Development of the Saturn began in 1992, the same year Sega's groundbreaking 3DModel 1arcade hardware debuted. Designed around a new CPU from Japanese electronics company Hitachi, another video display processor was incorporated into the system's design in early 1994 to better compete with Sony's forthcoming PlayStation.
The Saturn was initially successful in Japan, but failed to sell in large numbers in the United States after its surprise May 1995 launch, four months before its scheduled release date. After the debut of the Nintendo 64 in late 1996, the Saturn rapidly lost market share in the U.S., where it was discontinued in 1998. Having sold 9.26 million units worldwide, the Saturn is considered a commercial failure. The failure of Sega's development teams to release a game in the Sonic the Hedgehog series, known in development as Sonic X-treme, has been considered a factor in the console's poor performance.
Although the Saturn is remembered for several well-regarded games, including Nights into Dreams, the Panzer Dragoon series, and the Virtua Fighter series, its reputation is mixed due to its complex hardware design and limited third-party support. Sega's management has been criticized for its decisions during the system's development and discontinuation.
Released in 1988, the Genesis (known as the Mega Drive in Europe, Japan and Australia) was Sega's entry into the fourth generation of video game consoles. In mid-1990, Sega CEO Hayao Nakayama hired Tom Kalinske as president and CEO of Sega of America. Kalinske developed a four-point plan for sales of the Genesis: lower the price of the console, create a U.S.-based team to develop games targeted at the American market, continue aggressive advertising campaigns, and sell Sonic the Hedgehog with the console. 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 ever made, and Sega's console finally took off as customers who had been waiting for the Super Nintendo Entertainment System (SNES) decided to purchase a Genesis instead. However, the release of a CD-based add-on for the Genesis, the Sega CD (known as Mega-CD outside of North America), was commercially disappointing.
Sega also experienced success with arcade games. In 1992 and 1993, the new Sega Model 1 arcade system board showcased Sega AM2's Virtua Racing and Virtua Fighter (the first 3Dfighting game), which played a crucial role in popularizing 3D polygonal graphics. In particular, Virtua Fighter garnered praise for its simple three-button control scheme, with strategy coming from the intuitively observed differences between characters that felt and acted differently rather than the more ornate combos of two-dimensional competitors. Despite its crude visuals—with characters composed of fewer than 1,200 polygons—Virtua Fighter's fluid animation and relatively realistic depiction of distinct fighting styles gave its combatants a lifelike presence considered impossible to replicate with sprites. The Model 1 was an expensive system board, and bringing home releases of its games to the Genesis required more than its hardware could handle. Several alternatives helped to bring Sega's newest arcade games to the console, such as the Sega Virtua Processor chip used for Virtua Racing, and eventually the Sega 32X add-on.
Development of the Saturn was supervised by Hideki Sato, Sega's director and deputy general manager of research and development. According to Sega project manager Hideki Okamura, the Saturn project started over two years before the system was showcased at the Tokyo Toy Show in June 1994. The name "Saturn" was the system's codename during development in Japan, but was chosen as the official product name.Computer Gaming World in March 1994 reported a rumor that "the Sega Saturn ... will release in Japan before the end of the year" for $250–300.
In 1993, Sega and Japanese electronics company Hitachi formed a joint venture to develop a new CPU for the Saturn, which resulted in the creation of the "SuperH RISC Engine" (or SH-2) later that year. The Saturn was designed around a dual-SH2 configuration. According to Kazuhiro Hamada, Sega's section chief for Saturn development during the system's conception, "the SH-2 was chosen for reasons of cost and efficiency. The chip has a calculation system similar to a DSP [digital signal processor], but we realized that a single CPU would not be enough to calculate a 3D world." Although the Saturn's design was largely finished before the end of 1993, reports in early 1994 of the technical capabilities of Sony's upcoming PlayStation console prompted Sega to include another video display processor (VDP) to improve the system's 2D performance and texture-mapping. CD-ROM-based and cartridge-only versions of the Saturn hardware were considered for simultaneous release during the system's development, but this idea was discarded due to concerns over the lower quality and higher price of cartridge-based games.
