Why Sega should release a new console

Sega is in trouble. According to its latest filing in Japan, the company incurred a loss $501 million during its 2008 fiscal year and its video games division lost about $56.3 million. And as the company was quick to point out, something needs to be done on the video game front.

The Sega Dreamcast is not the right prototype.

(Credit: CNET.com)

"As rebuilding our consumer video game business is crucial, we now need to review our game title strategy more flexibly to adapt ourselves to changes in the trend of the market," said Koichiro Ueda, head of Sega's public relations department.

Of course, Sega did what it could to downplay the news of its impending failure on the video game front and said that it thinks it can turn things around, but I just don't see how that's possible with just games. Let's face it -- the company's once proud Sonic franchise is floundering and there's no indication that it's really that valuable on Microsoft, Sony, or Nintendo platforms. Beyond that, the company has done poorly with other titles it has released and aside from a lingering desire for the return of the Shenmue series, few people even think about the developer any more.

With that in mind, Sega needs to change its strategy and turn things around. And the only way it can do that is to release its own video game console.

As soon as you read that, I'm sure it immediately conjured up thoughts about the Saturn and Dreamcast and the failure that both of those consoles were. And while you may be right in having doubts about Sega's ability to create an extremely popular console, I'm starting to think that we're ready for it.

Depending on the study you read, the average gamer is anywhere between 30-35 years old. Because of that, it's safe to assume that the vast majority of gamers remember the days of Sega console gaming and there is still a huge group of Sega zealots in the wild that long for another Dreamcast.

Realizing that, I think it's safe to assume that Sega should be able to capitalize on those that are still keen on using a Sega-branded console and through the use of some serious hype and a far better hardware strategy than it formally employed, it could become a major hit.

Of course, the plan doesn't quite end there.

There's no debating the fact that Sega has been a relative failure in the software space. Since its decision to drop out of the hardware game, the company has had a few minor hits, but nothing has been developed that we can classify as a blockbuster. And in an environment where we're seeing a significant push towards consolidation, the company really only has two options: sell the company to the highest bidder or develop a console.

And considering the fact that there are a slew of more attractive developers out there with better franchises, I just don't see too many large firms going after Sega. And it's for that reason that it needs to find a way to differentiate itself and take a stab at the hardware market.

In order for Sega to truly keep its game division afloat, it'll need to develop hardware that's both forward-thinking and inexorably tied to the online space. Beyond that, it'll need to repair the issues it may still have with retailers and some other developers and endeavor to build a console that can compete on the same level with the Xbox 360 and the Playstation 3.

But it's the relationships with developers that will truly matter to Sega. Due to the expected high price of the hardware, Sega will need to sell the console at a loss and (hopefully) make up for it through deals with third-parties. In order to do that, it'll need to establish itself as the "real third console" that developers should expect to sell games on. After all, third-parties are having trouble selling games on the Wii and if they believe that they can turn an even greater profit by selling games on three consoles, the deals should start to build up.

After forming the deals with developers, Sega will need to build the hype machine up as much as possible. Instead of following the faulty plan of years ago, it needs to show off a console that's both more powerful than anything available, offers a Blu-ray drive, and has the kind of online component we're only seeing in the Xbox 360. The company also needs to play by the rules: it shouldn't announce the console and release it on the same day and it should take as much time as it needs to ensure all of its ducks are in a row before it launches it.

More than anything though, the return of Sega should be the centerpiece of its entire campaign. I truly believe that there are millions across the globe that would invite Sega back into the hardware business and as long as the games were plentiful, even those who have never played a game on a Sega console may want to get in on the action.

Although it's risky, I simply don't see any other way Sega can revive its business. With slow growth and losses each year, how can the company truly expect to compete in this increasingly competitive market without some sort of action?

Sega should be a hardware company. It's as simple as that.

[saks]

PLEASE CNET, FOR THE LOVE OF ALL THAT IS GOOD AND HOLY IN THE WORLD, STOP LETTING THIS GUY WRITE BUSINESS STORIES. My favorite paragraph: "There's no debating the fact that Sega has been a relative failure in the software space. Since its decision to drop out of the hardware game, the company has had a few minor hits, but nothing has been developed that we can classify as a blockbuster. And in an environment where we're seeing a significant push towards consolidation, the company really only has two options: sell the company to the highest bidder or develop a console." Don, Sega dropped out of the hardware game because it failed, TWICE, to bring a profitable console to market.. Ask Microsoft how cheap it is to develop and market a console. Ask Sony how easy it is to make a console competitive AND cutting edge. Most important, where's the market? I don't hear some great groundswell of consumers complaining that the current generation of consoles is inadequate in some way - that we need new consoles with different functionality or with the Sega brand. And I can assure you that this 30-35 year old has no interest in buying a Sega paperweight that has no software developers behind it except for Sega, which you've already reminded us has gone way downhill in the software department. [CNET editors' note: Personal attack deleted.]

