, as well as the console sales figures for them. In truth, this justification does not hold up under scrutiny. Quarterly sales of Dreamcast consoles had actually been trending downward in 2000, and continued to do so until the fourth quarter, where they made a sharp – and entirely expected – upward spike. That spike followed the holiday shopping season, and can hardly be attributed to extra sales due to sudden proliferation of "Dreamcast backups." If this had been true, that spike would have happened earlier, during the second or third quarters of 2000 – there should have been two spikes in Dreamcast sales. In truth, most of the ones who were pirating games already owned a Dreamcast. Only a relative few went out and bought a console "just to play backups" – not enough to make even the slightest dent in downward trending Dreamcast console sales – as the market data shows.

This defense also fails to take into consideration the very nature of the video game market itself. It also completely ignores the poor financial conditions under which Sega was operating at the time. Recall my earlier analogy that video game consoles, regardless of vendor, are sold on the "razor and blades" premise. Console vendors have always sold their hardware (the razor) at a loss at launch time, expecting to make it up from the profits on software (the blades) over the long haul. The trick is to maintain high enough prices – and subsequent profits – on that software for long enough that both cancel each other out. Only then are you in the black, and making money on both consoles and games sold. Sega never reached that point with the Dreamcast. It should have by January 5, 2000 – according to an analysis from Solomon Smith Barney – but it didn’t even come close. The Dreamcast launch had cost Sega $600 million, which meant it was making only about $1 on every console sold – and then there was that mountain of debt the company was already operating under. The profit margins on Dreamcast games was significantly higher, and that's why Sega needed to push the games. It needed to sell every game it could – and maintain the price of the console likewise – for as long as it could, because Dreamcast was still losing money. The Dreamcast piracy scene put a big hole in Sega's profit margins that it simply couldn't afford. Sony could because it had deep enough pockets to afford to deal with the issue; Sega didn’t, and never would.

The final four months of the year 2000 would prove to be the most crucial to the continued future of the Dreamcast. It had failed in Japan. It fared a little better in Europe, but the overall weakness of the 128-bit market there, coupled with Sega's own limited market penetration, meant that European sales hardly made a dent in Sega's massive debts. The only major market left where Sega might be justified in keeping Dreamcast alive a while longer was in North America. Dreamcast had been well received where once the 16-bit Genesis had ruled the roost, and Sega of America's marketing efforts had realized the first of Isao Okawa's restructuring goals: the rebuilding of Sega's public image. Dreamcast – while not as strong a contender as had initially been hoped – was nevertheless making a significant market impact, and seemed to be gaining momentum. One more big push might displace Nintendo from the #2 spot in North America; if so, Dreamcast would have finally turned the corner in the one market that mattered most.

This time around, Okawa made sure Sega of Japan didn’t leave its American counterpart high and dry, keeping them up to date on developments at Sega corporate, and providing all the technical support the financially ailing company could muster. Thus, Okawa and his staff willingly turned over the future of Dreamcast to Peter Moore and company – just as Nakayama had done with Kalinske back in the Genesis days – and then went back to finalizing their plans for Sega once Dreamcast had been laid to rest. Dreamcast might still fail (and probably would, it was privately conceded), but not from lack of trying. Unlike the Saturn a mere three years earlier, Sega's last home video game console would have everything at its disposal the company could still muster: Cash, support, and full backing from all branches of the company.

Long-held rumors of a significant price drop in the price of the Dreamcast began to gain credence at the beginning of August, backed by reports from U.S. video game magazines and deliberate leaks from Sega of America. Peter Moore himself hinted at a coming price drop several times. It was all part of Sega of America's overall strategy to aggressively advertise Dreamcast like no other Sega console had been marketed since the days of the Genesis. Peter Moore and his staff were taking no chances with the monstrous impact that PS2 would obviously have on Dreamcast sales. They’d spent a lot of time and effort launching the system, getting the software out the door, putting the Internet strategy in place, and overhauling their marketing strategy. Now it was time to go for broke, pushing Dreamcast as long and hard as they could to as many customers as possible before being overrun by Sony’s juggernaut. The PS2 was hitting the United States in November, and eager buyers nationwide were already scrambling for advance orders. GameBusiness magazine hit the nail on the head when they said that the arrival of Sony's newest console had "...a good chance of forever making the Dreamcast a niche – and narrowly appreciated – game console." To that end, Sega of Japan had been working nonstop making sure that Sega of America had enough consoles for its big holiday 2000 marketing push. One encouraging fact was that there were already 2.1 million Dreamcasts sitting in the homes of U.S. gamers by this time. Sega of America had as its stated goal 5 million Dreamcasts sold by March of 2001, with the bulk of those being moved during the highly competitive 2000 holiday shopping season. Now was the time for Moore and company to put the other pieces into place: more high-caliber software, online gameplay realized, and competitive pricing.

Good news came at the end of summer, when Sega of America officially announced its All-Stars lineup on August 1. Similar to Sony's discount lineup for the venerable PlayStation, it consisted of past hit Dreamcast titles (all of which had turned a profit) selling for "the incredibly low price of $19.99." Having moved 9.1 million Dreamcast games overall in North America meant that Sega of America could ease its pricing a bit on older but still popular titles. The first six games in the Greatest Hits lineup made quite an impression on the cost-conscious gamer: Crazy Taxi, House of the Dead 2, NBA 2K, NFL 2K, Sega Bass Fishing and – of course – Sonic Adventure. The Dreamcast All-Stars officially began shipping on August 22, and U.S. gamers jumped on it with such fervor that soon Crazy Taxi and Sonic Adventure were once again competing on the various top software charts. Moore and his staff also had waiting in the wings the console's third and grandest generation of video game software: 18-Wheeler: American Pro Trucker... Capcom vs. SNK... Dino Crisis... Half-Life... Jet Set Radio... Metropolis Street Racer... NFL 2K1 and NBA 2 K1... Red Dog... Resident Evil 2... Resident Evil 3... Quake 3: Arena... Samba de Amigo... Sega GT... Super Runabout: San Francisco Edition... Test Drive: LeMans... Unreal Tournament... and many more. It was an even more diverse software lineup than had been offered during the previous holiday season, and Dreamcast fans were practically drooling in anticipation.

