In September 2000, well before the year's biggest sales months had taken place, Peter Moore and Charles Bellfield wrote a report called the "Manifesto of the Future," which they presented to all of Sega of Japanese executives and the studio heads in Japan, including creative heavyweights such as Yu Suzuki (AM2), Yuji Naka (Sonic Team), Rikiya Nakagawa (AM1/Wow Entertainment) and Toshihiro Nagoshi (AM4/Ausement Vision) among others.
"As you can imagine, what was happening was that we were very close to the business," said Moore. "The writing ultimately was on the wall regarding the challenges to sustain the hardware business in the face of the financial difficulties Sega had at the time and the impending launch of the PS2. So we went over there as responsible business people should do and presented what was going on in North America."
"I remember it like it was yesterday," said Bellfield. "We presented a strategy in September 2000 that said we were not viable as a hardware player in the States beyond Christmas 2000 and that we needed to get out of the hardware business. That meeting was the first time Japan had ever heard that we could not be successful against the power of Microsoft, who had not yet announced their intention to come into the space, but we knew they were."
"They were hearing from the one region, the US, that had been successful with the Dreamcast launch, that the future of the Dreamcast was not going to be rosy. North America was the one lifeline that they had left -- that maybe success in the US would allow them to bridge doing another hardware platform, or to extend the life of this platform, or allow it to be reinvented in Japan and Europe."
"When we told them that staying in the hardware business was not our advice, the next thing that happened was all of the heads of all the studios got up and walked out without saying a word. That, in the Japanese culture, is pretty rude. But they were shocked."
Moore's document stated that Sega was arguably one of the greatest software companies ever, and it should focus on its major strength: software. The industry was going through a significant transition which created a quandary: Japanese content was becoming less and less relevant to the West, and Western developers were growing in stature.
One of the major keys was mature games. As the video game player aged, so did his tastes. Game development was less about Sonic the Hedgehog and more about upcoming games like Grand Theft Auto III.
Moore argued that the new generation of hardware enabled gamers to play more realistic-looking games. "Video game companies like ourselves needed to be in line with gamers' tastes, and quite frankly, that meant creating more mature content that was a reflection of what they were watching in the movies and TV."
In a meeting that shocked even those who suspected Sega was in trouble, on January 31, 2001, Sega announced it would end manufacturing Dreamcast by March 2001, and transition into a third-party software publisher. Approximately 50-plus titles would still be published, capped by Visual Concepts' March release of NHL 2K2.
In the short span of 19 months, Sega went from an industry-leading, record-breaking console comeback to company that would halt production of its final console and transition to a third-party publisher. Sega would ultimately publish Sonic the Hedgehog on its former rival's hardware. Sonic the Hedgehog on a Nintendo system? How did such a prominent, creative and thriving company meet with such heartbreaking results?
Looking back at Sega's Dreamcast, Stolar, Moore, Bellfield, and Gordon each offered the lessons they learned from Sega's final console.
Peter Moore: "The presentation Charles and I presented wasn't something that was purely my opinion, it was what the data was leading us toward. From the moment we shipped, we faced stiff competition. At Sega of America, we did our utmost as a team to drive the business forward and keep the momentum going, but in the end, it was too little too late. It may hinge on timing. You have to have the right combination of technology, be ready with the right software, the right price point, and maybe be ahead of the curve from a tech point of view, rather than somewhat behind the curve."
Bernie Stolar: "Great content drives hardware."
Bing Gordon: "I think there is a lesson to be learned about inappropriate overconfidence by creative people. So there is a difference between people who have been successful once and people who have been successful twice. The emotion at Sega was that people who were successful once were thinking they deserved the success rather than being lucky. To me that's a broader lesson in overconfidence, and at EA we learned it a lot of times. We had games that had sequels that we believed deserved to be as big, and the company deserved to grow off it, and that's a lesson that you can't learn well enough: that success doesn't give you the right to more success.
"Secondly, in a partnership, to be able to have a successful negotiation, if you walk away, then it's got to be believable that it hurts the other person.
"And the third thing is that co-dependency between two partners is always a hard dynamic to manage."
Charles Bellfield: "Money. Money talks. You need a budget. I think the difference is the world we live in today allows you to innovate with marketing and communications without the need to have huge additional media budgets. In 1999 we were very heavily dependent on traditional media -- TV, magazines, outdoor billboards.
"Obviously, we had the internet in '99, but it was a narrowband existence, not content-rich, and essentially back then it was an email communication tool with very, very basic news and information. So the world we live in today allows you to be far more aggressive in marketing programs without the huge budget needed to get the same reach.
"We had the content right. We had the marketing right. The product was designed right. The philosophy of networked capabilities was right. The team was right. The partners we had were right. But we didn't have the budget to be able to build the confidence of the brand in the eyes of our competitors that we were going to be around. That, to me, is the Achilles Heel of the Dreamcast. The first Xbox console was a far bigger failure than the Dreamcast. But Microsoft has much more money than Sega did. And the Xbox was an ugly motherfucker.
"At the end of the day, it was a great experience for everyone who was there, and we are all proud of our association with Dreamcast. Everybody who works there keeps a little bit of Sega inside his heart."