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
For the North American market, where the console was renamed Genesis, former Atari executive and new Sega of America CEO Michael Katz developed a two-part approach to build sales. The first part involved a marketing campaign to challenge Nintendo head-on and emphasize the more arcade-like experience available on the Genesis,with slogans including "Genesis does what Nintendon't". Since Nintendo owned the console rights to most arcade games of the time, the second part involved creating a library of recognizable games which used the names and likenesses of celebrities and athletes. Nonetheless, Sega had difficulty overcoming Nintendo's ubiquity in homes. Tasked by Nakayama to sell one million units in the first year, Katz and Sega of America sold only 500,000.As Sega sought a flagship series to compete with Nintendo's Mario series, and a character to serve as a company mascot, artist Naoto Ohshima designed "a teal hedgehog with red shoes that he called Mr. Needlemouse". This character was renamed Sonic the Hedgehog, creating one of the best-selling video game franchises in history. The gameplay of "Sonic the Hedgehog" originated with a tech demo created by Yuji Naka, who had developed an algorithm that allowed a sprite to move smoothly on a curve by determining its position with a dot matrix. Naka's prototype was a platform game that involved a fast-moving character rolling in a ball through a long winding tube; this concept was fleshed out with Ohshima's character design and levels conceived by designer Hirokazu Yasuhara. Sonic's blue color was chosen to match Sega's cobalt blue logo. His shoes were inspired by Michael Jackson's boots, and his personality by Bill Clinton's "can-do" attitude.