Dreamcast
Released in 1988, the Sega Genesis (known as the Sega Mega Drive in Japan, Europe and Brazil) was Sega's entry into the fourth generation of video game consoles. Selling 30.75 million units worldwide, the Genesis was the most successful console Sega ever released. The successor to the Genesis, the Sega Saturn, was released in Japan in 1994. The Saturn was a CD-ROM-based console that displayed both 2D and 3D computer graphics, but its complex dual-CPU architecture made it more difficult to program for than its chief competitor, the Sony PlayStation. Although the Saturn debuted before the PlayStation in both Japan and the United States, its surprise U.S. launch—which came four months earlier than originally scheduled—was marred by a lack of distribution, which remained a continuing problem for the system. Moreover, Sega's early release was undermined by Sony's simultaneous announcement that the PlayStation would retail for US$299—compared to the Saturn's initial price of $399. Nintendo's long delay in releasing a competing 3D console and the damage done to Sega's reputation by poorly supported add-ons for the Genesis (particularly the Sega 32X) allowed Sony to establish a foothold in the market. The PlayStation was immediately successful in the U.S., in part due to a massive advertising campaign and strong third-party support engendered by Sony's excellent development tools and liberal $10 licensing fee. Sony's success was further aided by a price war in which Sega lowered the price of the Saturn from $399 to $299 and then from $299 to $199 in order to match the price of the PlayStation–even though Saturn hardware was more expensive to manufacture and the PlayStation enjoyed a larger software library. Losses on the Saturn hardware contributed to Sega's financial problems, which saw the company's revenue decline between 1992 and 1995 as part of an industry-wide slowdown. Furthermore, Sega's focus on the Saturn over the Genesis prevented it from fully capitalizing on the continued strength of the 16-bit market.
Sega Genesis
In mid-1990, Nakayama hired Tom Kalinske to replace Katz as CEO of Sega of America. Although Kalinske initially knew little about the video game market, he surrounded himself with industry-savvy advisors. A believer in the razor and blades business model, he developed a four-point plan: cut the price of the console, create a U.S.-based team to develop games targeted at the American market, continue and expand the aggressive advertising campaigns, and replace the bundled game "Altered Beast" with a new game, "Sonic the Hedgehog". The Japanese board of directors initially disapproved of the plan, but all four points were approved by Nakayama, who told Kalinske, "I hired you to make the decisions for Europe and the Americas, so go ahead and do it." Magazines praised "Sonic" as one of the greatest games yet made, and Sega's console finally took off as customers who had been waiting for the release of the international version of Nintendo's Super Famicom—the Super Nintendo Entertainment System or SNES—decided to purchase a Genesis instead. Nintendo's console debuted against an established competitor, while NEC's TurboGrafx-16 failed to gain traction, and NEC soon pulled out of the market. In large part due to the popularity of "Sonic the Hedgehog", the Sega Genesis outsold the SNES in the United States nearly two to one during the 1991 holiday season. This success led to Sega having control of 65% of the 16-bit console market in January 1992, making it the first time Nintendo was not the console leader since December 1985.