20 Dark Secrets Behind Sega's Downfall

With the early buzz around the Genesis Mini— the Mega Drive Mini for those outside of the U.S.— being extremely positive coupled with strong reviews for Sonic Tag Team Racing, Sega is having a good moment right now. We won't talk about the Sonic movie, as that isn't entirely their fault...

Unfortunately, Sega is a company that is known for pretty extreme ups and downs, and never was that more true than during the '90s when the company went from ruling the video game world to almost disappearing from it completely. How does that happen? How does a company go from having the #1 console in the world to having to leave the console market altogether? How did the name "Sega" go from being synonymous with quality to being a punchline? This list details the major events, decisions, and disasters that led to one of the mightiest falls in the history of gaming.

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20 The Totally Botched Saturn Launch

via Wikipedia.org

Even though the Genesis was a success by most measures, Sega had already squandered much of that goodwill going into the launch of the Genesis' direct successor: Saturn. After the failures of the Genesis add-ons Sega CD and 32X, and the incoming threat of the much-hyped PlayStation, Sega was on shaky ground going into the Saturn's launch.

To get a head start on the PlayStation, Sega surprised launched the Saturn in the spring of 1995, months ahead of its originally planned fall release. This proved a disastrous move, as retailers weren't prepared and the ones that weren't let in on the early launch boycotted Sega products as revenge. Even worse, the $400 price tag was a full hundred dollars more than the PlayStation, which only further drove potential customers straight to Sony's new machine.

19 Genesis/Mega Drive Was A Complete Bust In Japan

via Polygon

Hardware sales numbers on game systems, especially ones released in the '80s and '90s, can be tough to pin down. However, by most estimates, the Genesis and the SNES sold  pretty comparable amounts in the North America, with no obvious objective "winner" between the two in that territory.

The same can't be said for other regions, however. In Europe, the Genesis (known there as the Mega Drive) sold almost double what the SNES did, though both still did well. By contrast, the battle in Japan was the most decisive of them all: While the Super Famicom (the Japanese version of the SNES) sold almost 20 million units, the Mega Drive was basically a flop at less than 5 million lifetime hardware sales. Ouch.

18 Sega Of Japan Vs. Sega Of America

via ringsandcoins.com

Considering that Sega's biggest success during the 16-bit era came by way of North American consumers, it would seem pretty obvious that Sega of America was doing something right. In contrast, Sega of Japan struggled to get any traction for the Mega Drive in Japan.

Yet, oddly, SoJ still pushed against SoA at every turn— vetoing creative decisions, not taking America-developed games as seriously as Japanese ones, and never fully embracing the edgy marketing campaign that was so integral to the Genesis's success in the U.S. This ongoing lack of unity between Sega's two main branches led to a divided company that was never as strong or as confident as it should've been, and many catastrophic decisions were made on both ends seemingly out of spite against the other.

17 Shenmue Was A $70 Million Flop

Shenmue I And II Remaster
Via XBoxEnthusiast.com

Sega knew that it had to really bring it on the software for the Dreamcast if it was going to have any chance for success. And bring it they did, with all of its teams firing on all cylinders creatively and creating a batch of games that remains among the most impressive output by any company over such a short time-frame.

All that ambition doesn't come cheap, however, and without the sales to go with it, you're just throwing money away. And that's what happened with Yu Suzuki's magnum opus Shenmue, which reportedly cost nearly $70 million to develop— a record amount for the time— and failed to recoup even a fraction of it. The last thing Sega needed during its troubled Dreamcast years was to have such an expensive, marquee game flop so hard.

16 Sega Turned Down A Partnership With Sony

Final Fantasy VII Aeris Death
Via ForeverGeek.com

The story of how the PlayStation was originally meant to be a CD add-on for the SNES— and how Nintendo turned their back on that deal— is one of the more widely-known bits of video game business trivia. But what is less known is that, before Sony decided to just go it alone and make the PlayStation into a standalone console, they took one last stab at partnering with someone: Sega.