According to Kalinske, Sega of America "fought against the architecture of Saturn for quite some time". Seeking an alternative graphics chip for the Saturn, Kalinske attempted to broker a deal with Silicon Graphics, but Sega of Japan rejected the proposal. Silicon Graphics subsequently collaborated with Nintendo on the Nintendo 64. Kalinske, Sony Electronic Publishing's Olaf Olafsson, and Sony America's Micky Schulhof had discussed development of a joint "Sega/Sony hardware system", which never came to fruition due to Sega's desire to create hardware that could accommodate both 2D and 3D visuals and Sony's competing notion of focusing on 3D technology. Publicly, Kalinske defended the Saturn's design: "Our people feel that they need the multiprocessing to be able to bring to the home what we're doing next year in the arcades."
In 1993, Sega restructured its internal studios in preparation for the Saturn's launch. To ensure high-quality 3D games would be available early in the Saturn's life, and to create a more energetic working environment, developers from Sega's arcade division were asked to create console games. New teams, such as Panzer Dragoon developer Team Andromeda, were formed during this time.
In January 1994, Sega began to develop an add-on for the Genesis, the Sega 32X, which would serve as a less expensive entry into the 32-bit era. The decision to create the add-on was made by Nakayama and widely supported by Sega of America employees. According to former Sega of America producer Scot Bayless, Nakayama was worried that the Saturn would not be available until after 1994 and that the recently released Atari Jaguar would reduce Sega's hardware sales. As a result, Nakayama ordered his engineers to have the system ready for launch by the end of the year. The 32X would not be compatible with the Saturn, but Sega executive Richard Brudvik-Lindner pointed out that the 32X would play Genesis games, and had the same system architecture as the Saturn. This was justified by Sega's statement that both platforms would run at the same time, and that the 32X would be aimed at players who could not afford the more expensive Saturn. According to Sega of America research and development head Joe Miller, the 32X served a role in assisting development teams to familiarize themselves with the dual SH-2 architecture also used in the Saturn. Because both machines shared many of the same parts and were preparing to launch around the same time, tensions emerged between Sega of America and Sega of Japan when the Saturn was given priority.
A first-model Japanese Sega Saturn unit
Sega released the Saturn in Japan on November 22, 1994, at a price of ¥44,800.Virtua Fighter, a faithful port of the popular arcade game, sold at a nearly one-to-one ratio with the Saturn console at launch and was crucial to the system's early success in Japan. Though Sega had wanted to launch with Clockwork Knight and Panzer Dragoon, the only other first-party game available at launch was Wan Chai Connection. Fueled by the popularity of Virtua Fighter, Sega's initial shipment of 200,000 Saturn units sold out on the first day. Sega waited until the December 3 launch of the PlayStation to ship more units; when both were sold side-by-side, the Saturn proved more popular.
Meanwhile, Sega released the 32X on November 21, 1994 in North America, December 3, 1994 in Japan, and January 1995 in PAL territories, and was sold at less than half of the Saturn's launch price. After the holiday season, however, interest in the 32X rapidly declined. 500,000 Saturn units were sold in Japan by the end of 1994 (compared to 300,000 PlayStation units), and sales exceeded 1 million within the following six months. There were conflicting reports that the PlayStation enjoyed a higher sell-through rate, and the system gradually began to overtake the Saturn in sales during 1995. Sony attracted many third-party developers to the PlayStation with a liberal $10 licensing fee, excellent development tools, and the introduction of a 7- to 10-day order system that allowed publishers to meet demand more efficiently than the 10- to 12-week lead times for cartridges that had previously been standard in the Japanese video game industry.
