Wiretap: Sega's Last Stand

    Before we get to more of the flashy graphics and hearty content which made the first Wiretap such a hit, I'd like to share some of the feedback I received from the first column. This will be a regular feature, as discussion on these issues should always continue. The letters on the Nintendo column ran very positive as far as my inbox goes, the only qualm I heard elsewhere was that there wasn't any new information. Just remember that any new information that readers need to see goes on the front page as news, while Wiretap is about taking an analytical look at what we already think we know.

    As for the column itself, I was hard on Nintendo expressly because I expect great things from Nintendo -- years and years of such culture-defining success brings an inevitable raise in expectations for the future. At first I was going to provide a link to skip the feedback from the Nintendo column, but I decided to make you lazy bums scroll if you'd rather skip what the former chairman of Nintendo of America thought about the piece. These columns and the companies they cover are all interrelated, and best considered together.

    Sega goes under the microscope today, and I'm afraid the picture isn't nearly as rosy as it was for Nintendo. So everyone say a little prayer for Sonic & Co. and keep on reading.

El Presidente

    Very interesting. Of course, I can't comment on Dolphin, you'll just have to wait until Space World! But let me comment on one theme in your article: the idea that Nintendo plays hardball with its licensees. This is something that kind of has a life of its own; it probably started in the NES days when Nintendo had to allocate chip supplies to licensees. Actually, I think Nintendo has been much more flexible and supportive of its licensees than many people realize.

    Obviously, the N64 business model has proven difficult for some licensees. High manufacturing costs for cartridges, production lead times and inventory risk make it tough when compared to Sony's model. This is all going to change with Dolphin. But one thing that Nintendo has never done is to burn its bridges. I think you'll find that licensees will be very supportive of Dolphin. One thing that I've seen over the years is how quickly things can change in this business. Let's see what happens once licensees get a first hand look at Dolphin.

    Howard Lincoln

    For those who don't know, Mr. Lincoln was the man in charge of Nintendo of America during virtually all the company's formative years in the United States up through his retirement from the position of chairman earlier this year. He remains active in the industry while running baseball's Seattle Mariners, and I'd like to thank him for taking time out of his insanely busy schedule to give the column a read and share his thoughts in a very gracious manner.

    As for Mr. Lincoln's letter, I think the key element in this entire console race is whether Nintendo rectifies the problems third party publishers had with the Nintendo 64. While the console was certainly a success, I've never seen Nintendo as the sort of company that is satisfied by a successful second place -- the exact reason I've always admired them so much. It wouldn't surprise me one bit if the "hardball" perception was overblown, if only because Hiroshi Yamauchi, President of NCL and a man who garners a great deal of attention when he speaks, consistently takes a very hard line with the Japanese media.

    Thanks again to Mr. Lincoln.

He's anonymous, folks

    The PS2 has a lot to worry about with both the Dolphin and the X-Box. Sony should get ready to cover their asses with a marketing model if they've got any sense. The Dolphin is comparatively far easier to get results from than the N64, so Nintendo is getting it right this time, believe me.

    "As anonymous a source as possible"

    Anonymous's quote just about says it all, leaving me only to justify the man's credibility on the issue. His quote may state the obvious to some degree, but as a close second party source with proper knowledge of whether the system will clean house or not, he would know. Trust me.

Viva la Segue!

    I enjoyed your column on Nintendo very much. I try to follow the business side of gaming as much as a casual gamer can, because I realize just how much that executive lunch meeting can affect whether or not I get to play that spiffy new game on my american systems. I look forward to future installments of this column, but I do have one objection. I noticed a total lack of acknowledgement to Sega.

    Its true that no matter how much I loved my Saturn, it did very poorly, and the parent company seems to lack quite of business sense. They also seem to lack a bit of common sense, too... Its a shame that Virtual On had to be picked up by a third party developer, when Sega could have hyped the game to the high heavens and made a ton of money on sales themselves. Regardless of that, the Dreamcast has sold 2.5 million units, part of that number coming from first day sales that outstriped both the Playstation and N64. So why is it that when I read articles about the new Dolphin, or PS2, the Dreamcast is hardly ever mentioned?

    After all, the Dolphin has not even been officially announced, and I haven't heard of any developers, outside of Silicon Knights, getting any developement tools yet. I find it a little funny that people are even considering Microsoft a viable competitor in to console gaming field. The company seems to me to be a skinny little rich kid strolling on to the football field with all his expensive gear mummy and daddy bought him. I want games, not goofy demos! The PS2 is out in Japan, but the games available for it are hardly worth the perverse cost of the system. The Dreamcast is here, right now, with a healthy game library, and I hear its relatively easy to develop for, too. What is more, Sega is giving them away for free if you buy the online service!

    Of course, you are part of the gaming industry, and I just read what info I can find, so maybe you a seeing some signs I don't get just yet. I am not being sarcastic, that's very likely! I am just confused about it, and a little annoyed.

    52 Stars

    The bottom line is that Sega isn't a company anyone much worries about any more. Most third parties have made their decisions on the Dreamcast and most consumers have as well; the die has largely been cast. If I'm Nintendo or Sony, Sega is approximately 400 notches below Microsoft or each other in terms of companies whose actions require my complete attention. Nintendo's only real Sega concern right now should be wooing the newly outsourced AM development houses into making Dolphin games. The company may survive as a hardware manufacturer (though I don't think it probable, as the column below says), but as a behind-the-scenes market force, it is largely dead already.

