If Sega put together a Dreamcast-quality system (relative to system capabilities at the time of course) and released it in 1994, with a Dreamcast-quality lineup, then things might have looked very different.
Don't overestimate the Dreamcast; of the 19 games released, only a few had any impact.
1999 Sonic, Soul Calibur, NFL 2K, then NBA 2K (September to December) There were other games but they were irrelevant like Blue Stinger or PS1 ports like MK4. September to December Dreamcast was Soul calibur, Sonic and two or three 2k games, people didn't care about the other games just like Xbots didn't care about Kameo.
early 2000 Crazy Taxi, RECV (PS2 release in Japan), some PS1 port, Utopia Boot (June 2000). From June to December, sales collapsed.
In January 2001, Peter Moore pulled the plug.
5 popular games and 2M NA (the goal was 5M). Note October PS2 was released in America.
See the PS1 timeline September 1995 to December 1996 saw 20 very popular games; not even the N64's FUD had an effect. Total 3M NA
Xbox 360 timeline 2005: 4 popular games 2006: 8 other popular games total 12 , sales 5M NA
I also calculated a subjective coefficient of next-gen evolution.
Popularity x Graphics x Gameplay x budget
On the Xbox 360, out of 22, only 10 next gen games flopped, 50%.
On the Dreamcast, out of 30, about 25 flopped, 85%.
The greater the number of nextgen games, the greater the chance of success. But this "next gen" can't be like Power Stone, BS or Toy Commander.
Dreamcast couldn't resist the PS2's FUD campaign because the PS2's power was exaggerated but real, Unlike the processing power of the N64 and PS3, which were in line with their rivals. DVD was a thing in 2000, Blu-ray in 2006, well, few people had HDTVs.
As we can see, 12 to 20 quality games in the first year is the minimum required. You could argue that Nintendo or the PS3 used few games to counter their rivals, true but the rules aren't the same for leading platforms and early-gen platforms.
At the end of the day, the goal is to launch 12 popular games in 14 months. The cost of this could be 12 (if the strategy is driven by a genius) or 26... more... the important thing is to get those 12.
The statistics I've compiled show that running old-gen games at higher quality doesn't encourage consumers to upgrade. Completely next-gen content is necessary.
To survive FUD, industrial espionage is necessary and thus prevent the leader from being better at everything, but if Nintendo-Sony is better at everything (it's game over) don't lower the price, invest in R&D for games.