After the Nintendo deal fell apart, Sony approached Sega to see if they were interested in having the PlayStation be a CD add-on for the Genesis. Sega saw Sony as too inexperienced in the video game space to take seriously as a partner, and turned Sony down. The result was Sega making their own disappointing CD add-on, and the PlayStation completely destroying both it and the Saturn.

15 Sonic's "Father" Was A Bit Of A Diva

via segabits.com

Yuji Naka is often referred to as not only the creator of Sonic the Hedgehog, but also the character's "father"— and he fully embraces and uses both labels. Right off the bat, this proves a fair amount of misplaced ego as Naka didn't actually design the look of Sonic, any of his allies, or enemies, nor did he design the levels or basic aesthetic of the series, nor did he compose any of the music. Someone clearly needs to look up what "creator" actually means.

Furthermore, by most accounts, Naka was tough to work with, clashing with his co-workers and constantly quitting when his demands weren't being met. He seems to have mellowed out since then, but not being a team player during Sonic's formative years and being one of the reasons the series stalled out on the Saturn led to some serious issues for Sega back then.

14 Sega Had The Wrong Idea About CD-ROM Games

Via games.mxdwn.com

When CDs first entered the world of gaming, most companies weren't entirely sure how to best-utilize the advantages that the medium offered. One of the most common early mistakes, and one that Sega dove into head-first, was that the ability to have live-action footage of real people was the most effective thing to do with CD games.

A few Sega CD games actually made great use of the CD format, such as RPGs like Lunar: The Silver Star Story or the various upgraded ports of Genesis and SNES games like Final Fight and Earthworm Jim. Those games used CD-ROM technology to increase graphical fidelity and have CD-quality music. But rather than foster that, Sega was convinced that full-motion video was the future and pushed that much harder.

13 32X Was Created To Fight A Non-Existent Battle

via gametrog.com

While the Sega CD had a justifiable reason for existing and a decent number of genuinely good, exclusive (for the time) games, the second Genesis add-on, 32X, would've just been better off not even existing. The vast majority of the 32X library looked like it could've been released on the SNES or vanilla Genesis, and most of the exclusives were forgettable at best and downright awful at worst. It also further splintered Sega's fanbase and had people confused and disenfranchised when the Saturn followed just a short time later.

So what was the point of the 32X? Apparently, Sega thought that they recently-announced Atari Jaguar was an actual threat— a thought that almost nobody else had— and created the 32X to compete with it. Ironically, the 32X flopped even harder than the Jaguar...

12 Releasing A 2D Powerhouse During The Rise Of 3D Gaming

via mobygames.com

When screenshots for the next generation of consoles after Genesis and SNES starting showing up in gaming magazines at the time, the buzz was around how games were going to transition into 3D. It seemed obvious that 3D was soon to become the standard and where the industry was headed.

Obvious to everyone except for Sega, it seems, as the company designed its Saturn primarily to excel at 2D. And to that end, it succeeded, as Saturn is home to some of the most beautiful 2D games ever made prior to the HD era. But the Saturn couldn't really handle 3D that well as a result, and any 3D games that ran decently on the Saturn took a lot more work than they did for the PlayStation— which made most companies not want to bother.

11 The Dreamcast/Xbox Hybrid That Almost Happened

via Gamespot.com

The same year that Sega officially discontinued the Dreamcast— 2001— two new consoles entered the race: Nintendo's GameCube, and Microsoft's Xbox. It was a weird time for console gaming, having Sega out for good and also having Microsoft introduce its own dedicated game system. What's even weirder is that those two things almost overlapped in a really interesting way.

Sega reportedly approached Microsoft with the idea of having the Xbox able to play Dreamcast discs, which would've both allowed the Dreamcast to live on and keep its software active, and also help to legitimatize the Xbox in the eyes of console gamers. Oddly, the main sticking point was that Microsoft wasn't willing to let Dreamcast's online games communicate with Xbox Live, and Sega was insistent that their online games also be online on the Xbox.