[question4seller]

I FULLY AGREE.. IF SEGA COMES OUT W. A NEW CONSOLE IT WILL GO DEEPER INTO DEBT. THE 360 AND THE PS3 ARE BOTH VERY WELL ROUNDED W. A SLIGHT EDGE GOING TO THE 360 FOR GAMES... WE REALLY DONT NEED A NEW SYSTEM AT THE MOMENT.

[derkluge]

My favorite lines: "Sega needs to change its strategy and turn things around. And the only way it can do that is to release its own video game console." The ONLY way? How about making a successful game? I don't see any analysis of why this is the ONLY way to turn things around.
Also, "I simply don't see any other way Sega can revive its business." Again, how about making a successful game? No real analysis of Sega's business or comparisons to other struggling software companies that have been able to regroup and eventually flourish.

[Renegade Knight]

Apple will likely buy it so they don't get left in the cold in the console wars.

[pamon92660]

good article but with the big 3 consoles out there already, do you think a fourth one could fit in? The dreamcast albeit with its followers tanked quickly and is an ebay relic. Love the sega games and have for years, but they should stick w/ making games and stay out of the money losing console unit biz. Companies have historically lost $$ while making consoles while making it up in software.

[Lerianis]

Yeah, it's absolutely true that most of them have made money on games while losing on the consoles.
Sega should just start retooling, and their Sonic series..... still a VERY good series, as far as I have seen lately in stores.

[spamthisyouass]

No way Don... Sorry.. After buying the 32X add-on to the Genesis, and the Sega CD for the Genesis, and then watching the failure of the Saturn and Dreamcast , there is NO WAY people would buy the latest Sega Console. Too much bad blood, too many failures, too many pieces of hardware that are now doorstops. Sega is a rotting corpse of a company that was once king. Sega is dead... long live Sega.

[pentahtf]

sega have made so many mistakes that it rely make anymore thats why sega will make anther console IM POSITIVE SEGA IS TOO PROUD TOO BE A SOFTWARE CO. THAY WILL AND BE A HARDWARE CO. AGAIN LONG LIVE SEGA SEGA!!!!!!!!

[kiacan]

I think Sega should make a new console that's what a lot of people have been waiting for especially me. Sonic is pretty much dead I mean seriously the last few Sonic games have seriously just made a joke out of Sonic. They should launch their own system and revive Sonic. The Dreamcast was not a failure it was a very good system just people didn't trust Sega at that time after they kept abandoning their consoles. If that never happened then the Dreamcast would have been a great hit. Also it's mainly thanks to people wanting to the PS2 so badly just because it could play DVDs which I think is pretty stupid.

[Zen-Masta]

I think it would be interesting if they did but I don't know that it would be a smart move. Everyone knows hardware is already sold at a loss so considering they're already hemorrhaging money this just doesn't seem smart. If they come back they'd seriously need to focus on a strong console that is built to last instead of coming out with new stuff too soon. I think it would be cool if they're console was backwards compatible so you could pop in the old genesis carts and play dreamcast and saturn games. That could help a lot. I never tried it but I remember the saturn had a genesis sized cart slot did it play the carts or was that for expansion?

[reefinyateef]

The market can't support a 4th major console. Sega would likely be a niche console and would not be able to make up for its early losses that it would have to sell at. It would be like the first half year of the PS3 ... except it goes on until the death of the console.

[balderasaugusto]

hahahaha, this guy "advising" sega to develop another console or sell the whole company, this guy is funny, "mmmh, I bought the saturn and it sucked, bought the dreamcast and it sucked even more, Let's buy this new sega system to see how much IT WILL SUCK!!!" hahaha

[elmagicochrisg]

Idiot...

[newsegaconsole]

What, are you f**king retarded the Saturn and Dreamcast are some of the best consoles ever made, Sega should so make a new console, if they cant fit in because theres a limit of only three consoles, Ninendo should drop out, I mean they haven't made a good home console since the N64. Back to the Saturn and Dreamcast, do you know how much of a cult following they have, I don't know one person who doesn't like them. Whatever for all I care you can get teabagged by Jose from ScrewAttack.

[Spiza2]

"I don't know how many times I've said it on these hallowed pages, but I need to say it again -- games mean everything to hardware sales once the first year in the new console generation is over. By then, everyone who wanted the new hardware has it and everyone else who doesn't want to spend money on something that doesn't entice them, waits for something big."

I wonder who wrote that.