One game that even caused gamers outside the Sega community to sit up and take notice was Game Arts’ Grandia 2, the sequel to what is considered to be the finest old-school RPG ever to grace the ill-fated Sega Saturn. The original game had never been released on a Sega platform outside of Japan, and many gamers (rightly or wrongly) felt this as one of the reasons why Saturn had failed. Sega was not about to repeat this mistake a second time. North American and European gamers had finally gotten a chance to see the original Grandia once it had been ported to the PlayStation, and couldn’t wait to see a full-blown über-RPG in all of its 128-bit glory. Even RPG fans that didn’t own Dreamcasts were watching for this one, if only to see the shape of "real" next-gen RPGs to come. Anticipation was high, the graphics were impressive, and UbiSoft had outbid Working Designs (!) for U.S. distribution rights. In the words of one reviewer, "The word has come down from on high. Grandia 2 kicks ass." It would eventually take its place among the hallowed halls of Dreamcast software as the best third-party RPG ever created for the platform, and one of the greatest examples of the genre of all time.

Hyped even more than Grandia 2 was Sega's own RPG, Shenmue. Created by Yu Suzuki (the man behind the Virtua Fighter franchise) and originally conceived for the Saturn, Shenmue was designed to be the video game industry's first truly immersive 3D RPG. You would become part of the game’s virtual world, with the freedom and ability to go and explore wherever you wanted. The game's script and plot was intended to adapt to when and where you were in its virtual world, and its non-playable characters (NPCs) would change and adjust accordingly. The idea had been kicking around the video game industry for quite some years, with Kenji Eno's D2 (another Dreamcast title) being but the latest attempt. But Shenmue took the concept to such a realistic level that the game was often compared to "living a movie." The plot was standard martial arts fare: A young man's father (who happens to be a martial arts master) is killed by an old foe, setting the son on a long and event-filled quest for revenge. It was the graphics and immersive gameplay that wowed both reviewers and fans like. The Japanese original was scheduled for release in October, with a dubbed English-language version promised for November.

A third major RPG was also scheduled to grace the Dreamcast in the U.S. in the fourth quarter of 2000. Skies of Arcadia was the English-language port of Eternal Arcadia, which had done about as well back in Japan as a Dreamcast RPG could, given the market. Created by the same team behind the revered Phantasy Star series on the Genesis, it told the swashbuckling tale of the air pirate Vyse, and his adventures in the sort of retro-punk fantasy environment long favored by Japanese manga, anime, and video games. Such fare had also earned a following in the West; the fact the Phantasy Star team had been involved in its creation had many a Sega RPG fan salivating in anticipation.

Moving on to other genres, there was one other Dreamcast game scheduled for release at this time that deserves special mention. One of the most anticipated Dreamcast games in the fourth quarter of 2000 was the port of Valve’s Half-Life, the first-person shooter that had set new standards for the genre when first released. Originally created using the Quake II game engine, the Dreamcast version was described as being an "enhanced port" that would take full advantage of the console's graphic processing power – for a new and more realistic look that was simply unavailable to PC-based 3D accelerator cards when it was originally released. Another intriguing feature being added to the Dreamcast port was an all-new campaign called Blue Shift, in which players took on the role of one of the "Barneys" – the game’s security guards, who had long been the subject of jokes among Half-Life fans due to the way they were used in the original game. There were even rumors that the PC game's Internet play would survive the porting process. Two other hard-hitting FPSs were headed to Dreamcast that year – ports of both Quake 3: Arena and Unreal Tournament were already nearing completion – but Half-Life was by far the most anticipated of them.

Dreamcast's list of games in fourth-quarter 2000 was impressive by any measure. "Sega fans can look forward to the best software lineup the video game industry has seen in years," noted SegaWeb's John Benn, and he was right. No other console at the time offered both the scope and overall excellence Sega was offering Dreamcast at the end of that year. The first generation of Dreamcast software had been good, the second outstanding, but the third promised to be simply phenomenal. Best of all, this generation included the much-hyped – yet still-largely-unavailable – online gameplay capabilities that had been advertised ever since the console had launched a year before. The games were waiting in the wings – now where was SegaNet?

Full-scale beta testing of SegaNet commenced on August 8, 2000. This was another of Okawa's dreams realized, and in the one market that mattered most. His enthusiasm for online gameplay was shared by eager Internet-savvy console gamers across the United States, who had long envied their PC counterparts busily fragging each other in multiplayer first-person shooters, or engaging in EA Sports' various Internet-enabled multiplayer sports sims. Now it was their turn, and Sega was the one company making that dream a reality. Not only that, but ports of many of those same great games were coming to Dreamcast, too! On August 21, as the result of a special drawing, 100 lucky Dreamcast owners got the fledgling SegaNet all to themselves for a full week of non-stop user testing. More tweaking followed, and then testing resumed with both Sega personnel and that same 100 gamers breaking in Dreamcast's new lineup of SegaNet-ready software. The final testing cycle wrapped up on September 6, 2000, having earned rave reviews from participants and onlookers alike. Long delayed and decidedly overdue, Dreamcast's online gameplay network was finally realized the following day. It was a good thing, too; console sales had already picked up dramatically.

Reactions to SegaNet were mixed. Most fans who joined and used the service enjoyed it. "There's just something about four guys huddled around a TV screen screaming all manner of obscenities at each other that makes console gaming so much fun," commented SegaWeb's Gavin Frankle. Joe Funk, editor-in-chief of Electronic Gaming Monthly, was more specific. "Sega has done a commendable and historically significant job in getting the first real, far-reaching online console experience up and running, and their football game (NFL 2K1) is a good place to start... Overall, the interface is fast and easy to use and while there may have been a few minor glitches at launch, SegaNet has been pretty smooth so far." Within a month, Sega of America would report a 92% increase in Dreamcast console sales – a rise that was in part attributed to the success of SegaNet. The service was not without its detractors, and many industry pundits felt that SegaNet was just too soon. "Game companies providing content and hardware for broadband connections are building on foundations that don't exist yet," said NextGen's Tom Chick. "Their predictions that broadband is just around the corner are equal parts wishful thinking and proselytizing." Sega's Charles Belfield remained unperturbed. "If my competitors continue to alienate their consumers, [then] I'm really happy... Until broadband becomes mainstream, which many analysts say is five years away, at least, we've got to think primarily about our narrowband customers." That is exactly what Sega had done, and if the start had been a bit rocky, there were few complaints now. That was music to Okawa's ears, and he addressed SegaNet's detractors near the end of the year. "Although the network business is often said to be unprofitable, we need to accumulate the know-how now. It would be too late to decide to enter the market in the future." Once again, Sega was first in a new field of endeavor, and those gamers who were willing to join them were grateful.