In March 1995, Sega of America CEO Tom Kalinske announced that the Saturn would be released in the U.S. on "Saturnday" (Saturday) September 2, 1995. However, Sega of Japan mandated an early launch to give the Saturn an advantage over the PlayStation. At the first Electronic Entertainment Expo (E3) in Los Angeles on May 11, 1995, Kalinske gave a keynote presentation in which he revealed the release price of US$399 (including a copy of Virtua Fighter), and described the features of the console. Kalinske also revealed that, due to "high consumer demand", Sega had already shipped 30,000 Saturns to Toys "R" Us, Babbage's, Electronics Boutique, and Software Etc. for immediate release. The announcement upset retailers who were not informed of the surprise release, including Best Buy and Walmart;KB Toys responded by dropping Sega from its lineup. Sony subsequently unveiled the retail price for the PlayStation: Olaf Olafsson, the head of the Sony Computer Entertainment America (SCEA), summoned Steve Race to the stage, who said "$299", and then walked away to applause. The Saturn's release in Europe also came before the previously announced North American date, on July 8, 1995, at a price of £399.99. European retailers and press did not have time to promote the system or its games, harming sales. The PlayStation launched in Europe on September 29 1995; by November, it had already outsold the Saturn by a factor of three in the United Kingdom, where Sony had allocated £20 million of marketing during the holiday season compared to Sega's £4 million.
The Saturn's U.S. launch was accompanied by a reported $50 million advertising campaign that included coverage in publications such as Wired and Playboy. Early advertising for the system was targeted at a more mature, adult audience than the Sega Genesis ads. Because of the early launch, the Saturn had only six games (all published by Sega) available to start as most third-party games were slated to be released around the original launch date.Virtua Fighter's relative lack of popularity in the West, combined with a release schedule of only two games between the surprise launch and September 1995, prevented Sega from capitalizing on the Saturn's early timing. Within two days of its September 9, 1995 launch in North America, the PlayStation (backed by a large marketing campaign) sold more units than the Saturn had in the five months following its surprise launch, with almost all of the initial shipment of 100,000 units being sold in advance, and the rest selling out across the U.S.
A high-quality port of the Namco arcade game Ridge Racer contributed to the PlayStation's early success, and garnered favorable media in comparison to the Saturn version of Sega's Daytona USA, which was considered inferior to its arcade counterpart. Namco, a longtime arcade competitor with Sega, also unveiled the Namco System 11 arcade board, based on raw PlayStation hardware. Although the System 11 was technically inferior to Sega's Model 2 arcade board, its lower price made it attractive to smaller arcades. Following a 1994 acquisition of Sega developers, Namco released Tekken for the System 11 and PlayStation. Directed by former Virtua Fighter designer Seiichi Ishii, Tekken was intended to be fundamentally similar, with the addition of detailed textures and twice the frame rate.Tekken surpassed Virtua Fighter in popularity due to its superior graphics and nearly arcade-perfect console port, becoming the first million-selling PlayStation game.
On October 2, 1995 Sega announced a Saturn price reduction to $299. High-quality Saturn ports of the Sega Model 2 arcade hits Sega Rally Championship,Virtua Cop, and Virtua Fighter 2 (running at 60 frames per second at a high resolution) were available by the end of the year, and were generally regarded as superior to competitors on the PlayStation. Notwithstanding a subsequent increase in Saturn sales during the 1995 holiday season, the games were not enough to reverse the PlayStation's decisive lead. By 1996, the PlayStation had a considerably larger library than the Saturn, although Sega hoped to generate interest with upcoming exclusives such as Nights into Dreams. An informal survey of retailers showed that the Saturn and PlayStation sold in roughly equal numbers during the first quarter of 1996. Within its first year, the PlayStation secured over 20% of the entire U.S. video game market. On the first day of the May 1996 E3 show, Sony announced a PlayStation price reduction to $199, a reaction to the release of the Model 2 Saturn in Japan at a price roughly equivalent to $199. On the second day, Sega announced it would match this price, though Saturn hardware was more expensive to manufacture.
Changes at Sega
"I thought the world of [Hayao] Nakayama because of his love of software. We spoke about building a new hardware platform that I would be very, very involved with, shape the direction of this platform, and hire a new team of people and restructure Sega. That, to me, was a great opportunity."
—Bernie Stolar, on his joining Sega of America.
