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Although most people associate Sega with Japan, the business actually started as a venture between a couple of American business executives who had previously acquired the assets of another Japanese electronics company. The two officially created Sega in 1960. After a few years in operation, Sega started to release arcade games that players could operate using coins.

The company also started to develop its own versions of arcade games for entertainment. However, the popularity of these sorts of games started to wane. Sega noticed this, and the business responded by entering the home video game console market.

Despite some early struggles against entrenched competitors in the industry, Sega persisted. It found some success with its second console, the Sega Genesis, in the overseas market. In fact, there was a brief period in which Sega’s console managed to dominate this market and outsell Nintendo, its main competitor at the time.

It also achieved some success with the more portable Game Gear in the North American Market. That said, Sega still found itself in the midst of several subsequent commercial failures with the successive consoles it released. As a result, the company decided to stop making home video game consoles around 2001.

Why Did Sega Stop Making Consoles?

To put it simply, Sega seemed to find more failure than success when it came to making profits from the development and sale of home console video game systems.

This might be particularly true in the case of markets in Asia, where other strong competitors in this field existed prior to Sega. The true answer to this question is a bit more lengthy and complex than this, but Sega did not seem to create a niche that was unique enough for itself to survive in the home video game industry.

Sega’s final console, the DreamCast, lost the company quite a bit of money due to poor sales. We will cover this in more detail in our next section, but it was one of the final deciding factors in Sega’s decision to stop trying to produce popular home entertainment gaming systems. Further, many of the company’s previous creations did not seem to sell well enough to justify their production costs.

Sega went through a period of financial crisis as a result of these factors all converging. During this period, the CEO at the time, Isao Okawa, had to use his own personal money to keep the company afloat as it languished.

We can trace part of this answer back to the relative power Sega had during this time. As we touched on, the company positioned itself against major competitors in the Japanese market, and it only managed to find moderate success in overseas markets.

Even in these places, it still had to compete against names that were already familiar to video game enthusiasts. Sega simply found a market of people willing to give the relatively unknown home console name a bigger first chance to make an impression.

That said, other entities in the tech and video game industries could afford more risk when it came to making and distributing gaming consoles. For some companies, relatively poor sales of one major product may not put them in financial jeopardy.

If they find that one of their creations does not sell well, they may be able to develop a better product that recoups those losses later. The same is not necessarily true for Sega. The poor sales of many of its consoles left it with ever-increasing financial problems. As these things grew, Sega was unable to find the funds necessary to commit to another console that might sell well enough to make the venture profitable.

Why Did the Sega Dreamcast Fail? 8 Possible Reasons

Although we could also trace this all back to finances, there are several factors that contributed to the Sega Dreamcast being a commercial failure. The Dreamcast marks Sega’s final entry into the traditional home video game console market.

After poor sales and struggles with popularity right from the start, the company discontinued the Dreamcast in 2001, just a few years after it had released the item in various markets. Sega did make a portable system for children in 2005, but the company only released it in Japan. Further, it hasn’t created any new games for it since 2011.

Here are a few of the main things that impacted the failure of the Dreamcast:

1. Sega ran heavy advertisements in anticipation of the release of this console. However, most of the ads were too vague, and they did not focus on the top selling points that the Dreamcast might offer to gamers. Because of this, the money the company spent on ads failed to make most current gamers at the time switch from Sony’s PlayStation to try the Dreamcast. On a related note, the branding initiative for the console was not a very powerful one.

2. The online architecture that the Dreamcast supported was ahead of its time. Unfortunately, the kinds of internet capabilities Sega anticipated did not become widespread by the time the company released the console. Because there were not enough users who could access this one-of-a-kind feature at the time, what could have been a major selling point was useless to many consumers.

3. Although the controller had some nice features, it lacked the dual sticks that made competitor Sony’s controller so popular. There was little reason for not including a second stick here, and the lack of it made playing some games on the Dreamcast an inferior experience for many.

4. Some of Sega’s top competitors offered third-party games as a way to expand their libraries. Sega did not do this with the Dreamcast, and gamers noticed fewer options for their entertainment if they went with this console.

5. Sega made the controller too big to appeal to audiences in Japan. The market there preferred smaller controllers that were easier to manage. Although the size of the accessory drew criticism in North America too, it hurt Sega the most in Japan.

6. Unfortunately, Sega had already tarnished its name with a string of previous failures, including the Sega Saturn console. Gamers were reluctant to invest their money in a new console from the same company that had disappointed them in the recent past.

7. Consumers did not like the lack of built-in DVD playback and support they found in the Dreamcast. This problem was particularly harmful to Sega’s console, especially when customers could buy home gaming systems that did offer DVD support if they went with Sega’s competition.

8. Sega staggered the launch window for the Dreamcast between regions. Although this is normal for most console launches, they tend to happen relatively close together. Almost a full year passed in the case of Sega bringing the Dreamcast to North America. The large window probably hurt the sales of the console even further.

Will Sega Ever Make Consoles Again?

It is impossible to say with absolute certainty that Sega will never make another home gaming system. However, as of now, it does not seem likely that the company will try to do so soon. One of the biggest reasons for this is probably the upfront development time and costs that Sega would have to put toward a new project.

Indeed, making a totally new console requires a company to design and develop most things from scratch. Sega would need to test the console itself, develop and test an operating system that works with that console, libraries that go with it, and more.

Although all of the above is possible, Sega would still need to compete against current manufacturers that still make consoles to this day. These are names that gamers know. For many of the youngest gamers who enjoy the hobby today, there may be no such thing as a console from Sega.

Should the company decide to get back into this market, it will face many of the same problems that it did throughout its original struggles with the home video game industry. Without the capital and niche that it needs, it does not seem like Sega would be willing to risk this kind of investment into a new console for the foreseeable future.

What Caused the Downfall of Sega?

There is no one answer to this question. However, we might be able to put it down to a combination of bad decisions mixed with good competition. On a financial scale, Sega had a difficult time dealing with more powerful companies with stronger resources.

Further, some of Sega’s choices regarding the development paths of its consoles and accessories meant that there were more attractive options for gamers in all of the major markets. The business simply did not possess the acumen it needed in order to win in this niche.

While it experienced some successes with a couple of its consoles, it did not do well enough in this market to recoup what it lost through its failures.


The story of Sega might seem like a sad one from this perspective. Home video game consoles from major manufacturers are as popular as ever today, and Sega does not have a hand in this market currently. However, the company is still in operation today. In fact, it is still in the video game business. It does not make consoles of its own, but it does develop titles for all the other major systems in the industry today.