Back in the real world, storm clouds were gathering on the horizon. On August 12, Wal-Mart (the world's #1 discount store chain at the time) dropped the price of the Dreamcast to $150 nationwide due to "sluggish console sales." To say the folks at Sega of America were pissed is putting it mildly. There were two reasons for their muted yet obvious irritation at the move: First, Wal-Mart's stated reason came as bad press at a critical time, just as Sega of America was ramping up its marketing campaign for the holidays. Second, it was too early. A price drop was definitely in the works, but it was supposed to come later – and in accordance with Sega's carefully laid plans, which had just gone out the window. Being the leading retailer in the business meant that others would naturally follow in Wal-Mart's wake, and that’s just what happened. J.C. Penny and Target followed Wal-Mart's lead a week later – even though by that time Sega had talked Wal-Mart into restoring the price back to $200. It went back down again soon enough; it was an open secret that a $50 price drop was coming, and soon. "Sega's denials... are looking sillier and sillier," noted SegaWeb's Scott Twining.

Officially, the first permanent drop in the price of the Dreamcast took place on August 17, 2000 in Australia, where the system had sold so poorly that Sega had no choice but to begin unloading it as fast as possible. While they were at it, Sega also finally rid itself of Australian distributor OziSoft and the poor performance it had consistently displayed Down Under in both marketing and supporting the Dreamcast. Eight days later, reports leaked from Sega of Europe indicated that an official $50 price drop was imminent both there and across the Atlantic. Thus it came as no surprise at all that on the very last day of the month, Sega of America officially dropped the price of the Dreamcast base system in North America to $150 – tailing American retailers by two weeks. Sega of Europe did the same the following day. This price drop was the other major factor in the doubling of Dreamcast sales noted earlier. SegaNet had been an intriguing proposition, to be sure, but the fact that the first next-gen console on the market was cheaper than ever was most alluring to consumers.

Despite the retailing setback, Peter Moore was quite proud of what his company had to offer to its Dreamcast customers for the coming holiday shopping season, making this statement on August 31, 2000:

Moore remained optimistic in the face of the long odds Sega faced. "[As] much as 70 percent of the business is still ahead of us in the next ninety days or so. We may have an install base of somewhere in the region of 3.75 to 4 million [consoles] by January 1st [of 2001]." To everyone at Sega of America, there seemed good reason to believe it. The hardware was available, the software was ready to ship, Internet gameplay support was finally in place, and the price was just right. The time had come for Sega of America to unleash its last little surprise on an unsuspecting North American public.

September 7, 2000 will be a day long-remembered by Sega fans around the world – only not for the reason you might think. Yes, it was the day Sega of America officially kicked off its holiday 2000 marketing campaign. Yes, it was the day SegaNet finally launched, introducing thousands of console gamers across the United States to the wonders of online gameplay. Yes, it as the day that Unreal Tournament was officially confirmed for Dreamcast, and that NFL 2K1 was released, with many of its buyers firing up its online gameplay features almost as soon as they got the game home. All those things were fine and good, but not the reason why this day is remembered. September 7, 2000 was the day Peter Moore brought back the Sega Scream.

Earlier that summer, Moore had contacted the advertising agency Foote, Cone, and Belding about the possibility of reviving Sega's trademark advertising campaign from its glory days in the 1990s. "It was always in my plans to bring back the Sega Scream," Moore noted later. He had never forgotten the impact that the original Sega Scream ad campaign had made on him back in his early days as an executive, and it was (by his own admission) with the echoes of that scream still ringing in his mind that he joined Sega's ranks back in 1999. "That enthralled me," Moore recalled, "from the simple fact that the way a name of a brand is said evokes an experience, evokes a mentality, and that was exciting." He knew that gamers had long associated Sega's image with that Sega Scream, and for him bringing it back had always been a matter of timing – and the launch of SegaNet seemed the perfect opportunity. His staff at Sega of America was delighted by the news; "When are you going to bring back the Sega Scream?" had been the number-one question from many a nagging Sega gamer. Sega of America was listening, and long-suffering Sega fans now had a high-placed friend with the full support and blessing of his superiors in Japan to answer that question.

The first three spots in the new Sega Scream campaign were unveiled to the public during the 2000 MTV Music Video Awards – the same network where the original Sega Scream debuted. They were designed to promote the next generation of online-capable Dreamcast games, with two 30-second spots specifically promoting the release of NFL 2K1 and one 60-second spot promoting the entire lineup. All three featured Sega's traditional screwball advertising humor, and all three were well received. The word-of-mouth was quick, and digital copies of the new Sega Scream ads appeared on the Internet within minutes of their debut. Sega quickly farmed out the ads to other broadcast and cable networks, dutifully running NFL 2K1 ads during NFL games whenever possible. To demonstrate just how faithfully Moore's staff recreated the zany spirit for which long-suffering Sega fans had yearned, consider the script from the original 60-second "Civil War," performed by none other than Seaman, Sega's virtual pet. It was an apt choice for Sega's new commercial; only a screwball character like Seaman could headline a screwball commercial like this one, and get away with it.

“It's evening in America, and across this great land young men and women are coming together through the power of the Internet with one common goal – to whoop each other's bootys. Sega Dreamcast games are now online, unleashing the ultimate horror – your fellow Americans. Jack into SegaNet through your Dreamcast console and join your countrymen in the virtual arena. Play NFL 2K1 and cream four meatheads you've never even met. Play NBA 2K1 and school some farmboy without suffering the scent of livestock. Or, play Quake 3 and waste some Jersey punk from the sanctity of your own home. And so, America, SegaNet is born – and suddenly we are one proud nation, indivisible, united in the pursuit – of whooping booty. SEGA!”

The reaction of long-suffering gamers was immediate and to the point. To quote Electronic Gaming Monthly magazine, "All we can say is it's about frickin' time, Sega!"

