Why Sega should release a new console

Sega is in trouble. According to its latest filing in Japan, the company incurred a loss $501 million during its 2008 fiscal year and its video games division lost about $56.3 million. And as the company was quick to point out, something needs to be done on the video game front.

The Sega Dreamcast is not the right prototype.

(Credit: CNET.com)

"As rebuilding our consumer video game business is crucial, we now need to review our game title strategy more flexibly to adapt ourselves to changes in the trend of the market," said Koichiro Ueda, head of Sega's public relations department.

Of course, Sega did what it could to downplay the news of its impending failure on the video game front and said that it thinks it can turn things around, but I just don't see how that's possible with just games. Let's face it -- the company's once proud Sonic franchise is floundering and there's no indication that it's really that valuable on Microsoft, Sony, or Nintendo platforms. Beyond that, the company has done poorly with other titles it has released and aside from a lingering desire for the return of the Shenmue series, few people even think about the developer any more.

With that in mind, Sega needs to change its strategy and turn things around. And the only way it can do that is to release its own video game console.

As soon as you read that, I'm sure it immediately conjured up thoughts about the Saturn and Dreamcast and the failure that both of those consoles were. And while you may be right in having doubts about Sega's ability to create an extremely popular console, I'm starting to think that we're ready for it.

Depending on the study you read, the average gamer is anywhere between 30-35 years old. Because of that, it's safe to assume that the vast majority of gamers remember the days of Sega console gaming and there is still a huge group of Sega zealots in the wild that long for another Dreamcast.

Realizing that, I think it's safe to assume that Sega should be able to capitalize on those that are still keen on using a Sega-branded console and through the use of some serious hype and a far better hardware strategy than it formally employed, it could become a major hit.

Of course, the plan doesn't quite end there.

There's no debating the fact that Sega has been a relative failure in the software space. Since its decision to drop out of the hardware game, the company has had a few minor hits, but nothing has been developed that we can classify as a blockbuster. And in an environment where we're seeing a significant push towards consolidation, the company really only has two options: sell the company to the highest bidder or develop a console.

And considering the fact that there are a slew of more attractive developers out there with better franchises, I just don't see too many large firms going after Sega. And it's for that reason that it needs to find a way to differentiate itself and take a stab at the hardware market.

In order for Sega to truly keep its game division afloat, it'll need to develop hardware that's both forward-thinking and inexorably tied to the online space. Beyond that, it'll need to repair the issues it may still have with retailers and some other developers and endeavor to build a console that can compete on the same level with the Xbox 360 and the Playstation 3.

But it's the relationships with developers that will truly matter to Sega. Due to the expected high price of the hardware, Sega will need to sell the console at a loss and (hopefully) make up for it through deals with third-parties. In order to do that, it'll need to establish itself as the "real third console" that developers should expect to sell games on. After all, third-parties are having trouble selling games on the Wii and if they believe that they can turn an even greater profit by selling games on three consoles, the deals should start to build up.

After forming the deals with developers, Sega will need to build the hype machine up as much as possible. Instead of following the faulty plan of years ago, it needs to show off a console that's both more powerful than anything available, offers a Blu-ray drive, and has the kind of online component we're only seeing in the Xbox 360. The company also needs to play by the rules: it shouldn't announce the console and release it on the same day and it should take as much time as it needs to ensure all of its ducks are in a row before it launches it.

More than anything though, the return of Sega should be the centerpiece of its entire campaign. I truly believe that there are millions across the globe that would invite Sega back into the hardware business and as long as the games were plentiful, even those who have never played a game on a Sega console may want to get in on the action.

Although it's risky, I simply don't see any other way Sega can revive its business. With slow growth and losses each year, how can the company truly expect to compete in this increasingly competitive market without some sort of action?

Sega should be a hardware company. It's as simple as that.