by Steven Kent
* Square later released Final Fantasy IV in the United States as Final Fantasy II for the SNES.
* Ironically, Joseph Lieberman, who was also very much a part of these hearings, went further than Hatch or McCain in the 2000 elections. Al Gore, who ultimately won the Democratic nomination, selected Lieberman as his vice presidential nominee.
** This quote and many following quotes were taken directly from the Senate transcripts.
* It later became clear that Nintendo never had a contract to create simulations for the Army.
* Col. Grossman may have been referring not only to the Carneal case itself but also to a suit that held video game manufacturers, movie makers, and other entertainment groups partially responsible for the shooting. That case was dismissed but is still up on appeal.
* Klebold and Harris hung around with a group of students at Columbine High School that referred to themselves as the “Trench Coat Mafia.”
And the Cycle Continues
People say that I’ve been driven by vengeance in going after Sony, and I think they’re probably right.
—Bernard “Bernie” Stolar, former CEO, Sega of America
The PlayStation 2 computer entertainment system is not the future of video game entertainment, it is the future of entertainment period.
—Kazuo “Kaz” Hirai, president and COO, Sony Computer Entertainment America
They [Sony Computer Entertainment America] also said they are not the future of video games, they are the future of entertainment; and God bless them. We’re the future of video games.
—Peter Moore, president and CEO, Sega of America
The Eclipse of Saturn
I felt Saturn was hurting the company more than helping it. That was a battle that we weren’t going to win.
—Bernie Stolar
As Nintendo executive vice president of sales and marketing Peter Main had predicted, much of the success of Nintendo 64 (N64) came at Sega’s expense. With the launch of N64, Sega’s already-low 32-bit sales were cut in half. By August 1997, Nintendo controlled 40 percent of the next-generation console market and Sony controlled 47 percent, leaving Sega with a mere 12 percent. Price cuts and big-name games did not help.
Bernie Stolar, formerly Sony’s vice president of third-party, was president and CEO of Sega of America as Saturn entered its last days. Under his leadership, Sega stopped advertising Saturn on television. Then, on March 14, 1998, Sega announced plans to release three final games in the United States—The House of the Dead, Shining Force III, and Burning Rangers. After the release of these games, Sega of America discontinued the system.
We tried to wind it down as cleanly as we could for the consumer. Again, we knew that the consumer was our judge, and we needed the consumer for the next round of what we were going to do as a company. So we did it slowly, maybe a little bit more slowly than I would have liked, but we did it that way. And I think we didn’t hurt the consumer.
—Bernie Stolar
The damage from Saturn’s failure was extensive. At the time of the discontinuation, Sega had sold 2 million Saturns in the United States. By comparison, Sony had shipped 10.75 million PlayStations into North America.* Sega would have to absorb a $450 million loss (a 21 percent drop in sales) in 1998. The impact was devastating, but Sega did not bow out of the market for long. Saturn remained active in Europe and Japan longer than it did in the United States. In the meantime, Sega of America released several games for PCs. Word got out about Sega completing the design of a new system even before the final Saturn games reached store shelves. There were stories about the two systems being developed simultaneously, one in the United States and one in Japan. If these stories were accurate, Sega ended up manufacturing the system that was developed in Japan.
Largely stoked by Sega itself, the rumors continued. First known as “Dural,” a metallic female fighter from the Virtua Fighter series, then as “Katana,” a Japanese sword, Sega’s new system was supposed to have a 128-bit processor, a 3D graphics chip from 3Dfx, and a Windows CE operating system. It was said to have a modem, and there were rumors that it would play games on DVDs (digital versatile disks) instead of CD-ROM.
