Sega recently announced that it will stop producing its Dreamcast video-game console. The move is a bitter blow for the company, which has been a technology leader since it entered the business over a decade ago, and for players who thrive on Dreamcast games. Fortunately for both fans and shareholders, Sega is not unplugging for good; it is merely refocusing. And it is about time.
Sega is a case study in “new economics.” Production of hardware — game consoles — was a money loser, but the company hoped to cover the red ink with software sales — video games themselves, that could only be played on Sega machines. The strategy is not unique to Sega or the industry — think razors and razor blades. But Sega did not deliver.
Dreamcast was Sega’s latest console; it features state-of-the-art graphics and high-speed Internet access. Gamers and reviewers raved, but that did not translate into profit.
Since it debuted in 1999, Dreamcast sales worldwide are estimated to have ranged from 6 million to 8.5 million consoles. Sony has sold 79 million of its PlayStation consoles since its 1995 launch, and the PlayStation 2 has sold almost 1.5 million units since it debuted last year. Global sales of Dreamcast were 44 percent below target at the end of last year and game sales were 34 percent short of the company’s goal.
Sega lost 42.8 billion yen in the fiscal year that ended March 2000. This year, it expects to post a 23.6 billion yen loss. With competition expected to intensify this year with the arrival of Microsoft’s Xbox console, the writing was on the wall.
Now, Sega can focus on what it does best: developing games. The Dreamcast announcement was preceded by deals to develop games for Sony, Nintendo, a British set-top box maker and the Palm operating system for hand-held computers. A “platform agnostic” approach to game development will only extend the market for its products. “Thinking out of the box” never looked so good.
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