[polis12]

This is my first comment on CNET after years of coming here for tech advice and reviews, along with the "latest" tech stories. This site is a shadow of what it once was and has sold out in too many way to count. This latest bulls**t degree of "journalism" or even SENSIBLE BLOGGING, is outstandingly terrible. Blogs and opinions do not count as news! They are not facts. They hold no truths, beside the evidence the author chooses to include so as to support THEIR opinion. This guy Don is an idiot - along with many of the other so called bloggers which CNET posts up on their website - displaying it as functional news, which in reality is often rehashed and regurgitated material from other websites and media outlets; and yet, I hardly ever see CNET contributing writers ever offer up source material. I am so sick of this site and the stupid opinionated material they post (Crave? Good god, terrible), along with their biased reviews of tech, that I am reaching the point of walking away from this site and never looking back. Unfortunate, as this site used to be a great tech review site about 5-6 years ago, but since then, has really fallen of the map. Hell, the reviews are so slow nowadays that any benchmarking or comparisons are already completed and posted at any number of different sites before CNET even takes notice. Sorry, CNET, but your original usage (tech reviews) has declined horribly, News.com is a farce, and your entire network is rapidly becoming more of a burden and joke than legitimate material. Yes, I know I can walk away at any time and no one makes me come here, but consider this a comment card akin to eatting a sh*tty meal and wanting to change the level of service.

[JWilliams06]

I agree completely with your comment. I remember visiting this site back in 2000 and 2001, and the comparison between what is on this site now and how it was years ago is just night and day. I skimmed this article by Don, but it seems more likely run-of-the-mouth factless opinion.

More and more things on CNet.com tend to be blogging and little news or reviews. For the past year and a half (roughly around 2005) is when things started going really sour. Their reviews are really slow to come out, and their ratings are usually a joke. I was surprised to see that CBS wanted to purchase this company. Looks like again I'll be looking elsewhere to get my tech news. I much rather listen to blog sites such as Engadget or others. They're not great, but they're better than the complete garbage CNet has been hashing out.

On a completely different note, this guy actually things the market can support a fourth console manufacturer in the video games industry? Especially with Sega's track record, not too many people are going to really want to try the system regardless of how powerful it is. Sega's only reasonable success was the Genesis and that was quite a long time ago.

32X/Sega CD was a waste of time (had the Sega CD what a mistake that was!) .... Sega gave up on Saturn way too early out of the gate, and people really weren't ready for the 128-bit Dreamcast at the time.

[gravrdr]

Well said! :) Although you can't blame CNET. They are a corprate entity and have to follow the 'leader' in their circle.

[Mike Rios-Belden]

What if instead of developing and making new physical hardware, they instead developed and released a free virtual console/gamong portal/hub (much like Nokia's NGage platform) for the iPhone's and iPod Touch's (and any other phone manufacture or wireless provider [hello Verizon, they love that proprietary crap on their phones] that wanted it included it with their phones and/or service offerings) that instead emulated hardware? Give developers and cell providers a minimum system and hardware requirements, and develop the software to run your virtual system based on those minimum requirements! Release the specs and dev kits to third party developers and build a killer online community like the Xbox's (with game tags, easy match making [hello Nintendo, are you listening], and unlock-able achievements), while also allowing the wireless providers to get in on the action with game downloads profit sharing by using their existing wireless infrastructure to distribute and advertise games! Sell the games at a fraction of the cost of physical game media, and what you have is the recipe for a super successful second coming for SEGA!... Name me a wireless provider that wouldn't want something like this on their phones (Apple comes to mind immediately) with the full weight of SEGA's name and history in video games behind it? Now, before you point out SEGA's failures, consider that they started the whole online gaming thing with the Saturn, which they continued to push with the Dreamcast!!! Imagine a Nintendo DS gaming type of an experience coupled with the connectivity and community of the Xbox 360 on a iPhone or Windows Mobile powered Smartphone, only with SEGA's games and name on it, and I think you begin to understand what it is that I'm talking about... The built in audience is already out there, now just release the software already that'll run on ALL of the different phones, and they will come.

p.s. SEGA, make sure you keep the games by and far on the casual side (like Nintendo), and you should be super successful!

[wcrea6758]

Please if you can write a better article than Don has then why don't you work for CNET? Take your comments and yourself elsewhere please!

[elmagicochrisg]

I don't think they can go more casual (read : arcade) than they did with the dreamcast...

[hgomez03]

Lets bring back ATARI I miss activision, parker brothers, and that cool rainbow ATARI Logo..I bet you it would overtalke them all!

[elmagicochrisg]

That would be even more niche than a new SEGA machine, lol.

Too niche if you ask me though...