On May 21, 1998, Sega put all the speculation to rest by announcing that “Dreamcast,” the official name of the new 128-bit console, would be released in Japan on November 27. Most of the rumors proved fairly accurate. The final version of Dreamcast featured a Hitachi SH4 CPU and an NEC/VideoLogic PowerVR 3D graphics chip. The original specifications did call for a chip from 3Dfx, but Sega made a last minute change. Dreamcast’s final design included a stereo chip from Yamaha and two operating systems—one from Sega, the other from Microsoft. Rather than a CD-ROM, it utilized a technology called GD-ROM—proprietary double-density CDs that held over a gigabyte of information. Most intriguing of all, however, was that the console included a 56K modem in a modular slot that would allow for updating should Sega choose to release broadband support. According to Sega officials, online gaming would be an essential element in their strategy for Dreamcast.
In Sega’s Tokyo headquarters, a new CEO named Shoichiro Irimajiri hoped to use Dreamcast to reestablish Sega as a dynamic force in games. A former executive at Honda, Irimajiri was an energetic leader with ambitious plans, but before he could get the chance to launch his new system in Japan, Sony stole the spotlight. On March 2, 1999, Sony held a press conference in an enormous Tokyo opera house to announce the details of a “next generation PlayStation” that Sony promised would be released in the year 2000.
Putting on a fascinating show of internal politics, Sony’s retiring chairman Norio Ohga began the meeting by reciting some of PlayStation’s many successes. Then Ohga made a statement that was meant to send a message to Nobuyuki Idei, who as Sony Electronics president and co-CEO was next in line to be chairman. “I remember when Ken Kutaragi proposed the PlayStation. I was the only one on the board who supported the idea.”
PlayStation, which many Sony executives had viewed as little more than a side trip, had become Sony’s biggest product of the 1990s. With more than 50 million units on the world market, PlayStation accounted for 40 percent of Sony Electronics revenues.
Trying to put a good face on the situation, Idei began his speech by saying, “I always believed in PlayStation.” He then went on to say, “I believe this [the next-generation PlayStation] is something that will surpass a mere game machine.”
Sony Computer Entertainment president Teruhisa Tokunaga came next to discuss the manufacturing partnership Sony had formed with Toshiba. Together, they were spending 20 billion yen (approximately $160 million against Japan’s weakening yen) on the project. Tokunaga finished by describing the quickening pace of PlayStation sales. It had taken his company nearly two years to ship its first 10 million consoles. The next 10 million shipped in only nine months. Then Sony hit the next 10 million in six months, followed with another 10 million shipped six months later. According to Tokunaga, Sony went from 40 million to 50 million consoles shipped worldwide in just four months.
The final speaker of the day was Ken Kutaragi, the engineer turned Sony Computer Entertainment executive who designed the original PlayStation. As he explained the performance specifications of his new console, it became obvious that Sony had created a stripped-down version of a super computer. Sega’s Dreamcast rendered 3 million polygons per second, nearly 10 times as many as the original PlayStation. This sounded impressive until Kutaragi revealed that his next-generation machine could render 60 million raw polygons per second. He conceded, however, that this performance was slowed as you added in effects such as fogging, shading, and curved surfaces. Even with these effects, however, the new console could render more than 16 million polygons per second.
Central to the new console’s performance was an amazing new processor that Kutaragi called the “Emotion Engine.” This processor was the result of brilliant out-of-the-box thinking. The computer industry had always followed a maxim called Moore’s Law, named after Intel executive Gordo
n Moore. According to Moore’s Law, the typical high-tech manufacturer would double the speed of its fastest processor every eighteen months. This generally resulted in companies simply doubling the size of their processor. Realizing that doubling everything would make for a very expensive console, the engineers who designed the “next generation” PlayStation decided to isolate the operations that impact gaming and increase them exponentially. While the Emotion Engine was not going to be as fast as a Pentium II for some operations, its graphics processor had 1,000 times more bandwidth than current PC graphics processors at the time and its floating-point calculation performance was rated at 6.2 gigaflops (billion) per second, making it as fast as most super computers.*
Kutaragi’s team had pulled out all the stops. The new console would run games on DVD, a medium that held 8 gigabytes on standard disks and 17 gigabytes on dual-layered disks. While he would not commit to whether the new console would play movies on DVD, the announcement led to widespread speculation that it would. What Kutaragi did confirm, however, was that the new console would be backward-compatible with the original PlayStation, meaning it could play the thousands of games that had been released for the Sony platform worldwide.