It was now down-to-the-wire time for Sega of America. Everything was in place, and they’d hit the ground running with everything they had. The entire future of Dreamcast was riding on Peter Moore and company. Most video game industry analysts were predicting that Sony would wind up dominating the 128-bit market with a whopping 70-75% market share by the end of 2001. If Dreamcast failed to take the #2 spot away from the aging N64 in North America by the end of the year, it was all over. Sega might not ever overcome such a formidable opponent as Sony, but it had a decent chance of keeping its little white wonder console competitive in North America for a little while longer, earning another year on the market. It was going to be interesting to see who’d cross the finish line – Sega's next-gen graphical prowess, or Nintendo's legendary "inventory management" tactics? Only time and market share would tell. As for Sega of America, it felt it was ready to meet the challenge it faced in the weeks to come. All eyes were now focused on Peter Moore and his staff, who struggled to keep the dream alive as the 2000 holiday season began to take shape.

As the fourth quarter of 2000 began, Sega was sitting in the proverbial catbird's seat with Dreamcast. While the sales numbers still weren't there, the hype and attention were, with Sega hoping that both of those would help generate those numbers it so desperately needed. NFL 2K1 Dreamcast was still holding on tenaciously to the number one spot in the NPD TRST Top 25 Video Games Chart, with EA Sports' Madden NFL 2001 in second place. Sony fans, eagerly awaiting the release of their console, were also screaming at EA over publicized delays with the PS2 port of Madden . No wonder NFL 2K1 was doing so well; it provided console gamers not only a next-gen experience, but network play – and it did it now . Sega fans would lose their grin once the regular PlayStation version of Madden swept the charts (which many frustrated PS2 owners would resort to buying later in the year, adding to its sales), but it was sweet while it lasted.

Sega of America also enjoyed free publicity in the form of attacks on its new game Jet Set Radio by some of the more conservatively-minded politicians of the country. The city of Milwaukee, Wisconsin put in a formal request to Sega asking them to cancel the game, condemning its purportedly positive depiction of "tagging" (spray-painting public buildings and markers). Never mind that the game opened with a disclaimer warning players against such behavior in real life! Sega's response was what one might expect. "We have no plans to stop [it]," stated Sega company spokeswoman Gwendolyn Marker. "It's a fantasy. It celebrates graffiti as art." In October, San Francisco Mayor Willie Brown worked unsuccessfully to ban a Jet Set Radio "Graffiti Is Art" promotion that happened to coincide with a city-sponsored effort at cleaning up the real thing a few blocks away. His efforts to get Sega's permits for the event revoked proved unsuccessful; the event was in lawful compliance and the Sega had provided large canvases on which the "taggers" could do their work. "It's about trying to gain respect for the graffiti art community." stated Sega spokeswoman Heather Hawkins. "So when the artists come down [to the event], we're reminding them, 'Hey, all eyes are on you now. This is your chance to show these people that you're artists.'"

By the time October rolled around, the fortunes of the Dreamcast were looking fairly bright. Market research data collected by the firm PC Data showed that Dreamcast console sales had climbed a whopping 156.5% over the months of August and September, attributing it to two primary factors: The price cut to $150, and the successful launch of SegaNet – which would have over 100,000 users by the end of the month. These had caused Sega's market share to inch up to 16.4%. Sega's share of total market revenue had increased to 39.7%, second only to Sony's 42.3%, and at the expense of Nintendo, which had dropped to 20.8%. Sega was still in third place overall, behind Nintendo's 36.4% market share and Sony's 47%, but the Dreamcast was definitely trending upward. "It is a sign that Sega's net-oriented strategy is beginning to pay off," said The Register' s Tony Smith, and he was right. Even the prestigious Wall Street Journal was inclined to run a story on the subject. It reported that Sega had to increase production of Dreamcast consoles in order to meet the sudden surge in demand, and predicted that Sega would upset Sony in the coming holiday shopping season. Heady words indeed, coming from one of America's foremost newspapers!

While the limelight was focused on American shores, Sega of Europe was not about to be outdone. Forty-nine titles were announced for the 2000 holiday season. Europe would also be first to receive two anticipated titles: The fantasy RPG Record of Lodoss War: The Advent of Kardis , and a Dreamcast port of Dino Crisis . Space Channel 5 was released on October 6, officially marking Sega of Europe's 100th release in the U.K. By October 25, Sega of Europe’s CEO J.F. Cecillion reported that his company had met all of its sales targets for the year. Over one million Dreamcast consoles and over 2.5 million software titles had sold in Europe, and over 400,000 gamers had signed up for Dreamarena, Europe's version of SegaNet .

“These results pay credit to everyone who has helped make Dreamcast such a success. The ongoing support of the development community means gamers can look forward to some stunning new games over the next few months and beyond. Our timing is perfect – we have a stack of top-quality games and new peripherals launching in the next two months. Sega is poised to take advantage of short supply by the competition. Retailers can be confident that they will have plenty of Dreamcasts and top quality titles for customers throughout the Christmas sales period.”

This press release came at a key moment in the history of the Dreamcast. Using these numbers and those supplied by Sega of America and Sega of Europe, the Dreamcast had already sold a total of five million consoles worldwide. Only one year into its projected market cycle, it had already sold half as many consoles as the total number of Saturns sold during that console's entire lifetime – and its numbers appeared to be trending up.

Even in Japan, where Dreamcast sales had been weak for a while, there were still signs of life. Sega of Japan announced a Dreamcast port of its popular Model 3 arcade racing game Daytona USA , which had been previously ported to the Saturn and proven one of its more popular titles. On October 2, 2000, a public preview of the Dreamcast port of Sakura Taisen 3 played to a packed house at Sega's Joypolis entertainment complex in Tokyo. SegaWeb's John Crystal commented on the event. “Sakura Taisen 3 may be the last real opportunity to ignite the sagging fortunes of the Japanese Dreamcast and finally produce the first real next-generation success story." It would prove to be an opportunity missed; the game was officially delayed until "Fall of 2001." The Dreamcast port of the original game did become available a few weeks later, however, along with a pack-in demo of the new game, helping assuage bad feelings somewhat. Later in the month, Sega of Japan also announced its Dreamcast Collection of reduced price games, similar to Sega of America's All-Stars lineup announced earlier that summer. The mid-year sales figures for Grandia 2 were in, and to no one's surprise it was the #1 best-selling Dreamcast game in all of Japan for the first half of 2000 (although it placed only 31st in the cross-platform listings). Even in Japan, there was still life in Sega's little console, but the sands of time were running fast. And in America, they were about to start running down.

