The Ultimate History of Video Games: From Pong to Pokémon and Beyond—The Story Behind the Craze That Touched Our Lives and Changed the World (91 page)

The drop in the Japanese game market started so slowly that few people saw the shift take place. Just as the American arcade business started drying up in 1982, Japanese arcades showed signs of distress in 1998. Sega, Japan’s largest and strongest arcade company, began closing locations in 1999. By the following year, the closures even included some of its flagship Joypolis virtual theme parks. In 2001, Namco and Taito, the other titans of the Japanese arcade industry, followed Sega’s lead.

But drops in the Japanese game industry did not stop with arcades. With Japanese consumers purchasing more games per console than other consumers, the Japanese market had long been the most lucrative of the three major video game markets—Japan, Europe, and North America. In 1997, Japanese consumers spent 750 billion yen (approximately $6.8 billion) on video game software and hardware. By 1999, overall game spending dropped to 600 billion yen, approximately $5 billion.
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Some of this was bound to happen. Having shipped approximately 18.5 million PlayStations into a country with an entire population of 127 million, Sony had saturated the market. By 2000, with the original PlayStation now six years old and PlayStation 2 only available in limited quantities, Sony’s sales were bound to drop.

Some bright spots appeared in the overall picture. When ENIX Corporation released
Dragon Quest VII
(for the original PlayStation), thousands of young men camped outside of local game stores just as they had for PlayStation 2 game consoles. Predicting huge sales based on past popularity, ENIX was prepared. By the end of the year, the company had sold more than 3 million copies of
Dragon Quest VII.
Those sales eventually climbed over 4 million, making it the most popular PlayStation game ever sold in Japan.

The same week that
Dragon Quest VII
temporarily ignited the Japanese market, Nintendo unveiled its long-awaited next-generation game console at its annual Spaceworld trade show. Held in Makuhari Messe, the same convention
center in which Nintendo 64 had been revealed in 1995, the show drew press from around the world.

First unveiled by Genyo Takeda, the man who succeeded Gumpei Yokoi as Nintendo’s dean of engineering, the new system was called GameCube. Built around a 64-bit PowerPC processor, GameCube was the shape and size of a small Kleenex box—an approximately five-inch cube that would be manufactured in a number of bright colors and would use 2.9-inch mini DVD-ROMs. Unlike Xbox and PlayStation 2, GameCube would be a dedicated game machine with no ambitions of playing DVD movies.

The show closed with a lengthy presentation by star game designer Shigeru Miyamoto discussing the features he had requested in the new console and demonstrating the level of graphics it could achieve. The audience applauded wildly. Game enthusiast audiences always applauded wildly whenever Miyamoto spoke.

Dreamcast started with a bang, then found itself adrift in the U.S. market. Sega crossed the one million units–sold mark after only a few weeks following its September 1999 launch, but sales ground to a halt by the first of 2000. Price drops and hot new games brought short spikes in hardware sales, and with an 8-to-1 software-to-hardware tie ratio, Dreamcast owners were clearly happy with their system and buying lots of software. But Sega needed to increase its install base; otherwise, the onslaught of PlayStation 2 would wipe Dreamcast out in the United States as it had in Japan. Yet nothing seemed to work. Sega dropped the price of Dreamcast to $149—half the price of PlayStation 2. Sales jumped briefly, then dropped. Even offering free Dreamcasts with SegaNet did not move the quantity of units Sega needed to sell.

In mid-September, Sega received a stay of execution from the most unlikely of sources—Sony Computer Entertainment America. With the launch of PlayStation 2 just one month away, stories began surfacing that Sony did not have enough PlayStation 2 consoles to meet its promises. Rumor had it that Sony had somewhere between 300,000 and 500,000 U.S. consoles ready for shipment and that the company would either send half-shipments to retailers or postpone the entire launch. But if there was any truth to the rumor, Sony refused to comment.

Then a reporter working for
USA Today
contacted executives at two top electronic game specialty stores. Neither executive had heard about the shortages, but both took the rumors seriously and called Sony for an explanation.