The event ended with representatives of Namco, Square Soft, and Polyphony, the outside development house that created Sony’s bestselling Gran Turismo, running short demonstrations on a stack of computers set up to emulate the “next-generation” PlayStation.
Sega was caught flat-footed. Judging by the specifications Sony had released, Dreamcast was obsolete before it even launched. In an effort to respond, Bernie Stolar held a telephone press conference in which he addressed Sony’s announcement.
On paper, Sony’s machine sounds impressive; but the fact is, it is still on paper. Dreamcast is here now. Frankly, Sony really has their work cut out for them creating a machine with the specs they unveiled on Tuesday and supporting it with a strong lineup of games. With a launch just one year away, [that] will be a challenge. And while Sony is working to create that hardware, Sega will already be in the marketplace with Dreamcast, building our installed base and developing an impressive library of games.
—Bernard “Bernie” Stolar
Over the next few months, Sony parceled out small tidbits of information, revealing a master plan that would make its new console the center of entertainment in the home. It was later revealed that the console would indeed play movies. Sony announced plans to release an Ethernet connection, enabling it to handle high-speed connections to the Internet. The entire strategy, later tagged as Sony’s “Trojan Horse,” was to release a moderately priced console that would be the hub of a complete entertainment concept that merged television viewing, movie watching, video game playing, and Internet surfing into one device.
To help emphasize that new console’s image as more than a game machine, Sony concept designer Teiyu Goto created a special case for the new console that suggested consumer electronics instead of simply video games. Goto, who also designed the look for the VAIO line of laptop computers, created a cabinet that looked like a stereo component. Instead of the sleek shape and smooth lines and top-loading design of a game console, the “next generation” PlayStation had a rectangular cabinet and a front-loading tray.
Nintendo Joins in the Race
With Sega launching a new system, and Sony well on its way, it was obvious that Nintendo would shortly join in the race. Nintendo made its announcement the day before the Electronic Entertainment Expo.
In typical Nintendo fashion, the announcement provided very little information, just enough specifics for reporters to create a rough idea of what the system might be able to do. To create the new system, which was code-named Dolphin, Nintendo had forged two new partnerships. The design of the processing chip would be handled by IBM. Dubbed “Gekko,” the new chip would be based on IBM’s PowerPC architecture and would feature 0.18 micron copper technology.
According to Nintendo chairman Howard Lincoln, the new console would have a DVD drive. However, like Kutaragi, he refused to specify whether it would play movies. He also refused to specify polygon-rendering rates. The most he would say was that Dolphin’s graphics performance would meet or exceed anything on the market or going into production.
What he did say, however, was that Matsushita, known in the United States as Panasonic, had entered into a manufacturing agreement with Nintendo. Dolphin, Lincoln told the audience, would be released in 2000, just like the “next-generation” PlayStation.
A Shaky Dream Begins
On November 27, 1998, Sega launched Dreamcast in Japan. Although the system sold out, the response was quieter than expected. Sega shipped 150,000 consoles, which sold for 29,800 yen (approximately $260). Of the four games available at launch, only Virtua Fighter 3tb sold well. Based on the most successful arcade game Sega ever released in Japan, Virtua Fighter 3tb sold at a nearly one-to-one ratio with the console.* The other three games available at launch were Godzilla Generations, a ponderous game in which players controlled Godzilla as he pounded Japanese cities into rubble; Pen Pen Tricelon, a cute racing game for children, featuring a penguin and other cuddly animals; and July, a text-and-pictures adventure. In the weeks that followed, Sega shipped 300,000 more consoles, along with two new games—Sonic Adventure and Sega Rally 2.