On October 26, 2000, I went to my local Best Buy to purchase a second Dreamcast for my young nephew, so he would stop monopolizing mine. I almost didn't make it through the door due to the mob scene outside. As it turned out, I had completely forgotten about the U.S. PlayStation 2 launch. Inside was a scene I’d not experienced since my teenage days as a Wal-Mart sales clerk – when I was given the unenviable job of trying to bring the last shipment of Cabbage Patch dolls out of the back and onto the sales floor. I never made it past the storeroom doors. They were all snatched off of my hand truck as soon as I appeared - and that’s just what I saw happening in Best Buy nearly two decades later.

It was the same all over the United States. American consumer Sam Jacir had an experience not altogether unlike mine. "Ravers were dancing to the music outside their cars as they waited. More and more people filed in to get tickets. The raffle began and there must have been at least 1,000 people there. An hour later and [after only] 30 PS2s had gone, I stood there in disbelief. I didn't get one." Things were no better up north. "I had to visit close to 15 stores in search of various items, including controllers, and memory cards, and have now been up for 38 consecutive hours," reported Canadian consumer Michael Chorney. Many retail locations advertising the console reported hundreds of prospective buyers lining up the previous evening and waiting through the night. Some eager buyers were waiting up to two days before the launch, camping outside store doors with tacit acceptance from the retailers. Some locations reported fistfights and even other forms of violence overnight, but in most places the crowds calmly awaited the following morning.

The limited supply of just 500,000 consoles nationwide sold out in all retail and online locations in a matter of minutes. Almost all, save in a few isolated locations, went either to pre-order customers or were awarded via impromptu raffle sessions. Almost immediately, many of the lucky few who had one were offering them for sale for “only” $600, and the price was even higher online. By the end of the day, auctions for brand new PS2s listing as high as $2000 had appeared on eBay. The whole affair made the Japanese launch look like a Sunday picnic in comparison. Even Internet software pirates got into the act, with betas and test copies of several PS2 launch games available "in the usual places" two full weeks before the system launch. The only problem is that there were hardly any consoles available on which to play them.

There was a reason for such a dramatic shortage of PS2s during the U.S. launch. Sony had originally planned to ship one million units – confident that all would sell – but issues with production back in September had forced it halve that number. It was Ken Kutaragi himself who ordered the hold-up – reportedly for quality control issues – presumably fearing a repeat of the Japanese launch and subsequent "DVD lockout bug." Sony flatly denied this, claiming it was nothing more than a "component shortage," and the problem was eventually traced to a retooling issue at one of Sony's affiliated production sites in Nagasaki. Three days after launch, Sony tried to reassure its U.S. customers by saying it would ship 1.3 million consoles by the end of the year, but few believed them. The chronic shortage meant that many retailers either hoarded what systems they eventually got, or forced customers to pre-order them as part of a package deal, requiring them to buy two or more games with it – all because so many people only wanted the console in order to resell it at a steep mark-up.

Things got even worse the following month. "Credible sources" were whispering that Sony would not be able to make a second shipment of consoles on November 1 as announced because its "chip shortage is even more severe than expected." Finally, on November 3, Sony was forced to admit to its frustrated customers that it was out of consoles, and that there would probably be no more available until March of 2001 – "at the earliest." Furthermore, it would be unable to offer exchanges to those experiencing the same defective DVD door problems that had occurred in Japan until February of 2001. By now, demand for the PS2s was so great that some retail outlets reported break-ins and thefts of display units, or out of storerooms before they could even be put out for sale.

Over in Europe, it looked like Sony's next-gen console might not even launch at all. The European Commission, which regulated trade in the Common Market nations, had ruled against Sony on a request that the PlayStation 2 be classified as a computer and not a "mere" video game system because of its capabilities. Due to this, Sony would have to pay a 2.2% import duty on each and every console it sent there. Kutaragi was furious, and much noise was made about suing the EC over the matter, but a solution was soon found. Each PS2 destined for Europe shipped with a CD-ROM copy of YA-BASIC – thus earning Sony the desired "computer" classification needed to avoid import duties. This didn't save Sony from its own manufacturing woes, however, and it fell 35,000 units short of the initial order of 200,000 consoles it was supposed to ship – not to mention a total lack of external hard drives or modems for them.

PlayStation 2 was the "must-buy" item of the year, but you’d have been hard pressed to find it anywhere at its suggested $300 retail price early in that holiday season. Sony would take a pretty big bath over its U.S. launch debacle – but unlike Sega, it had the financial resources to wait out and weather such a calamity. What proved to be a major headache to Sony was music to Sega's ears, though. They played the event for all it was worth, adding to it a dash of classic Sega 'dissin'. Billboards were put up, newspaper and magazine ads were placed in the major industry trades, and a tractor-trailer rig was sent to cruise around near Sony's American headquarters, all bearing the same image: A red-haired, freckle-faced kid wearing a snide, preschool expression of "Nyah, nyah!" The text of the ad was to the point: "Our deepest condolences to Sony on their PS2 shipping difficulties." Having anticipated the situation, Sega of America made sure all of its supporting vendors and retail locations were fully stocked with Sega consoles and games. Moore was betting that many frustrated consumers would turn to the Dreamcast out of sheer frustration or desperation, and he wanted the product to be there if and when that happened. "This is a huge window of opportunity for Sega," commented analyst Billy Pidgeon of Jupiter Media Metric. "I wouldn't say this is good for Dreamcast. This is great for Dreamcast." Conservative financial publication Forbes agreed, noting, "Sony is giving its rival Sega a lovely holiday gift, while offering lumps of coal to its investors and game developers... PlayStation 2 was expected to pull software sales out of a slump, but now Sony is asking investors to wait even longer. Sony would have preferred to enter the U.S. with a splash, not a trickle."

