Sega's Dreamcast Is Over

Sega has thrown in the towel on its Dreamcast console. The company announced on Wednesday that it plans to restructure the company around its software business in an attempt to turn the company around after four years of losses.

"We have decided to stop production of the Dreamcast in March 2001," announced an emotional Hideki Sato, chief operating officer, at a packed press conference Wednesday evening. Instead, the company will restructure and focus all of its efforts on growing its software business.

Poor sales in the last nine months of 2000 and a disappointing Christmas season in the United States pushed the company to its decision. It sold 2.32 million consoles in the period. The majority of those, some 1.35 million, were sold in the United States. In contrast, Sony Computer Entertainment sold 6.4 million of its PlayStation 2 consoles in the eleven months since its February 2000 launch.

To speed disposal of the Dreamcast consoles, Sega says it will slash North American retail prices by a third. Starting February 4, the Dreamcast will retail for $100, down from its current $150.

With a new focus on software, Sega will move to become a platform-independent software maker, it says, supplying games for not just the Dreamcast console but also those of its previous rivals--Sony's PlayStation 2 and PS one, Nintendo's GameBoy Advance and GameCube, and Microsoft's Xbox.

The plan also includes a move into games for personal computers and other devices such as mobile computers and cellular telephones.

Sega is moving fast to implement its new plan. It said Wednesday it plans to supply Java-based games to Motorola for use in cell phones and to Palm for use in the company's personal digital assistants.

Sega expects to begin marketing its first game for the GameBoy Advance handheld game system from March this year and is planning to produce at least two other games for the system this year. Also under development are four games for the PlayStation 2, including a version of the hit Virtua Fighter 4 game. Java games for Motorola and Palm will also follow sometime this year, the company said.

Despite its decision to close Dreamcast production, Sega is not burying the system architecture. It announced Tuesday a deal to build the Dreamcast architecture into cable TV set-top boxes built by Britain's Pace Micro Technology and is also looking to work with other companies in building the Dreamcast system into devices. In part to serve this market and its existing customers, Sega has plans for at least 26 titles for the system this year.

Sega also intends to focus on network gaming. Sega has built network support into the Dreamcast since it was first launched and more recently began selling a broadband modem for the console. This modem allows users who subscribe to certain cable networks to enjoy broadband content and gaming through their consoles.

Company President and Chairman Isao Okawa bet heavily on the Dreamcast when he launched it in late 1998 and will himself pay dearly for its failure to make money for Sega. Okawa will give $732 million of his own stock in the company to Sega to help the struggling company.