[derkluge]

I'll point out a few obvious points that the author seems not to understand.
1. Business initiatives are evaluated on a risk/return basis. A hugely-expensive project with a small (or, in my opinion, infintesimal) chance of success would just waste a great deal of the shareholders' money. (Moreover, SEGA may not even have the resources (financial and otherwise) to create and sustain a console to the point where it could become successful (as improbable as that may be)).
2. Business managers have a fiduciary duty of care to its company's shareholders/owners (ie. they should manage the company with the same care that they would use managing their own company). Would the author would be happy to sink millions of his own personal wealth into financing Sega's new console? I sure wouldn't and I don't think the SEGA managers would either.
Just because a company is poorly positioned in the market, does not mean that it should become suicidal - take on an expensive, immensely-risky and ultimately wasteful (in risk-adjusted present value terms) project.
As for selling the company, this would make sense only if a buyer were willing to purchase it at a price that is higher than its managers/board value the company. I'd be interested to hear how the author would value Sega's brand and/or its development pipeline.
CNET, do your any of your editors have business degrees?

[guybru6h]

great point derkluge. though i'm one of those sega fans who bought a dreamcast, i would never part with my hard earned money for a suicidal effort an sega's part. i still remember how the ditch my beloved dreamcast.(sigh)

[mattheconquers]

Sega should amalgamate with Sony and build a super console with the first party support of two big hardware and software companysit would sweep the floor with microsoft then sega could make brilliant games with the money made from the joint venture console. Microsoft will hopefully get out of gaming and stop ruining it and then that will hopefully be the end of micro transactions Viva le Sega

[elmagicochrisg]

I for one think SEGA should rather be cooperating with Microsoft (start your flamin' boys, lol) than with Sony. You have to admit, but the 360 is not doing bad. And Microsoft was one of the first to fully support SEGA as a software company. Remember the JSRF/SEGA GT bundles?...

[x1342]

in all honesty, they could release the Dreamcast again and resume making games and i'd buy that in a heartbeat. I mean, come on, those little VMU games were so cute.

[troyrig]

My god, what's next for this guy? Why Atari should release a console? I agree with many readers - CNET used to be a great web resource but has gone downhill. I also agree that it is trying so hard to make money and it is reviewing products for many of its advertisers, resulting in a loss of objectivity.

But for sure this idiot has to go. I've seen nothing but useless speculation and fantasy from him.

[greenlantern88]

I find the comments on this article to be completely biased. The man wrote an editorial on why he believes Sega should release a console. It is called an editorial because it is his opinion. I see no reason why his opinion should be taken as fact and completely taken out of proportion. While I do not believe Sega will release another console I know I would be the first lined up to get one, SEGA's dreamcast was the best console I had and it lasted longer than any console I ever had and the games made which were mostly 1st party games were really revolutionary and are what games strive to be now... Although dreamcast didn't catch on in the United States , do not forget it was fairly popular in Europe and Japan, and up until about 2003 was still sold in Japan... They even still made games for it, and SEGA supported their online up until that time. So I think that if SEGA did release another console they would have to wait for the next race, not to mention they would need another company to help release a console with them, which I do not believe will ever happen, but its an interesting thought.

[eddydavik]

The Dreamcast was not a failure. It was a good console that came off a good start, but got kicked into the shadows with the release of Playstation and others shortly after. With hat said, Sega returning to the console market would only big doom to the company I think. I loved the dreamcast and was outraged when it was announced that both console and games would be discontinued, especially shortly after the release of Shenmue without parts 2 or 3 following.

[stlrfrk2]

wow you are dumb.

[HarrisNick1]

Sega in hardware? I think not. Sure there are plenty of Sega fans, but they've all moved on to other companies offerings and will likely not return, in addition, as the current generation of consoles is gearing up for mid-cycle, Sega would need to develop something for next generation, the cost of doing such a thing is incredible and Sega probably can't afford to do something that risky. If Sega wants to succeed in the video game market space they need to make games that people actually want to play, it's that simple. They already have several well established IPs all they need is to develop these games and not release them into the market UNTIL they have been thoroughly tested and inspected for quality. If they could develop and market these games to the right people, JSRF for fans of Banksy, Shenmue 3 for those that have been waiting AGES FOR THE SERIES TO BE CONCLUDED, ahem... Crazy Taxi, Super Monkey Ball, and Sonic the Hedgehog for casual gamers, the list goes on. Oh, and while your at it, kill off half of the characters in Sonic, there are too many and no one cares about them.

[bigdbag]

Sounds great. Where in ****ing world is Sega going to get enough money to develop a new console???!!!! Do you know anything about how businesses work? They exited the hardware game completely for a reason. They are as of now definitely not able to afford anything like what you're talking about. Stop writing. You're an abomination to the blogging world.

[elmagicochrisg]

They seem to have enough money to develop new arcade hardware. So what the **** are you talking about?...