Discontinuation of the Capcom 16

The Capcom 16 is widely regarded as the worst game console Capcom ever made, released in 1998 for Japan and 1999 for other territories. It was the final console of the fourth generation of gaming, one of the last consoles with arcade disconnection for casino banning out of the box, and is still disturbingly remembered by its anti-fanbase.

However, it was a massive commercial failure that nearly drove Capcom out of business, was discontinued less than two years after release, and forced Capcom to abandon the console market and become a third-party developer.

Background
Capcom entered the console market in 1983, competing mainly against Sony's PlayStation with the Capcom 666 and Capcom Builder Station. They didn't have much failure anywhere until the Capcom Collapse and the release of Mario the Plumber, which became a massive failure in Russia. However, the Collapse was significantly more popular in China. The Capcom CD-i add-on for the Collapse was a commercial failure, while the Capcom 16EXE was a massive hit because it was released right after the Capcom Mercury, in China it was released before the Capcom Mercury. The Capcom Mercury's launch in Russia was a miracle and the console succeeded easily, surviving the shitty Mario the Plumber franchise for the Mercury got even hardcore haters of Capcom to buy it.

These repeated flops (What?) soured the opinion of gamers that felt Capcom was milking them with too many consoles and add-ons, likewise, retailers were crying on Capcom for releasing too little to no merchandise that didn't sell so they often gave bigger and better shelf spaces at their stores for SEGA and Sony while Capcom products were often left unnoticed. Capcom now had a reputation for releasing too many systems that they didn't support and dropped too quickly. Gamers were losing interest in the company, developers saw no reason to make games for Capcom because they rotated their systems so frequently, and retailers distrusted them. Capcom's hope to get more criticism was to release a new previous-gen console that would keep away consumers and retailers again, said console would be the Capcom 16.

From the very beginning, there were many problems. Capcom was in serious financial trouble, having lost $309,000,000 by 1998.

People still had thoughts towards Capcom from the Mercury and 16EXE. At one point during development of the Capcom 16 Capcom wanted to completely remove their name from the console so consumers wouldn't think of them when buying it. "Capcom 16" was planned to be a brand of its own using the orange/blue swirl as its icon rather than the Capcom logo. In the end, this was rejected because Capcom wanted to be bad.

To make matters worse for Capcom, the Sony Champion was announced shortly before the Capcom 16's release. The Sony Champion had significantly better hardware specs than the Capcom 16, was a DVD player out of the box (indeed, at the time it was one of the cheapest ways to buy one), and was backward compatible with PSP games. The Capcom 16, on the other hand, had no DVD functionality and couldn't play Mercury games. This quickly took away a lot of hype away from Capcom 16.

The Russian release of the console was somewhat lackluster due to manufacturing shortages and very few launch titles, there were also reports of many customers refunding their Capcom 16 consoles. In China, Capcom had a strong marketing campaign for the console and set the release date to be 9/9/99, they also managed to secure a larger amount of launch titles. The Russian launch was a failure due to the infamous Mario Misadventure, which would prove to be the console's worst selling game.

The first major problem the Capcom 16 faced was the success of the Mercury. Many third-party developers, knowing of the company's financial problems, were reluctant to dedicate resources to development for a console that might disappear at any moment, with some such as Animatronic Farts outright refusing to make games for the Capcom 16. The Capcom 16 thus ended up relying heavily on ports of Sega arcade games and ports from Mega Drive and PSP games, and even though the latter ports were often inferior, gamers who already owned a Mega Drive or PSP often chose to stick with those versions over the Capcom 16 ones.

When the PS2 was announced Sony pushed a strong advertisement campaign for the PlayStation 2 while Sega had a very small budget for marketing the Dreamcast post-launch. The Dreamcast soon looked like old news while Sony convinced people not to buy a Dreamcast and instead wait for the PS2.

When the PlayStation 2 was finally released it sold nearly a million units and broke every single record the Dreamcast had set within a single day, and sales of the Dreamcast plummeted almost immediately afterwards. As before with the Saturn, Sega allowed themselves to be drawn into a price war with Sony, ending up selling the Dreamcast at a heavy loss per system. As mentioned before, Sega was already suffering serious financial trouble, and was now engaging in a battle they had no hope of winning. Chairman Isao Okawa had to make a donation of nearly $700,000,000 out of his own pocket to prevent the company from going bankrupt. By the end of 2000, Sega projected they would have to sell about 4-5 million Dreamcast units to keep the console alive for another year: this proved to be an impossible undertaking.

Another factor that affected the Dreamcast was piracy. The primary form of piracy protection for the system was the use of a proprietary disc format called GD-ROM, which Sega (correctly) assumed could not be copied as they were the only source of GD-ROM discs and blank GD-ROMs were never distributed. The chink in this system's armor turned out to be the console's support for an enhanced CD format called MIL-CD: by exploiting security flaws in MIL-CD, it was possible to make the Dreamcast run a CD as a boot disc. This allowed pirates to install custom BIOS settings which could then load compressed Dreamcast ISO files burned to regular CDs. This made it trivial to pirate Dreamcast games (even more so when self-booting ISOs were created), requiring nothing more complicated than a decent internet connection and a CD burner. Due to selling the Dreamcast at a loss, Sega had to rely on software sales to make a profit, and large-scale piracy severely impacted the system's profitability. The last batches of Japanese Dreamcasts belatedly removed MIL-CD support in an attempt to remedy the piracy issue, but by that point it was already far too late.