Even though things in America looked like they were finally going Sega's way, the reality wasn’t quite so rosy. On October 27, 2000, Sega officially conceded that it would post its fourth straight yearly loss in a row. The initial estimate was a net loss of ¥22.1 billion ($204.2 million), as opposed to the ¥1.5 billion ($13.6 million) in profit that it had originally anticipated earlier in the year. Two reasons were cited by CEO Isao Okawa: The hemorrhaging of funds caused by developing and marketing the Dreamcast, and the fact that it had been forced to cut the price of the console sooner than desired. The only part of Sega still making money was SegaNet; however, those profits were tiny compared to the massive deficits faced in all other divisions. Sega's corporate stock, already low in value, took a beating on the Tokyo Stock Exchange when the news was made public, falling to a "measly" ¥807 (about $8) a share. That same day, a Reuters report on Sega's failing financial fortunes revealed that the company had definite plans to sell Sega titles on non-Sega systems. Sega's Hideki Sato in part confirmed the report for Reuters by revealing that Sega was already in talks with "a few foreign firms" over porting plans. Three days later, in a public press conference, Hideki Sato took over as Sega of Japan's new chief operating officer. Isao Okawa, the man who had done his best to rescue Sega from its own evils, had fallen victim to cancer and could no longer continue to run the company. Sega had lost its firm hand at the helm. The following day, Sega’s stock slipped again to ¥711 a share. Okawa's condition aside, the markets had simply lost confidence in Sega. "It is impossible to predict when its share price will stop falling if Sega plans to expand sales of unprofitable Dreamcast consoles." said analyst Takashi Oya of the Japanese branch of Deutsch Securities Ltd. "The firm needs to pull out of the business soon, even if it might incur a temporary loss." This was immediately countered by the ailing Okawa, who released a statement saying that "...we have enough cash flow to live without any problem for a couple of years." Still, skepticism over Sega's future remained. The same day, Sega closed the doors of its historic arcade division for good; and with that, an era came to an end.

At that same press conference, Sega of Japan vice-president Shouichi Yamazaki confirmed that Sega was in fact already developing for other vendor's consoles, with projects already underway for Nintendo's GameBoy Color and Sony's PSOne in an effort to boost software sales. By undertaking such a move, Sega hoped to boost its share in the overall console software market by as much as 25%. Yamazaki was quick to reassure Dreamcast customers, noting that some "two dozen exclusive titles" were slated for released in Japan in 2001. He also predicted a ¥20 billion ($183 million) profit for Sega in fiscal year 2002, which would end the company's four-year losing streak. Sega of America promptly denied that Sega would be developing for any gaming platforms other than its own, but nobody was listening. Once again, the old rumors of the "death of the Dreamcast" returned, this time with meat on their bones.

Things only went from bad to worse the following week. A small number of PS2s had "mysteriously" appeared at a number of retail outlets. They disappeared nearly as fast as the word went out, and there was a small-scale repeat of the initial launch ruckus. By cutting every corner it could, Sony had managed to come up with more consoles just in time for Christmas. Prospective customers ran right by the full store shelves of Dreamcast consoles and games, demanding PS2s. There weren’t nearly enough to meet the demand, of course, and all were sold out within three days – but by now, customers "knew" there would be more. Not in time for Christmas, maybe – unless you were incredibly lucky or willing to pay out the nose – but there would be more. Most were willing to wait, walking right past Moore's Dreamcast stockpiles for a second time without even a glance.

That’s not to say the Dreamcast didn't sell over the 2000 Christmas season. In fact, sales of both consoles and software met Sega of America's expectations. SegaNet and the new software lineup contributed greatly to this success, and if one or two people here and there were buying Dreamcasts to play "backups" downloaded from the Internet – well, no one acted like they noticed. Yet the damage had been done. PlayStation 2 was "here." NOW. The Dreamcast may have been a great opening act, but Sony's was the real show. A lot of that perception was only Sony hype, of course, but many consumers bought it into it. Those who didn’t were too few to save the ailing Sega.

The final blow to the Dreamcast would be dealt by Nintendo. Released just in time for Christmas, Rare's Conker's Bad Fur Day was the last big hit for the Nintendo 64. It had as much sass and attitude as Sega at its best, and managed to pull most of the Nintendo faithful back to the aging cart-based console. While it didn't do as well as it might have in the N64's heyday, it was enough. Before its release, video game market reports showed that Sega had pulled even with Nintendo in market share and would probably pass them in a few weeks. With Conker , Nintendo retook the lead, and never lost it.

In mid-November of 2000 – even after Sony had delivered an unexpected second shipment of PS2s – Sega still had a chance of meeting its goals. Sega of America had just passed the six million mark of Dreamcast consoles sold worldwide, and was pulling even with Nintendo in terms of market share. The trend continued up until December 9, when Sega reached its high-water market share mark of 27%. Sega Net had 157,000 subscribers, and growing. Dreamcast was outselling PS2 by a 2-to-1 ratio in both consoles and games. All across America, thousands of gamers were "kicking booty," looking at each other with crazed eyes, then twisting their heads into a crazy half-tilt and yelling, "SEGA!" at the top of their lungs. Even as they scrambled and connived to scam one of Sony's new consoles for themselves, gamers had to pause and give the Dreamcast its due. Peter Moore and his staff were rightly proud of all they’d done to market the Dreamcast and make it compete as best they could. They did the best they possibly could, given what they had to work with and the market conditions. Sadly, it wasn't enough. "Dreamcast is a fabulous product," said Perrin Kaplan, executive vice president of Nintendo sales and marketing and one of its few employees to admit admiration for Sega's console. "It just hasn't caught on. Everybody I talked to loves it. It just hasn't caught on to the mass consumer, and that's unfortunate." That 2-to-1 ratio over PS2 was a telling indicator, given how few of Sony's consoles were available during the holiday 2000 shopping season... You didn’t have to sell much to outsell something that was in such short supply. As for the pundits? "Sega… is fading into irrelevance," claimed the San Jose Mercury News .

On December 14, 2000, Sega of Europe CEO J.F. Cecillion resigned his job – effective December 31 – leaving president Kazutoshi Miyake to run the company's day-to-day affairs. Cecillion's stated reason for leaving was "...to pursue other interests in the entertainment and technology industry," according to Daily Radar. "The departure was described as amicable." Cecillion had this to say on the matter:

On December 27, 2000, the New York Times reported that Sega would suffer a net loss of $357.4 million for the year, and that it ranked only 13th in overall software sales – all despite a thriving arcade game business. This caused such a rush to dump Sega stock on the Tokyo Stock Exchange that trading in them had to be suspended for a day. At the same time, rumors were sounded that Nintendo was looking to buy Sega. Both companies vehemently denied this, which probably had a lot to do with Sega stock stabilizing the next day (once trading in it had resumed) and even rose 10.5% in value by day's end.

