It's Been 25 Years Since Sega Shocked the Gaming World: Here's What Happened

By the early 1990s, it was obvious that the current generation of consoles was aging out. Just as the Super NES and the Genesis had supplanted their 8-bit predecessors, a new wave of hardware would have to deliver bigger thrills, better graphics, and more immersive experiences.

With all the major players investigating 3D graphics, it was clear this was going to be the future. PC gamers were already enjoying titles like Doom, and display tech was advancing at a rapid clip. The sprite-based 2D animation of the home console was seeming more and more dated.

Sega already had a major lead over its competitors with the Model 1 circuit board, which it introduced to arcades in 1992. It and its successor, the Model 2, pumped out fast 3D graphics for titles like Virtua Fighter and Daytona USA. It was only logical that its next console, codenamed Saturn, would tap into the same technology.

Unfortunately, not everybody at Sega was on the same page when it came to the future of games, resulting in some very strange decisions that would ultimately hurt the company in the long run.

By 1992, the Genesis was an unqualified success, both in the States and especially in Europe, where it outsold the SNES. Behind the scenes, the Saturn project was already underway. But Sega didn’t want to cut bait on the 16-bit system right away to work on the next generation of consoles. 

Sega execs knew it would take years to bring the system to market, and the Genesis was still a strong seller. They wanted to give the aging console an additional lead in the hardware wars, and in 1992 the $299 Sega CD hit shelves. Clamping onto the bottom of a Genesis, it allowed the system to run a new suite of CD-ROM-based titles, but the achingly slow 1X drive speed combined with the looming next generation quickly made it obsolete.

Here’s the problem, though: Sega didn’t learn its lesson, and in November of 1994 it tried again with the 32X, another add-on for the Genesis that sold for $159.99 and was intended to serve as a sort of bridge between the 16-bit era and the upcoming real next generation. Needless to say, Sega diehards who had already seen one “next gen” peripheral come and go didn’t want to get burned by another.

The issue with add-on hardware is that it doesn’t grow your user base. Nobody in 1994 was going to buy a $189.99 Genesis just to also buy a Sega CD on top of that. The concept of spending cash to trick out a 16-bit system when more advanced machines were right around the corner was also a non-starter. But Sega did have one more ace up its sleeve, as the Saturn neared its public debut.

Originally the Sega Saturn was supposed to hit American store shelves in September 1995. However, rumors started to swirl that Sony would release the PlayStation in the States that same month, sending Sega into a tailspin that would result in a number of quick decisions.

Sony’s Ken Kutaragi had spent 1994 laser-focused on showing the games industry that the PlayStation was going to be a force to be reckoned with. He met with all the leading publishers and developers, getting them development kits and selling them on the console well before it shipped. Meanwhile, Sega had burned all of those same bridges. Third-party developers didn't have a lot of goodwill for the company after the failures of the Sega CD and 32X.

Even worse, the PlayStation’s focus on 3D graphics made Sega go back to product development. The Saturn’s internal architecture had been completed by the end of 1993, but a panic around the console’s seemingly underpowered 3D capabilities caused the company to revise the system and add in an extra video display processor. That complex architecture raised production costs so that the company was now losing $100 on every unit sold. It also made the Sega Saturn difficult to develop for.

Everything came to a head at 1995’s E3. Sega was originally planning to do the same sort of presentation that everyone did in their launch year—here’s the hardware, here are the games, it’ll be out for the holiday season. That’s not what we got, though.

Sega of Japan President Hayao Nakayama, a notoriously stubborn leader, insisted that the company bump the date up. It fell to Sega of America President Tom Kalinske to make the announcement: the Saturn wasn’t coming in September—it was being shipped to retailers right now. With a $399 sticker price, Sega’s next-gen console would be on store shelves by the weekend, four months early.

In the beginning, the Saturn gambit seemed like a winner. Sega now had the first major fifth-generation console on the market, with attractive launch games like Virtua Fighter and Panzer Dragoon showing off fast, smooth 3D gameplay. Unfortunately, the company didn’t have enough hardware to meet the demand.

That resulted in some bad blood in the retail sphere. Stores like Toys R Us and Electronics Boutique got the console, but KB Toys and Best Buy didn’t. And although the five games available at launch were all solid, releases dropped to a trickle shortly after, with only three more games between May and September.

Sony, however, had taken Sega’s E3 announcement in stride—at its console presentation, it sent head of development Steve Race to the stage for one of the shortest speeches in the history of the conference. Race took the microphone, said “$299” and walked off.

Its launch lineup of 10 games wasn’t great, but the console was a hundred bucks less than the Saturn. Third-party titles were on the way, and by Christmas the system had Twisted Metal, Suikoden, and more. It was obvious that the PlayStation was the console to beat, and the Saturn was already floundering.

Launching in May had enabled Sega to sell 80,000 units, but the PlayStation had 100,000 pre-orders, and sold another 100,000 in September alone. Even more humiliating, Sega's old rival Nintendo was able to surge back in popularity with games like Chrono Trigger and the Donkey Kong Country series on its 16-bit system.

The release of the Nintendo 64 in 1996 would seal the deal. Sega still hadn’t managed to release a Sonic game, and now the world could play as Mario in full 3D for a truly next-generation platforming experience. While Sega continued to release solid Saturn games, they were quickly lapped by the competition.

When all was said and done, the Saturn would move around 3 million consoles in the States, a tiny fraction of what Sony and Nintendo accomplished. Kalinske and Nakayama both resigned from Sega in 1996.

Sega tried once more in the hardware market with 1999’s Dreamcast. While the launch for that system went far better, making September 9, 1999, a gamer’s holiday, Sony and Nintendo’s lead was insurmountable. Microsoft's entrance into the console industry indicated to Sega that it was time to get out of the hardware market entirely. By 2001, the Dreamcast was discontinued and the company shifted to software exclusively.

In interviews, Tom Kalinske has said the Saturn didn’t have to fail. If Sega had stuck to the plan and released in September with better supply chain management and more launch titles, it might have been able to compete with the PS1 on a level playing field. But one big bet on a surprise launch doomed a promising system and nearly took down a company.