Although the Dreamcast launch looked successful on the surface, it had in fact gone dreadfully wrong. With Sony’s next-generation machine looming on the horizon, Sega wanted to shore up its installed-base as quickly as possible. Sega needed to ship more consoles and more games so that it could exploit the launch-day excitement. That, however, was prevented when NEC encountered manufacturing problems.
We set up the whole program, and it seemed perfect except the supply of the graphics chips…. It was very sad to have the shortage of the graphics chips. We felt that 200,000 to 300,000 additional units could have been sold if we could have had enough supply.
—Shoichiro Irimajiri, former president and CEO, Sega Enterprises
Irimajiri had hoped to sell well over 1 million Dreamcasts in Japan by February 1999. Instead, he sold under 900,000. And the sales continued to be slow. Looking at the Japanese market from a historical perspective, Irimajiri calculated that he would need to sell more than 2 million consoles by the time Sony launched its new console. In the fiscal year that started on March 1, 1999, and ended on February 29, 2000, Sega sold less than 900,000 consoles. Sega’s only hope was to beat Sony on the basis of price and games.
We don’t know what price point and what kind of performance the PlayStation 2 will have, but from the information we have already gotten, the PlayStation chip will be very, very nice, and we expect that it will be out of the range of the consumer console price.
As you know, the $199 price point is kind of a magic price point for selling consoles and home electronics all over the world—$199 in the United States, 199 pounds in England, 19,900 yen in Japan. We have already reached that point. We are going to price down the Dreamcast in Japan from the 24th of this month (June) to 19,900 yen, and we are going to launch the Dreamcast in the U.S. at $199 and in the UK at 199 pounds. So we have already reached that price point, but PlayStation 2 will probably take a couple of years to reach that price point. Sony’s starting point may even be almost double, placing it in a completely different category.
—Shoichiro Irimajiri
Back in the United States, Bernie Stolar and other Sega of America officials scrambled to avoid the mistakes Sega Enterprises had made with the launch of Dreamcast. Stolar vehemently maintained that he did not want the four games available at Japanese launch to be used as launch titles in the United States. Working closely with Midway Games, Sega hoped to have a much better lineup, with fifteen games ready when Dreamcast went to market.
The American launch of Dreamcast was set for September 9, 1999.* As the launch approached, however, Bernie Stolar was ousted from Sega much as he had been from Sony. With Stolar out, the responsibility of directing the launch fell o
n the shoulders of Peter Moore, a former Reebok executive who had recently joined the company as senior vice president of marketing.
Sega of America had advantages never available to Sega of Japan. The success of Genesis gave Sega more clout in the United States than Sega Enterprises had in Japan. Sega had a sizable audience of loyal fans who liked the kinds of games Sega published. Also, in the ten months between the Japanese and American launches, several companies had managed to finish off truly polished games. Midway Games, for instance, had four games ready for the U.S. launch.
Fifteen. That’s almost the minimum. At some point you have to draw a line in the sand and say, “enough.” There are fifteen confirmed titles. We’re still discussing some games with third-parties who, coming out of E3, are enthused about our launch plans.
I think fifteen, quite frankly, is ample. In my brief career in this particular industry, it’s pretty evident to me that no platform has ever launched with that breadth of titles.
—Peter Moore, former senior vice president of marketing, Sega of America
Several of the games selected for the launch stood out as “breakthrough” products. Sega had a brilliant football simulation called Sega Sports NFL2K with fast gameplay, a wide array of play options, and excellent graphics. Midway created a comical boxing game called Ready 2 Rumble that had a nearly perfect mixture of humor, graphic panache, and fast action. Perhaps the best game at the Dreamcast launch was Namco’s Soul Calibur, a superb home version of an arcade hit that actually looked better on Dreamcast than it did in the arcades.*