Two days later, Sega's parent company CRI/CSK called a special press conference. Company vice-chairman Kazuhiko Nishi, a close friend to Isao Okawa, made two announcements. First, Dreamcast would be Sega's last foray into the home video game console market, with no successor planned. Second, Sega was withdrawing from the gaming hardware business. Period. "It will be a slow and honorable process," Nishi intoned in measured Japanese. The move surprised no one; in fact, many had been advocating it for months. "The cost of maintaining their hardware business just doesn't make sense anymore," stated the editors of the Wall Street Journal , a sentiment echoed by most industry watchers who’d seen Sega's death spiral unfold. I was among them, and expressed my own thoughts in a newsletter:

The start of 2001 found another familiar face leaving the company. Shoichiro Irimajiri, the irrepressible pitch-man who had been one of the key players behind the Dreamcast launch in 1999, resigned on January 2, officially leaving the company at the end of the month. No reason was ever given, but it was widely felt to be yet another "face-saving" move. Not even the impending release of the Dreamcast broadband adapter could brighten the gloom descending over the Sega faithful. More bad news came two days later, when the final sales figures for the 2000 holiday season were presented. Dreamcast had lost the race, finishing third in the U.S. with a 21.4% market share. Nintendo had just barely edged them out – by a mere 0.1% share – while Sony was well ahead of them both with a combined 57.1% share (34.7% for PlayStation and PSOne, and 22.4% for PS2). Point-oh-one percent. It was the tiniest of margins – the lowest of hurdles – and yet the Dreamcast failed to clear it. Later that month, the Associated Press reported that the Dreamcast had sold only 4.5 million consoles in the U.S., instead of five million as reported earlier, and that it would not reach its March 31, 2001 goal of 7.5 million consoles sold worldwide. The race was over. Dreamcast had lost. Its days on the console market were numbered. By the end of the month, rumors ran rampant that the Dreamcast would be marked down to only $100 "fairly soon." As with Saturn before, it was no long a question of if . It was merely a question of when .

The only light amidst the darkening gloom came from Europe. According to official ChartTrack sales figures, Dreamcast had been the number one console in England over the holidays, beating out Sony's venerable PlayStation by a 2% margin, and royally trouncing all other comers. It was yet another eerie parallel to the glory days of the Genesis: Dreamcast had won the last battle, but lost the war.

The axe fell on the evening of January 29, 2001, in a special press conference held by Sega CEO Hideki Sato and assistant Satoshi Kayami. They confirmed the rumored $100 price drop of the Dreamcast console, stating that the intention was to clear out back inventory as quickly as possible. Sega would continue on in the arcade business for the time being, and would continue to support the Dreamcast through the following year, but it was out of the console business for good. It was also revealed that former CEO Isao Okawa, who was too ill to attend the conference, had donated some ¥85 billion ($730 million) of his own personal fortune "to ensure Sega's survival for the foreseeable future." It was an incredible gift by any measure, and would wipe out Sega's current debts – and then some. While it wouldn't pay off everything, Okawa's gift would put Sega back on enough of a financial footing to carry through with its newfound plan to get out of the hardware business, and concentrate on a new purpose – one that hearkened back to its origins. Sega would no longer focus on being a vertically oriented, in-house gaming company. It was returning to its roots as a content provider, making games for other companies’ hardware. The term used was "platform agnostic," as a Sega of America spokeswoman explained to American reporters:

Sega's announcement was welcomed by almost everyone within the industry. "Most business decisions of this magnitude aren't made for such personal reasons," noted Daily Radar’s Garrett Kenyon. "They are made based on numbers..."

“Sega did the addition – and the numbers weren't there. Should it then have continued production of a failing system, risking the future of the company and all its employees to make a few whiny gamers happy? This is business, people, and things don't work that way. Perhaps this adamant loyalty of Sega fans will also serve to teach a valuable lesson to the games industry: that the key to capturing gamer loyalty lies simply in creating good games and not in a piece of hardware. If the best-selling games on the GameCube, Xbox and PS2 turn out to be Sega games, then we might end up having the last laugh after all.”

Sega of America's Peter Moore said essentially the same thing in his own public statement on March 31, 2001.

“Without a doubt, everybody within the industry agrees it’s the games that matter. In this hits-driven business, the best content will win. The opportunity is here for Sega, and Sega’s games to be the differentiating factor between these next generation systems. With the hardware game becoming increasingly competitive, especially for companies like Sega whose pockets are not as deep as our competitors, we’ve chosen to place our bets on our software, our heritage, and our proven track record. They always say you make money on the blades, not the razors.”

He later added, when asked, "Effective April 1, 2001, Sega is out of the hardware business. ”

“Had the Dreamcast been more successful, Sega would either still be in the hole or have posted a modest profit, both of which would not have put them in a position to compete with the massive attention that the big three are currently receiving, nor would they be able to compete with the billions being spent on development and marketing. Switching gears then would mean losing a year of development time on the new systems, failing to capitalize on the launch attention, and falling behind competitively. It would have been a disaster for the company the likes of which even the Saturn could not compete with.”

It had been a close call - almost too close. Per Sega's own numbers, it would likely have run completely out of money by June 2001 had it not stopped Dreamcast production. They came that close to succeeding with the console, but only at the risk of coming that close to total bankruptcy. Okawa had pushed his gamble to the very brink, risking his company's total ruin, for the sake of the Sega customer base. He had done it because he was not going to make the same mistake as Hayao Nakayama. He had not put all of his eggs in one basket. Remember, Okawa's gamble had been two-pronged, with both a short-term and a long-term goal. The short-term goal had been the Dreamcast. That part of the gamble had now failed. Whether it had failed or not was beside the point, however. Okawa's true intent had been to rebuild the loyalty of Sega customers past, present, and future. The Dreamcast and how the loyal Sega fanbase took to it - market success or not - was the key to realizing this, and thus making Okawa's ultimate long-team goal possible. That was making Sega financially profitable once again. It was Sega's customer loyalty that Nakayama had destroyed with his Saturn gamble, and thus set Sega on the road to financial ruin. It took yet another gamble by Okawa to set it right. Yes, the Dreamcast was dead and Sega was now out of the hardware business, but thanks to Okawa's longer vision he had won back the Sega fanbase. Sega could - and would - begin anew. Sega would survive, thanks to Isao Okawa's gamble.

:As for the future, who knows? To go from being THE heavyweight in the industry a decade ago to a third-party developer in 2001 would seem to be a major blow to Sega’s stature and prestige. But it’s also possible that the shift in focus is the right move at the right time ... Sega, unlike many of its devoted loyalists, has come to realize that games, not the machines themselves, are the key to electronic entertainment. Its hopes rest on the plan that it can deliver its brand of games and entertainment cross-platform and maintain a level of quality that has won the respect and loyalty of millions of gamers.”

