When I originally proposed this story, I called it "The Saturnization of PlayStation 3" because I saw some striking parallels between the way SEGA handled its ill-fated Saturn game console and the way Sony's been handling its PS3. Of late, though, Sony has shown signs of reasonable intelligence.

While working on the backstory of this article, I became aware that the real analogies are not between SEGA and Sony; they are between Microsoft and SEGA.

History repeats?

When I first mentioned my story idea to John Taylor, a savvy videogames analyst working for Arcadia Investment Corporation, he said, "If I were your editor I would ask, Who remembers the Saturn and why is it relevant?"

I think, though, if you look carefully, you will see parallels.

It has been 12 years since Saturn first appeared, and a lot of people have forgotten about the system, but lessons learned at that time are no less valuable today.

So let's talk history. SEGA, a Japanese company founded by Americans after the Korean War, has a long and successful history in coin-operated entertainment. It also has a history as a console manufacturer, but that history is spotty at best.

In 1986, SEGA made an unsuccessful bid to compete with the Nintendo Entertainment System (known as the Famicom in Japan). In 1989, SEGA launched the Genesis (known as the Mega Drive in both Europe and Japan) to very little fanfare. The following year, the first full year that the Genesis was on the market, was Nintendo's most dominant year in games.

Then the Tom Kalinske regime took over at SEGA of America and things changed dramatically. Kalinske, a former president of Mattel, came in with a team of aggressive marketers. They dropped the price of the Genesis below $200, replaced the original pack-in game,Altered Beast, with Sonic the Hedgehog, adopted Sonic as the company mascot, began publishing games designed specifically for American audiences, and launched a high-octane advertising campaign that maligned Nintendo visciously.

SEGA of Europe followed Kalinske's lead, and soon SEGA controlled more than half of the U.S. and European markets. SEGA of Japan disregarded his ideas, and Mega Drive never caught up to Super Famicom (Super NES in the United States) or PC Engine (TurboGrafx in the states) in Japan.

In the United States, SEGA took video gaming out of the elementary school ghetto by persuading teenagers that they did not need to abandon gaming once they entered ninth grade. When, in the 1993 Senate hearings on videogames, SEGA Vice President Bill White claimed that the average Genesis owner was in high school and that the average SegaCD owner was 22 years old, Nintendo of America chairman Howard Lincoln said he was lying. Kids who grew up on videogames had outgrown Nintendo, but they did not mind being seen talking about SEGA in public.

Saturn, when things went wrong

By 1995, SEGA had overdiversified, launching 32X, Game Gear, Pico and Saturn to go along with its already existing Game Gear and Genesis business. SEGA, a company with limited finances, found itself with too many platforms to support at once and made the wrong decision -- it abandoned 19 million Genesis owners to throw all of its efforts into Saturn.

In 1995, Saturn launched at too high a price point -- $399. It was not the first system to launch in that no-man's-land. In the years just prior to the launch of Saturn, Panasonic launched the 3DO Multiplayer for an unheard-of $699. Neo Geo launched a home system for its popular line of arcade games. The Neo Geo Green package was a mere $399. For $599, you could buy the Neo Geo Gold package which came with two controllers and a game. That extra game was important since Neo Geo cartridges generally retailed for $200.

So here's the deal: In 1994, SEGA took a look at a new rival -- Sony -- and saw trouble in the making. Sony aggressively courted game designers. The PlayStation was easier to program than Saturn. Though Saturn was potentially more powerful, harnessing that potential was difficult because Saturn had two processing chips instead of one. Saturn was also not as well suited for handling 3-D games as PlayStation.

When both systems launched in Japan, SEGA took an early lead because of Virtua Fighter; the Virtua Fighter series games were among the most popular arcade games in history in Japan. SEGA had a nearly perfect port of Virtua Fighter, and the game sold on a one-to-one ratio with the hardware.

In America, the arcade business had been in decline for a decade, and Virtua Fighter lagged behind the Street Fighter and Mortal Kombat games in popularity among U.S. players. SEGA executives saw the writing on the wall. To avoid going head-to-head with Sony in September, SEGA launched Saturn prematurely in May despite not having enough software or proper marketing support.

The result: Saturn launched weak, languished all summer, and was all but forgotten when Sony released the PlayStation four months later.

SEGA executives knew they had a disaster on their hands. The obvious answer would have been to lower the price -- the PlayStation sold for $299; but for some unknown reason, SEGA fought to maintain the $399 price point. To attract sales, SEGA packed Virtua Fighter, Virtua Cop, and Daytona USA in with the console. Those were amazing games, but Saturn still lagged behind. Even worse, in 1996, Nintendo released its Nintendo 64 console and SEGA found itself in third place just ahead of 3DO and the Atari Jaguar.

In all fairness, a lot was happening behind the scenes at SEGA. The company was suffering from vicious internal politics. Also, while SEGA had developed Saturn to be the ultimate 2-D gaming machine, the world had moved on to 3-D.

In the end, it was the inability to adapt that sank Saturn. Sony took over the market with a better price, exclusive support from a wide variety of game publishers, and a cool-factor that appealed to more than just traditional gamers.

Saturnized Sony?

There are a lot of similarities between Sony's current predicament and the predicament of the Saturn-era SEGA.

For openers, Sony, like SEGA, pushed the price envelope and came up dry.