Despite the launch of the PlayStation and Saturn, sales of 16-bit games and consoles continued to account for 64% of the video game market in 1995. Sega underestimated the continued popularity of the Genesis, and did not have the inventory to meet demand. Sega was able to capture 43% of the dollar share of the U.S. video game market and sell more than 2 million Genesis units in 1995, but Kalinske estimated that "we could have sold another 300,000 Genesis systems in the November/December timeframe." Nakayama's decision to focus on the Saturn over the Genesis, based on the systems' relative performance in Japan, has been cited as the major contributing factor in this miscalculation.
Due to long-standing disagreements with Sega of Japan, Kalinske lost most of his interest in his work as CEO of Sega of America. By the spring of 1996, rumors were circulating that Kalinske planned to leave Sega, and a July 13 article in the press reported speculation that Sega of Japan was planning significant changes to Sega of America's management team. On July 16, 1996, Sega announced that Shoichiro Irimajiri had been appointed chairman and CEO of Sega of America, while Kalinske would be leaving Sega after September 30 of that year. A former Honda executive, Irimajiri had been actively involved with Sega of America since joining Sega in 1993. Sega also announced that David Rosen and Nakayama had resigned from their positions as chairman and co-chairman of Sega of America, though both men remained with the company.Bernie Stolar, a former executive at Sony Computer Entertainment of America, was named Sega of America's executive vice president in charge of product development and third-party relations. Stolar, who had arranged a six-month PlayStation exclusivity deal for Mortal Kombat 3 and helped build close relations with Electronic Arts while at Sony, was perceived as a major asset by Sega officials. Finally, Sega of America made plans to expand its PC software business.
Stolar was not supportive of the Saturn due to his belief that the hardware was poorly designed, and publicly announced at E3 1997 that "The Saturn is not our future." While Stolar had "no interest in lying to people" about the Saturn's prospects, he continued to emphasize quality games for the system, and subsequently reflected that "we tried to wind it down as cleanly as we could for the consumer." At Sony, Stolar opposed the localization of certain Japanese PlayStation games that he felt would not represent the system well in North America, and advocated a similar policy for the Saturn during his time at Sega, although he later sought to distance himself from this perception. These changes were accompanied by a softer image that Sega was beginning to portray in its advertising, including removing the "Sega!" scream and holding press events for the education industry. Marketing for the Saturn in Japan also changed with the introduction of "Segata Sanshiro" (played by Hiroshi Fujioka) as a character in a series of TV advertisements starting in 1997; the character would eventually star in a Saturn video game.
As Sonic Team was working on Nights into Dreams, Sega tasked the U.S.-based Sega Technical Institute (STI) with developing what would have been the first fully 3D entry in its popular Sonic the Hedgehog series. The game, Sonic X-treme, was moved to the Saturn after several prototypes for other hardware (including the 32X) were discarded. It featured a fisheye lens camera system that rotated levels with Sonic's movement. After Nakayama ordered the game be reworked around the engine created for its boss battles, the developers were forced to work between 16 and 20 hours a day to meet their December 1996 deadline. Weeks of development time proved fruitless after Stolar rescinded STI's access to Sonic Team's Nights into Dreams engine following an ultimatum by Nights programmer Yuji Naka. After programmer Ofer Alon quit and designers Chris Senn and Chris Coffin became ill, the project was cancelled in early 1997. Sonic Team started work on an original 3D Sonic game for the Saturn, but development was shifted to the Dreamcast and the game became Sonic Adventure. STI was disbanded in 1996 as a result of changes in management at Sega of America.
Journalists and fans have speculated about the impact a completed X-treme might have had on the market. David Houghton of GamesRadar described the prospect of "a good 3D Sonic game" on the Saturn as "a 'What if...' situation on a par with the dinosaurs not becoming extinct."IGN's Tavis Fahs called X-treme "the turning point not only for Sega's mascot and their 32-bit console, but for the entire company", but noted that the game served as "an empty vessel for Sega's ambitions and the hopes of their fans". Dave Zdyrko, who operated a prominent Saturn fan website during the system's lifespan, said: "I don't know if [X-treme] could've saved the Saturn, but ... Sonic helped make the Genesis and it made absolutely no sense why there wasn't a great new Sonic title ready at or near the launch of the [Saturn]". In a 2007 retrospective, producer Mike Wallis maintained that X-treme "definitely would have been competitive" with Nintendo's Super Mario 64. By contrast, Next Generation reported in late 1996 that the game did not compare well to contemporary competition, and would have harmed Sega's reputation if it had been completed and released. Naka stated that he was relieved by the cancellation, as the game "wasn't looking very good from my perspective".
