Sega dumps Dreamcast to focus on software

"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 into growing its software business.

Poor sales in the nine months to the end of 2000 and a disappointing Christmas season in the US pushed the company to its decision. It sold 2.32 million consoles in the period of which the vast majority, some 1.35 million, were sold in the US Sales in Japan totalled 280,000 units, those in Europe totalled 560,000 units and in Asia sales were 130,000 units. In contrast, Sony Computer Entertainment (SCEI) sold 6.4 million of its PlayStation 2 console in the eleven months since its February 2000 launch.

With a new focus on software, Sega will move to become a platform-independent software maker, it said, supplying games for not just the Dreamcast console but also those of its previous rivals -- SCEI's PlayStation 2 and PSOne, Nintendo's GameBoy Advance and GameCube and Microsoft's yet to be released Xbox. The plan also includes a move into games for personal computers and other devices such as mobile computers and mobile 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 mobile 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 earlier this week 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.

Other areas Sega intends to focus on include 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 85 billion yen (approximately $1.2 billion) of his own stock in the company to Sega to help the struggling company.

That injection of funds will cover the 80 billion yen in costs that Sega expects to see in halting Dreamcast production. The vast majority of that loss, around 70 billion yen (approximately $1 billion), will come as a result of the need to liquidate around 2 million Dreamcast consoles that Sega holds in stock around the world.

To speed disposal of Dreamcast consoles, Sega said it will slash North American retail prices by a third. From February 4, the Dreamcast will retail for $US100, down from its current $150.

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Martyn Williams

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