The story of Sega does not end with the death of the Dreamcast, nor does that of the console itself. The simple fact of the matter was that almost everybody wanted Sega's games but not their hardware. They wanted to have Sega's games on their own hardware, or to be able to play Sega's games on their favorite hardware. The Dreamcast had to die and Sega's arcade legacy along with it in order to make that happen. Thus, Sega did what it had to do to survive. It jettisoned the Dreamcast, it jettisoned its arcade hardware division, and it jettisoned anything else it could in order to lighten the financial load. All that was left to it was its ability to make some of the best video games around, yet that was exactly what was being demanded of it. It was the kind of challenge to which this new Sega, this leaner and meaner "content provider" Sega, could quickly rise. So it did. Thanks to those necessary actions Sega did survive, and would go on to make the kind of games both vendors and gamers expected from it for whatever platforms were out there. As for the Dreamcast itself, Sega let it coast off the scene with what momentum it had been given by Peter Moore and Sega of America. There were still a lot of unsold consoles, but Sega wasn't going to have to make any more - and THAT would make a major difference on its bottom line right away. Dreamcast would go on to spend another year or so on the U.S. market, with many (but not all) of the games that had already been in the development pipeline getting released before the final curtain fell. To its credit, Sega continued to support Dreamcast all through that year and even beyond. It is difficult to imagine the Sega of the troubled days of Saturn behaving in that fashion. That is part of the legacy that Isao Okawa bequeathed both to Sega employees and loyal fans alike.

A lot has been said by others and elsewhere of that final year of the Dreamcast in the U.S. video game market ... of all the games that did come out ... of the significant ones that didn't ... of Sega's continued support right up to the end, and even long after ... of the vendors and competitors who praised it then and even now ... of the great respect that Dreamcast continued to enjoy among gamers, and still enjoys ... and finally of the homebrew community, who took Sega's development tools along with those of the pirates and many cooked up on their own, and continued making software for the system . Even today, Dreamcast is considered not only one of the best video game consoles of its generation but among the best of all time. That's quite a legacy for a system that some might be tempted to call a failure. Gavin Frankle, writing for SegaWeb, put it this way:

Sega still had several years to go after the demise of the Dreamcast before it returned to profitability; nonetheless, Sega's new CEO Hideki Sato had taken Rosen's advice to heart:

As Sato would put it, "We must return to the starting point and make a thorough assessment of what users want." He already knew what that was even as he said the words - Sega games on everybody else's hardware. For over a half-year now, various in-house teams had been looking at the competitors' systems and developing for them. When the time came for Sega to switch gears and change the road it was taking, it was ready to roll - and it would do so with a speed that would surprise those who had not been paying attention to its internal moves the year before.

There is also the ironic postscript provided by the software pirates - the very same people who had helped drive the nails into Dreamcast's coffin. They stepped up to the plate in the following years and rescued many of the games that had been cancelled due to its death - including the complete port of Half-Life , which perhaps was the biggest of them all - and others that either got stuck in their own markets or didn't make it out the door for various reasons. Many games that would not have been released because of that were thus saved, and can be enjoyed today by Dreamcast fans young and old. Also, as I noted before, those tools and techniques they developed to pirate those games proved extremely useful to the homebrew community that developed after, and many continue to be used today. It is a contradictory part to have played, to be sure, but it just proves the old adage that it is possible to find some good even in a bad situation. It is the one concession I will grant the Dreamcast software pirates, and I suggest they take it. It doesn't outweigh their responsibility for the system's demise, not by a long shot. At the least, though, it can be considered their own twisted form of penance.

Former Sega chairman Isao Okawa died of a heart attack on 15 March 2001. It had been his desire to save Sega from its own failings that had allowed the Dreamcast to live. It was his choice of personnel that had given it the best chance it could have had, given what it faced and Sega's mountain of debt. It was he who gave the go-ahead for Sega to start divesting itself and go back to being a multi-platform vendor even as the Dreamcast was fighting for its life. It was he who made the call when it couldn't stay in the market any longer. In the end, it was his gift of a major chunk of his own personal fortune that helped give Sega its new start on life. He literally helped Sega save face in the grand Oriental tradition, rebuilding its badly damaged reputation with gamers and restoring its respect within the video game industry. The new Sega that eventually arose from the ashes of the old owes a lot to him, and they will be the first to tell you so.

It was already beginning to get dark at the Mexico City Olympic Stadium. It was no less a challenge back in 1968 than it is today, and the grueling pace of the marathon had taken its toll on the contestants. Many were being helped away to the first aid stations. The race had already been won over an hour ago and those spectators who remained were getting ready to leave. Suddenly, without warning, police sirens rang out and the stadium gates reopened. A single runner wearing the national colors of Tanzania staggered inside, limping badly but eyes firmly fixed ahead. He had torn both his knee and ankle in a bad fall earlier in the marathon, yet he had insisted upon resuming the race once his wounds had been dressed. The awed spectators watched as the injured runner, his leg bloodied and swollen, trailing part of a rough bandage behind him, resolutely made his way across the finish line and then collapsed in agony. The crowd came to its feet and roared. He had been one of the first to start the race, yet John Stephen Akhwari of Tanzania was the last man across the line. As he was being carried off the field amidst the cheers of the throng, a documentary filmmaker named Bud Greenspan came up to Akhwari and said, "Why didn't you quit? Why did you continue the race after you were so badly injured?" Akhwari's reply is the stuff of Olympic legend. "I do not think you understand," he gasped to Greenspan. "My country did not send me 7,000 miles to start this race. My country sent me 7,000 miles to finish."

So it was with Sega. First out of the gate in the 128-bit next-gen way, first to fall, injured and bleeding, yet staggering on. It had but one goal in mind: to return to profitability and resume its place as one of the premier companies of the worldwide video game industry. It had to make many drastic changes and alter its entire focus in order to stay alive and continue doing what it did best - pumping out many of the best video games in the business to grace any platform. It did not finish the race as it started, yet it was determined not to fall by the wayside. It would eventually return to profitability by going back to its roots as a content provider, selling its wares for a variety of platforms as it once had. Thus, Sega was able to remain with us -- and we can but hope that it always will.