Dreamcast's failure was a self fulfilling prophecy
Everyone I showed my Dreamcast off to loved it, but when I asked if they'd be buying one they always said "nah, Sega will drop it after a few years".
Sega dropped it because these people didn't buy it.
It sold well initially to Sega fans, but sales dropped off quickly.
It did even worse in Japan, despite the Sega brand being healthy there off the back of Saturn. You'd have thought the Japanese would have lapped it up as it came with the latest Virtua Fighter.
NEC having production issues on the GPU kinda screwed up early Dreamcast availability, but SEGA should've taken more time on the system, ensured games like Sonic Adventure & VF3 weren't gimped ports (VF3 didn't even have a VS mode at launch in Japan!), and found a way to add DVD support by default.
Those changes with a mid-1999 launch in Japan probably would've saved the system, IMHO, and we'd had seen a pretty different battle play out that gen.
For me it's just another case of Saturn being too Japanese centric.
It was a great opportunity to appeal to MegaDrive fans with familiar characters, imagine people turning their heads when they see Streets of Rage and Altered Beast characters on the box art.
Instead Rent a Hero was more important.
Idiots.
Welp, SOJ hated SOA at the time. In hindsight, I guess SOA bleeding so much money in the late Genesis years that SOJ didn't know about until late '96 due to unconsolidated accounting, would have contributed to the animosity between them. But that could've been avoided by...simply having consolidated accounting much earlier.
You don't know the truth, the success of the Sega Saturn in Japan is full of myths. Here's what happened; the almost 6 million Sega Saturns were sold in Japan in 1996, but after Final Fantasy 7 in January 1997, the PS1 went from 5 million to 10 million units sold. The impact of this game and other games in 1997 made the consumer who bought the Saturn feel retarded. A hatred against Sega was born and the Sega Saturn basically died, that's why Sega made the Dreamcast (Sega Lord X in an analysis said that Sega shouldn't have released a console in 1998, but he doesn't know that). The Saturn was dead to the consumer for 2 years. When the Dreamcast came out, nobody bought it. The story that there was a lack of chips is PR, there was no demand, but Sega didn't care because the Dreamcast was made with America in mind.
You are right that Saturn sales in Japan basically collapsed in 1997. They only moved 800K units, which was a massive drop-off compared to 1996.
But you're also misunderstanding something.
You should watch some of Jenovi's videos sometime, because he mentions something very interesting. Basically, SOJ intentionally reduced production of Saturn units in 1997 in order to stave off reporting potential revenue losses. By scaling back unit production, they were able to reduce spending costs on said production.
Plus, like others have said ITT, by 1997 SOJ were already shifting focus to the Dreamcast, since they had a planned 1998 launch. There's also the likelihood that Sonic Xtreme getting cancelled, and SOJ not having a Sonic game in development for the Saturn, made them just heavily scale back on Saturn at that point. Yes, PS1 benefited from games like FF VII, but that's only part of the picture and only part of the reason why Saturn sales slowed down as heavily as they did.
Anyone who reads my posts thinks I'm a hater, but I recognize that there was quality in Sega, for example, in the 80s, the big Japanese companies were creating the console market in that country, most companies opted for the MSX, Sega made its own MSX without adhering to the format, Nintendo was smarter and removed all computer functions, Sega saw the movement and did it too, but Nintendo's video game was more powerful, Sega knew it had no chance, but its console exceeded the target by 3x, so all the other dozens of manufacturers left the sector, leaving Nintendo and Sega, Sega is a winner, it defeated Bandai, for example. But the money they made was spent to buy their own freedom, but this freedom could turn into bankruptcy because of the PC Engine (that's why before launching the Mega Drive, they ported games to the PC Engine, their competitor). Nakayama knew that the American market was the only salvation, so they tried hard, but there were too many idiots amazing games like Alex Kidd died in the transition to 16-bit, Fantasy Zone had no future, so in an act of lucidity, they licensed Mikey Mouse. But they knew that Sega needed a new poster boy, again in an act of unparalleled creativity, they created Sonic the Hedgehog. But in the 90s Sega entered a cold war against Namco in the arcade market and lost because they spent tons of money while Namco gave up on high-end hardware and shifted focus to spending on R&D for fun games. The rest is history.
I mean, it can be simplified in this way if you ignore the ST-V (SEGA Titan Video), which was a cheap arcade board based on the Saturn hardware. It got a lot of games released for it, and in a way was kind of the 3D version of the Neo Geo MVS.
Also you have to ignore that Namco literally still made high-end arcade hardware throughout the '90s, like System 23 and Super System 23. They did have System 11 & 12 which were based on PlayStation spec, but those weren't the only arcade systems they had or provided games for. You also have to understand, the arcade market was still really big in the '90s; even when the PS1, Saturn & N64 were out, the decline was a steady but slow gradual one, and in Japan it was less severe.
If you want to talk about SEGA misappropriating funds, just look at the SEGA Gameworks venture. At least a few few dozens to hundreds of millions of dollars pumped into that, when the money could've been much more wisely invested into Saturn software development or, hell, getting a DVD-ROM drive in the Dreamcast :/
The dude figured out a way to use transparency to fade in pop in like psx games at the time.
In general though people tend to either forget or not know that the Saturn was only going for half the ps1s life and the ps1 games during that time were very similar in things like pop in and lighting. But while devs dropped Saturn ports they also developed not only better use of ps1 hardware but better techniques for 3d in general. Only a handful of late Saturn games actual showed such progress.
That's in part because most 3P did not care to learn the Saturn architecture to optimize at the assembly level their code. They had SGL 2.0, they had C, so for them that was good enough.
The Saturn was also losing lots of market share, so it didn't justify the costs to push the hardware further for 3P. We can see from homebrew today that there was still a lot of untapped potential; many commercial games didn't really use the full capabilities of VDP2 for instance, let alone the SCU DSP.
I don't think a 100% tapped-out Saturn would've gotten it to match the very best of PS1 or N64 3D, mind, but we could've gotten better results than, say, Burning Rangers or Sonic R.