On September 20, Sony Computer Entertainment America president Kazuo Hirai held a press conference, in which he announced cutbacks in PlayStation 2 shipments due to parts shortages in Japan. Instead of shipping
1 million consoles, Sony could only ship 500,000 for the October 26 launch date, with an additional 100,000 consoles being shipped into the United States every week for the remainder of the year. In an industry rife with rumors and conspiracy theories, Sony’s announcement led to wild speculation. People speculated that Sony was withholding shipments to build demand for the system, because there were no good games in the launch library, or because it did not want a major rollout until it had more first-party games available. Several publications sent reporters to visit electronics stores along Akihabara that October, where they discovered a small but steady supply of PlayStation 2 inventory. What few people knew was that the Graphics Synthesizer used in the U.S. version of PlayStation 2 was different than the one used in Japan. As Sony optimized its manufacturing, the company created a smaller version of its custom graphics chip for the United States, and glitches in manufacturing the smaller chip had caused the parts shortage.

Whatever had caused the shortage, the end result was that many retailers had allowed customers to reserve PlayStation 2 consoles based on twice the allocations they eventually received. When they learned that supplies were only half of what they expected, managers at stores such as Babbages, Software Etc., and Electronics Boutique were forced to inform customers that they would not receive the consoles they had reserved months in advance. Intended or not, Sony received a flood of positive publicity from stories of shoppers camping outside stores in the slim hope of finding a PlayStation 2.

The oddest story, however, dealt with Iraq. A persistent story surfaced that Iraqi leader Saddam Hussein was scouring the United States in the hope of purchasing a few thousand PlayStation 2s. News analysts immediately remembered the limitation that the Japanese government had placed on the exportation of PlayStation 2s and began speculating that Hussein might use them for launching guided missiles.
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Of course, it would have been nearly impossible to find several thousand PlayStation 2s at regular retail prices. You could occasionally find them selling in toy stores in packages—finding the console, an additional controller, a memory card, and two games selling for
$599 was not uncommon. You could also find PlayStation 2s selling through online auctions and in classified ads for anywhere from $600 to $800. According to news stories, Hussein ended up purchasing several hundred PSOnes—a new and smaller configuration of the original PlayStation.

In truth, Sony’s hardware shortage was not as significant as many people said. Had Sony shipped two million PlayStation 2s in October, the supplies would still have been short.

Lack of adequate software was a more lasting problem carried over from Japan. A few PlayStation 2 games stood out as fairly strong.
Madden NFL 2001
and
SSX
, both from Electronic Arts, were the stars of the launch lineup. Rockstar Games, a tiny company that might normally have gone unnoticed, had two driving games—
Midnight Club
and
Smuggler’s Run
—that did fairly well; and a company called THQ, best-known for its WWF wrestling games, received fair reviews for a role-playing game called
Summoner.

This was Sega’s golden opportunity. Sony did not have enough inventory, it did not have many good games, and its console cost twice as much as Dreamcast. Beyond that, with
NFL 2K1
, Sega scored a critical hit, and
NBA 2K1
and
Shenmue
followed closely.

Retailers clamored to bump up their orders of Dreamcast on the theory that disappointed shoppers would purchase the Sega console rather than head home empty-handed. As Thanksgiving rolled past, Dreamcast sales surged and it looked as if Sega had been given a reprieve.

Sega stumbled into the new year, having fallen far short of Moore’s stated goal of 5 million Dreamcasts. Even giving Dreamcasts away as a premium to SegaNet subscribers, Sega had not been able to lift its U.S. install base beyond 3 million units, and the worldwide install base was only at 6.5 million.

In January 2001, stories started circulating about executives from Microsoft and Nintendo visiting Sega to evaluate the prospect of purchasing the company. As early as December 27, the
New York Times
reported that Nintendo had entered into a discussion about purchasing Sega. Sega denied the story, but the rumors persisted. Then, in the last week of January, a small Japanese news service published a wire story claiming that Dreamcast had been discontinued. At this point, Sega admitted that while Dreamcast had not been discontinued, the manufacturing plant was no longer in operation because of inventory concerns. On January 24, Sega released a press release announcing the discontinuation of Dreamcast, and company executives Charles Bellfield and Peter Moore personally explained the situation to the press.