Sega's Last Stand

    Among those attending this past E3, there was little doubt that Sega completely stole the show. An exciting mix of new concepts and stylish games made for a booth that was packed with gamers all day, every day. Nintendo's booth had quality titles but a low-key atmosphere, while Sony's area lacked both product and people. The buzz that Sega created was felt throughout the show floor – so imagine my surprise when I returned from L.A. to discover that the non-gaming media had made almost no mention of Sega at all.

    Barely a month later, after a huge push for Ulala and Co. at the show, Sega released Space Channel 5 amid an active TV and print campaign. The game is creative, hip, and fun, the TV spots ads were visible, and Ulala had put just about everyone under her spell during her coming out party in L.A.

    The game debuted outside the top 25.

    This is a prime example of perhaps the most disturbing sign of all for Sega: their recent in-house software. It's been fantastic, and few people have cared. Whether it is Space Channel 5 in the U.S. or Jet Set Radio in Japan, Sega has been piling up critical praise without the retail numbers to show for it. Considering the lukewarm support of third parties, the moment that consumers cease to care about Sega's own games just might be the moment Sega loses hope in the hardware market.

    With all these recent problems, it is becoming less and less likely that Sega can survive as a hardware company.

    Let's look first at Sega's own strategy for survival, centered on the Dreamcast's unique network gaming features. The built-in modem and fledgling SegaNet were lauded at the console's launch, but the delay in their implementation may have stripped them of power with consumers not because someone has found a better network solution, but because the promise of new console technology has stolen the spotlight.

    With their announcement of the PlayStation 2, Sony has effectively shifted much of the discussion to post-Dreamcast levels of technology. This is only reinforced by Nintendo's Dolphin and Microsoft's X-Box, both of which promise to outperform the PS2, more or less the Dreamcast. Who wants to play yesterday's games, even if they can play them on a modem?

    Also, console owners have yet to show any deep-seeded desire to play their games online. The PC has cornered the market on the genres that benefit most from online play, and reaction from console gamers to titles such as Quake III Arena and Half-Life is likely to be tame compared to their months or years-old PC releases.

    Before people can play the Dreamcast online, however, they must own one, and Sega's attempts at building an install base have been hampered by poor sales in Japan. As happened with the Nintendo 64, poor sales in Japan turned third parties away from the console en masse – but cash-flush Nintendo wasn't competing for attention against the next Sony console, and was able to ride the strength of their first party licenses and an extremely strong second party stable.

    For a debt-ridden Sega, good games just may not be good enough anymore.

    This summer, Sega took the dramatic step of spinning off their famed AM development teams into independent units, capable of developing for whatever console they chose. Yuji Naka, creator of Sonic and NiGHTS, stated, “I do not think very highly of PlayStation 2. There have been many problems with it. With Dolphin and X-Box, however, there is a possibility. Who knows?”

    Moves like this are necessary because the advantages that Sega has over the PlayStation 2 are either being ignored by consumers or will be better exploited by upcoming systems. Ease of development and a low retail price are goals of both the Dolphin and the X-Box. The basic truth of the console market today is that casual gamers are apparently willing to wait through the last wave of PSX releases, and then purchase a PlayStation 2. Sega, despite a quality line-up and aggressive marketing, has been unable to drive a wedge in-between those decisions.

    Sega previously encountered many of these problems with the Saturn (and the 32X, and the Sega CD, and the Nomad, and the Game Gear), but lived to fight another day. Why would a disappointing run for the Dreamcast have deeper repercussions? Because the console market has a new contestant: Microsoft.

    Once the X-Box is released, sometime in late 2001, Sega will have the fourth best technology and the fourth best developer support, a combination that will eventually prove deadly. Sega has repeatedly stated that the Dreamcast was built to be an “evolutionary” console, with additional hardware features being made available as gamers demanded them. None of that will matter if no one buys into the first stage of said evolution.

    Ultimately, Sega's last stand will be behind their fall line-up of software, affordable price, and online capabilities. Games such as Jet Grind Radio remain the most creative the industry has to offer, and can be had for a steal next to the massive expense of a PlayStation 2. The Dreamcast's online features offer today much of what Sony has promised years from now. A direct competition between the PlayStation 2 and Dreamcast would seem to give Sega plenty of openings.

    Sadly, the evidence has increasingly shown that consumers literally aren't buying it. Only a retail backlash at the price of the PlayStation 2 seems likely to drive much support in the Dreamcast's direction, and the Nintendo 64 has a huge holiday line-up for those who aren't looking to buy a new console just yet. Sega needs a game to become a true phenomenon if it wishes to shove its way back into the consumer spotlight. Until that happens, Sega once again finds itself caught between generations, trying to market to gamers who are waiting for what has been successfully portrayed as the true “next leap” in hardware.

    Trends such as these are often self-fulfilling prophecies. Once developers and gamers believe a system will fail, their own withdrawal of support becomes the primary reason for that failure. As long as Sega produces such quality software there will always be a prominent place for them in the gaming industry, but when it comes to hardware, it seems as if this may be the last holiday season during which Sega can be seen as viable competition.

Column by Ed McGlothlin, GIA
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