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Samus Aran said:
The reason the Dreamcast died had nothing to do with the Dreamcast. It was all to do with internal drama. Look at what was going on within Sega of Japan and between Sega of America and Sega of Japan before the launch of Dreamcast and during it's life. Heck look at what has been going on SINCE then, all the good people have left because they got tired of the *****.

Before Dreamcast Sega was already on a downward slide. In 96 a lot of Sega of America employees left due to not getting along with Sega of Japan (basicly Tom Kalinske was trying to do things to save the Saturn, but Hayao Nakayama wouldn't let him). In 97 Hayao Nakayama ***** up the Bandai merger and stepped down. Isao Okawa took his place, changed the way things were run, fired or encouraged retirement of a lot of senior people, and pissed a lot of people off. He said the Dreamcast would be their last console, and didn't even really want to release the Dreamcast. He fired Bernie Stolar - who made some mistakes but was doing well advertising the Dreamcast, presales were looking good - right before the launch of Dreamcast.

The Dreamcast actually did pretty well, but it wasn't enough to cover Sega's debt. To quote Peter Moore, ""We had a tremendous 18 months. Dreamcast was on fire - we really thought that we could do it. But then we had a target from Japan that said we had to make x hundreds of millions of dollars by the holiday season and shift x millions of units of hardware, otherwise we just couldn't sustain the business. So on January 31st 2001 we said Sega is leaving hardware. We were selling 50,000 units a day, then 60,000, then 100,000..."

So Isao Okawa (who was about to die) gave Sega $695 million worth of Sega and CSK (a technology company he formed and was chairman of) stock so that they could go afford to go software-only. Hideki Sato took Isao Okawa's place. Hideki Sato use to be the head hardware engineer. Coincidence that things have turned out as they have?

tl;dr = Dreamcast died because of poor bussiness management.

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Found this somewhere


     This is probably it combined with the fact that MS could sustain the loss of billions of dollars and really wanted to displace Sony in the living room and were willing to sacrifica a lot to do so.  Also, because there were many gamers wanting an American console since Atari died and Halo was a great game to get folks interested in the xbox brand but they were also able to build past that with games from Bioware and Bethesda, especially Oblivion coming in early 2006.  I think other unsung games like Prey, the successful movie tie-in King Kong, Saint's Row, Dead Rising, Lost Planet, the 360 version of Tomb Raider Legend, and Gears was such a powerful game that it sealed the deal.