From 1993 to early 1996, although Sega's revenue declined as part of an industry-wide slowdown, the company retained control of 38% of the U.S. video game market (compared to Nintendo's 30% and Sony's 24%). 800,000 PlayStation units were sold in the U.S. by the end of 1995, compared to 400,000 Saturn units. In part due to an aggressive price war, the PlayStation outsold the Saturn by two-to-one in 1996, while Sega's 16-bit sales declined markedly. By the end of 1996, the PlayStation had sold 2.9 million units in the U.S., more than twice the 1.2 million Saturn units sold. The Christmas 1996 "Three Free" pack, which bundled the Saturn with Daytona USA, Virtua Fighter 2, and Virtua Cop, drove sales dramatically and ensured the Saturn remained a competitor into 1997.
However, the Saturn failed to take the lead. After the launch of the Nintendo 64 in 1996, sales of the Saturn and its games were sharply reduced, while the PlayStation outsold the Saturn by three-to-one in the U.S. in 1997. The 1997 release of Final Fantasy VII significantly increased the PlayStation's popularity in Japan. As of August 1997, Sony controlled 47% of the console market, Nintendo 40%, and Sega only 12%. Neither price cuts nor high-profile game releases proved helpful. Reflecting decreased demand for the system, worldwide Saturn shipments during March to September 1997 declined from 2.35 million to 600,000 versus the same period in 1996; shipments in North America declined from 800,000 to 50,000. Due to the Saturn's poor performance in North America, 60 of Sega of America's 200 employees were laid off in the fall of 1997.
"I thought the Saturn was a mistake as far as hardware was concerned. The games were obviously terrific, but the hardware just wasn't there."
—Bernie Stolar, former president of Sega of America giving his assessment of the Saturn, in 2009.
As a result of Sega's deteriorating financial situation, Nakayama resigned as president in January 1998 in favor of Irimajiri. Stolar subsequently acceded to president of Sega of America. Following five years of generally declining profits, in the fiscal year ending March 31, 1998 Sega suffered its first parent and consolidated financial losses since its 1988 listing on the Tokyo Stock Exchange. Due to a 54.8% decline in consumer product sales (including a 75.4% decline overseas), the company reported a net loss of ¥43.3 billion (US$327.8 million) and a consolidated net loss of ¥35.6 billion (US$269.8 million).
Shortly before announcing its financial losses, Sega announced that it was discontinuing the Saturn in North America to prepare for the launch of its successor. Only 12 Saturn games were released in North America in 1998 (Magic Knight Rayearth was the final official release), compared to 119 in 1996. The Saturn would last longer in Japan and Europe. Rumors about the upcoming Dreamcast—spread mainly by Sega itself—were leaked to the public before the last Saturn games were released. The Dreamcast was released on November 27, 1998 in Japan and on September 9, 1999 in North America. The decision to abandon the Saturn effectively left the Western market without Sega games for over one year. Sega suffered an additional ¥42.881 billion consolidated net loss in the fiscal year ending March 1999, and announced plans to eliminate 1,000 jobs, nearly a quarter of its workforce.
Worldwide Saturn sales include at least the following amounts in each territory: 5.75 million in Japan (surpassing the Genesis' sales of 3.58 million there), 1.8 million in the United States, 1 million in Europe, and 530,000 elsewhere. With lifetime sales of 9.26 million units, the Saturn is considered a commercial failure, although its install base in Japan surpassed the Nintendo 64's 5.54 million. Lack of distribution has been cited as a significant factor contributing to the Saturn's failure, as the system's surprise launch damaged Sega's reputation with key retailers. Conversely, Nintendo's long delay in releasing a 3D console and damage caused to Sega's reputation by poorly supported add-ons for the Genesis are considered major factors allowing Sony to gain a foothold in the market.