The Sega Dreamcast.

The Katana is displayed in May, and one unique aspect of it is its Visual Memory System (VMS), a memory device that plugs into the controller but can also be used as a stand-alone game device with Tamagotchi-like graphics.

As the year progresses, Sega announces that the Katana will be released in Japan in November. Although the US won't get the new system until 1999, Sega of America begins making plans to spend $100 million to launch it. By midyear, Sega announces another name change--this time the system becomes the Dreamcast. With all the hype in place, the Dreamcast finally goes on sale in Japan on November 27. The initial 150,000 systems that are offered for sale are sold immediately, along with 132,000 copies of Virtua Fighter 3.

Dreamcast for the Arcades
Sega announces an arcade version of the Dreamcast. The Naomi arcade machine promises to have the same capabilities as Sega's current Model 3 arcade machines but will be available for one-third of the price. Because the Naomi and the Dreamcast will share the same chipset, converting titles from the arcade to the console will be simple. Even more compatibility is offered, as VMS slots are provided in Naomi machines to transfer data to and from the Dreamcast.

Missing Sega Name
Market research indicates that the brand name is not terribly important to consumers of video game hardware, so Sega elects not to include its name on the Dreamcast. Ironically, Majesco, a New Jersey-based company, determines that the Sega name is important. Majesco licenses the Genesis from Sega and releases a new Genesis 3, with the Sega name as a central part of the packaging. Majesco plans to release inexpensive versions of the Game Gear, Saturn, and Pico. The small company also releases new software for both the Super Nintendo and the Genesis. One of the surprise titles is Frogger, which Majesco had licensed from Hasbro Interactive.

When the Dreamcast is finally released, the Sega name is included on it.

Sega's Problems Continue
Following the cancelled merger between Sega and Bandai, Sega president Hayao Nakayama resigns from his position and is replaced by Sega of America chairman Shoichiro Irimajiri. Other woes beset the troubled Sega as cuts are made throughout the three American divisions: Sega of America, SegaSoft, and Sega Entertainment. Along with the cuts, Sega announces that it is finally throwing in the towel, and it ceases distribution of the Saturn in North America.

The PlayStation 2
Rumors begin early in the year that Sony is hard at work on the PlayStation 2. While Sony is closemouthed at first, bits and pieces concerning the new system begin to emerge from independent developers. By midyear, Sony admits that the new console is indeed in development and that it may be DVD-based if that is practical. The best guess on when the new system will be available is sometime in 2000. By midyear, the rumors are in full force stating that Sony will team up with Toshiba to develop the chipset for the new console. Early predictions indicate that the RISC processor will run at 250MHz, slightly faster than the processor in Sega's Dreamcast. Sony remains mum on the subject.