10 Sega Bet On The Wrong Horses In The PS2/Xbox/GameCube Race

via segabits.com

Even though Microsoft shut down Sega's idea to have Xbox play Dreamcast games and wasn't willing to let Dreamcast's online games live on, Sega still seemed to have an affection for Microsoft and the Xbox— among Sega's first batch of games as a third-party publisher, they released some of their best and most creative titles on the Xbox.

Or maybe Sega was just angry at Sony for how badly they beat the Saturn and the Dreamcast, because Sega also sent a few noteworthy Sega exclusives— including the two Sonic Adventure games— to GameCube. Unfortunately, none of Sega's Xbox or GameCube games saw strong sales, and could've potentially done much better on the PlayStation 2 with its massive install base.

9 The Cancelled Sonic Game That Doomed The Saturn

via sonic.fandom.com

One of the Saturn's biggest issues has got to be the console's lack of its own mainline Sonic entry. It was bad enough that there wasn't a Sonic game at launch, as having Super Mario 64 available for Nintendo 64 on day one certainly helped to sell millions of N64s, but the Saturn's entire lifespan ended up coming and going without a core Sonic game, despite multiple promises that one— known as Sonic X-Treme— was forthcoming.

Without a Sonic game to hype, the gaming press at the time decided that the avant-garde Nights...Into Dreams would be the game they compared to Mario 64 and Crash Bandicoot, which wasn't really fair to Nights as it wasn't the same type of game and no doubt led to a lot of confused and disappointed gamers who bought it thinking that it was.

8 Dreamcast Was Fighting The Wrong PlayStation

via Polygon.com

It's always good to be proactive instead of reactive, something that Sega has often struggled with. It found great success when it was forward-thinking enough to release a 16-bit console during the height of the 8-bit era, but seemed to forget this lesson time and time again when it chose to react to existing competition rather than being proactive against what was to come next.

The Dreamcast seems like a console stuck between two console generations— the one that contains the PlayStation, Nintendo 64, and its own Saturn; and the one that would eventually include the PS2, Xbox, and GameCube. Sega designed the Dreamcast to be everything the PS1 wasn't, rather than trying to predict what the PS2 was going to be and go up against that. The Dreamcast felt like the future when it was released in Japan in 1998 but already felt dated by the time the PS2 hit in 2000.

7 The Sad Mishandling Of The Last Great Saturn Game

via segabits.com

One of the most impressive games among the first batch of Saturn titles was Panzer Dragoon, an on-rails shooter with incredible art direction and some rather impressive 3D (especially for a system that was created with 2D in mind). The game garnered enough attention and acclaim to justify two sequels on the Saturn, with the third installment being an extremely ambitious and far-ahead-of-its-time open-world 3D RPG called Panzer Dragoon Saga.

Sadly, working on Saga proved physically and emotionally taxing for its team, with the director actually being hospitalized as a result. And for all that effort, and for being the Saturn's last great game and possibly its best, Sega only released about 30,000 copies to the U.S., all but guaranteeing it would never be more than a cult hit.

6 A Perfectly-Timed Recession

via tokyotimes.org

For as much money as Sega lost between the Sega CD, 32X, Saturn, and Dreamcast, it probably still should've been able to weather the storm enough to at least let the Dreamcast have a full life. Sega was still consistently releasing great games, and likely could've found investors willing to provide them with the capital to soldier on and maybe even release a follow-up console.

The problem was that the Dreamcast's initial decline perfectly coincided with a massive recession that hit Japan in 2000, forcing not just video game companies but all Japanese businesses to trim the fat and cut loose anything that might be dragging them down even a little. For Sega, that was the Dreamcast, and the console business in general. Had it not been for that recession, the Dreamcast might have still been given the chance to bounce back.