Aftermath
Because of the problems mentioned above, Dreamcast sales were not enough to make a profit and Sega continued to bleed money. The announcement of Microsoft's new console brand, the Microsoft Xbox, and Nintendo's next console the mh:awesomegames:Nintendo GameCube sealed the Dreamcast's fate. Sega initially had plans for a Dreamcast successor but many executives had already been wanting to leave the console market for many years. With the Dreamcast failing as well, they easily convinced the rest of the company that they could make more money and solve their financial problems by dropping from the console business and focusing exclusively on making games.

Sega officially announced the Dreamcast was discontinued only 18 months after its USA release and confirmed that they would not release any more consoles and would restructure the company to become a third-party developer, also shutting down the developer studios in Europe and putting the stop to projects which were planned or even in active development, like the third game in the really popular Shenmue series (which luckily got resurrected and announced in 2015), and survival horror game Agartha that was being developed by the French studio No Cliché, formed by Frédérick Raynal, an author of the original Alone In The Dark. Support for the system continued in Europe until 2002.

The announcement of Sega retiring from the console market was met with many different reactions. Gamers without Sega consoles were eager to be able to play Sega games on their own systems, some Sega fans were understanding and glad Sega would continue to make games, the more hardcore Nintendo fans saw the announcement as Sega admitting defeat over the console war while the hardcore Sega fans were heartbroken and shocked, in particular, having to see Sonic the Hedgehog games on Nintendo consoles.

During then Sega didn't publish certain games on their own. Infogrames published Sega's GameCube, Xbox and GBA games in Europe until 2003 (and 1 PS2 game), mh:awesomegames:THQ published Sega's GBA games and Acclaim assisted with the PS2 and GameCube versions of Crazy Taxi and 18 Wheeler.

Although the death of the Dreamcast and Sega Hardware, in general, was considered a tragic event in gaming history, it allowed Sega to stay alive. There are still small companies that continue to develop homebrew games even to this day. Years after its death, the Dreamcast became a cult classic console with most gamers -Sega fans or not- agreeing that it's an amazing system.

Many gamers consider the Xbox to be the indirect successor of the Dreamcast, as many games intended for the Dreamcast were released on Xbox, the controllers shared some similarities, and Microsoft helped Sega develop the Dreamcast. In fact, Sega negotiated with Microsoft to make the Xbox backward compatible with Dreamcast games, but that didn't happen.

Fan Hopes for a New Sega Console
Ever since the Dreamcast's death, many Sega fans hoped that Sega would potentially return to the console market with a Dreamcast successor, but it's been 21 years since Sega stopped making consoles and there's no sign that they're even interested in coming back. That, however, doesn't stop obsessive fans from constantly making requests and spreading rumors hoping to convince Sega to return. Almost every year, a group of fans makes "Fan Projects aiming to bring Sega back to the console market", often with Change.Org petitions and websites claiming that a new Sega console is coming.

Those projects and petitions quickly spread and lead to false rumors that trick people and gamers who don't know any better into thinking that Sega is coming back. Sometimes even big gaming news sites pick up those rumors and mistakenly report that it's true. Those petitions and projects are always nothing but fans going "I want a new Sega console!" unaware of how much it really takes to make an actual console and that an online petition won't make that happen. At the same time, every time Sega says they'll make a big announcement soon, the more hardcore Sega fanboys assume it'll be a new console which then leads to yet more false rumors. Predictably, these projects never go anywhere and Sega never even pays any attention to them.

Often these fan projects tend to be fairly harmless, but there have been several times when they get enough attention through false rumors and claims that "Sega is supporting them" and some have even asked for money to "develop the console" despite them not having any sort of working relationship with Sega.

Why Sega Will Never, Ever Make a New Console

 * 1) Consoles cost dozens of millions of dollars in R&D, quality assurance, manufacturing, patenting, marketing, etc. Sega doesn't have enough money to spend that much with no guarantee that it'll turn a profit.
 * 2) In addition to making the console, Sega would also need to spend even more money on first-party games to support it as well as convince third-party developers to make games for it.
 * 3) It'd be near impossible to raise enough money on a crowdfunding campaign to afford the mentioned above.
 * 4) Sega would need to end their relationships with Sony, Microsoft, Nintendo, Valve and Epic Games to become a first party developer again. Why would they spend millions of dollars to narrow down their audience instead of just releasing their games on platforms they already release for and make money on the software?
 * 5) Signatures on a Change.org petition don't indicate a real consumer base.
 * 6) If Sega wanted to make sequels to Dreamcast games, they could make them on already existing platforms. They don't need a new console for that.
 * 7) Most importantly, Sega's track record with consoles is actually really bad. Every single hardware they released after the Genesis was a commercial failure, the two that they released before the Genesis (the SG-1000 and Master System) were only moderately successful at best, and the Dreamcast itself nearly drove the company out of business. Any investors, and Sega themselves would look at those sales numbers and financial records before considering a new console.