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 1987, Sega faced another threat to its console business when Japanese computer giant NEC released the PC Engine amid great publicity. To remain competitive against the two more established consumer electronics companies, Ishikawa and his team decided they needed to incorporate a 16-bit microprocessor into their new system to make an impact in the marketplace and once again turned to Sega's strengths in the arcade industry to adapt the successful Sega System 16 arcade board into architecture for a home console. The decision to use a Motorola 68000 as the system's main CPU was made late in development, while a Zilog Z80 was used as a secondary CPU to handle the sound due to fears that the load to the main CPU would be too great if it handled both the visuals and the audio. The 68000 chip was expensive and would have driven the retail price of the console up greatly, but Sega was able to negotiate a sale with a distributor for obtaining the chips for a tenth of their price on an up-front volume sale with the promise of potentially more if the console was successful.