5 Virtua Fighter Makes A Bad First Impression On The Saturn

via stiggyblog.wordpress.com

One of the things that gets people excited about a new console are its graphics, and one genre that is known for being a visual showcases is fighting games. Both the Saturn and the PS1 launched with their own marquee 3D fighting game— PlayStation with Battle Arena Toshinden, and Saturn with Virtua Fighter. In fact, Toshinden was specifically marketed as a "Virtua Fighter killer" as Sony knew VF was going to be the home fighting game to beat in 1995.

Unfortunately, the launch version of VF was obviously rushed and ended up being an extremely sup-bar port of the hit arcade game. It was so bad, in fact, that Sega quickly followed up with the much-improved Virtua Fighter Remix that they literally gave away for free to all Saturn owners. A nice gesture, but a costly one— and many saw it as too little, too late.

4 Virtua Fighter Creator Quit To Create Tekken

via YouTube.com (DarkVizardBerryTan)

Virtua Fighter's struggles didn't end with the botched first Saturn version of the original game. After the release of Virtua Fighter, its co-creator and primary designer, Seiichi Ishii, left not only the VF team but Sega in general. What's worse is that he left to go to Namco and create what would become VF's biggest competitor: the Tekken series.

While Virtua Fighter 2 was an excellent sequel even without Ishii's help, its popularity paled in comparison to that of Tekken 2, which Ishii designed and directed. Ishii then left Namco to start yet another new fighting franchise (Tobal) for yet another different company (Squaresoft), but Namco did better without him than Sega did—  Tekken 3 for PS1 is one of the most acclaimed fighting games of all time, and VF3 didn't even make it out until Dreamcast and is generally considered one of the weakest entries of that series.

3 Sega Overspent On The Dreamcast

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To be fair, Sega knew they had to over-deliver a bit with the Dreamcast in order to have a chance. But their spending on developing, manufacturing, and marketing the Dreamcast was extremely high— so high that Sega was losing money with each Dreamcast sold. This isn't uncommon for game consoles, to lose on the system but make it back on games, but in the case of the Dreamcast they were simply losing far too much and every game would've had to be a monster hit to make up for it.

On top of that, Sega offered completely free online gaming, which was very generous but also meant they were fronting that massive cost themselves— further drowning themselves in crushing debt.

2 Sega's President Used His Personal Fortune To Keep Company Afloat

via deseret.com

It doesn't take much for a video game company to lose everything— case in point, Midway, who went from being the publisher of some of the '80s' and '90s' biggest games to being bankrupt in the 2000s. So how is Sega still hanging on almost 20 years after it shut down the Dreamcast and was seemingly on the verge of shutting down? Isao Okawa.

The then-chairman of Sega Enteprises was willing to loan Sega $500 of his own money to help them stay afloat in the late-'90s, a loan he ended up forgiving and not expecting back. Even more generous was, just before his death in 2001, he gifted Sega all of his shares in the company, worth nearly $700 million. So that is over $1 billion in cash and assets from Okawa's personal fortune that he just gave to Sega, free and clear, simply because he believed in Sega and wanted it to live on.

1 The Ongoing Struggles Of Sonic The Hedgehog

via geeksundergrace.com

Sonic the Hedgehog remains Sega's most consistently popular game franchise, and its star its most popular character. The success of the series and the character were a major reason for the Genesis's success over the SNES and Mario, with many teenagers seeing them as lame, childish relics.

But Sega has struggled to keep Sonic games consistently good. Even early on, Sonic was stretched thin and put into sub-par games like Sonic 3D Blast and Sonic R. The Sonic Adventure games were generally well-received but still garnered more criticism than his 2D outings— and after that, there was over a decade where most Sonic games ranged from weak to downright awful.

He's bounced back a bit with the acclaimed throwback title Sonic Mania, but as a whole, Sonic games are misses more often than they are hits and it is something that Sega really needs to get under control.

Sources: Console Wars by Blake J. Harris, Eurogamer.net, Gamastura.com, Wired.com, Statista.com, TokyoTimes.org

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