Also, Sony, like SEGA, has left its customers wondering what to play for a full year. If you bought a Saturn and you were not into Clockwork Knight or Worldwide Soccer, you pretty much had to entertain yourself with Virtua Fighter and Panzer Dragoon for six months. The assortment on PS3 has been wider, but the drought of A+ titles is notable.

Like SEGA, Sony has had to deal with multiple platforms, too. Sony is now floating three systems -- PS3, PS2 and PSP. Unlike SEGA, Sony has the finances and the muscle to float all three platforms. Anybody thinking Sony has abandoned PS2 prematurely has not tried the Buzz! series. Guitar Hero III came out for PS2, and so did Rock Band. One area in which PS3 seems almost identical to Saturn is the processing problems. When Saturn came out, it had dual Hitachi processing chips that made it potentially more powerful than PlayStation, but very few designers ever managed to harness that power.

Yu Suzuki's AM2 team did a pretty fair job of it with Daytona USA and the Virtua Fighter games, but Suzuki publicly complained that it was hard to program for two separate processors.

Enter PS3 with its incredibly powerful and complex cell processor. The potential for power is there, no doubt about it; but Madden 08 and The Orange Box suffered from frame rate issues, as have other games on the system. Sony has received all kinds of complaints about the difficulty of programming PS2. With PS3, the general consensus is that things got worse.

As pointed out earlier, Sony as also abandoned that $599 price point, dropping down to a one-third-less-painful $399. This price may not be low enough, but it does place Sony in the ballpark.

More importantly, Sony came out swinging at E3 this year. Sony has pretty well written off good games for 2007, but the 2008 lineup looks promising. In fact, of the three console makers, Sony showed the strongest plans for next year. That said, Nintendo has an aggravating habit of playing its cards too close to the vest, then pulling unannounced rabbits out of its hat. Microsoft has a lot of exciting games coming up, but too many of them may be of the same variety for general audiences.

So has Sony been Saturnized? Hell, yes! But the company is showing great signs of recovery.

Has Xbox 360 been Saturnized?

The short answer is no, not yet. The Saturnization process is not complete. Microsoft has shown a tremendous talent for stepping on all the landmines that SEGA tripped 10 years ago, but there is still room to turn back.

Let's begin with the adaptability issue. During the Genesis era, SEGA noted that gamers did not necessarily want to stop gaming when they left their tweens. Sony did SEGA one better, making games attractive to the college crowd. This left Nintendo in a lurch. Years later, while Microsoft and Sony battled for control of the college-crowd market, Nintendo looked remarkably silly pushing a purple box with a big black handle that mostly played to kids.

But in this generation Nintendo has turned the proverbial tables on everyone. Microsoft has gone out of its way to endear itself to older gamers and Sony will be content if it can just survive the year. With Sony and Microsoft pigeonholing themselves in their fight for gamers ages 26 and up, Nintendo, the true veteran of the game industry, has come in like a new and aggressive upstart, positioning itself to appeal to the broader market.

The ghosts of Saturn-day SEGA seem to be traveling the halls of Microsoft's Millennium Campus -- home of the Xbox division. When it comes to family-style games, Microsoft has released three in two years -- Scene It?, Viva Piñata and Viva Piñata: Party Animals.

Microsoft has released Halo 3 and Mass Effect, and it has the driving game front covered with the Forza series and the Project Gotham franchise. The games market is expanding. In the early 1990s, the U.S. market was worth $6 billion; this year, people are saying it could reach $18 billion, and Microsoft only seems interested in collecting cash from one large segment of that market.

If there is one point on which Taylor is most vociferous, it is Microsoft's need to diversify.

"What is a 13-year-old kid going to be playing on Xbox [360] in about six months?" asks Taylor. "In about six months, when the PS3 presumably is going have a little better traction and the supply constraints on Wii are going to be removed, you will have a fair fight, and you will have a better sense of why people are buying what platform.

"The question I ask every day is, What is Microsoft doing to broaden the market? Well, Microsoft may be doing a lot of things to broaden the market. One of them is Scene It?, and we will see how it does this holiday timeframe.

"The Viva Piñata game did not connect. For whatever reason, it did not connect."

In 1995, Sony made gaming mainstream and SEGA faltered because it mostly courted hardcore gamers. In 2007, Nintendo is making gaming more mainstream than ever before, and Microsoft is focusing on hardcore gamers.

Microsoft has not made the pricing errors that SEGA made -- that particular landmine was well triggered by Sony. In fact, making the $279 Xbox 360 Arcade System was a pretty slick move by Microsoft, though its lack of a hard drive is disturbing.

Saturn came out first and had a good lead in Japan, then watched it ebb away. Wii has already overtaken Xbox 360. Priced at $599, PS3 was never a competitor; but after dropping $200 from the price and with a more aggressive lineup for 2008, Sony could very well give Microsoft a run for its money.

But Microsoft also has strengths SEGA never had. Nintendo may have gotten good publicity out of releasing NES, Super NES, Genesis, and TurboGrafx games online; but it is Microsoft's Xbox Live Arcade that has revolutionized the online world for console owners.

"You have to give Microsoft credit for driving the whole online thing," Taylor said. "That gets millions of people in a really sticky way every year."

With Xbox 360, Microsoft has made its online presence an integral part of gaming. Not only has Microsoft created a community online, it has also built up quite a library of online games -- both classics and originals. In fact, many people would agree that the most influential game during the 360 launch window was Geometry Wars: Retro Evolved, a game that was available exclusively online.

The blind defeating the blind

I must say, I am not very impressed with any of the hardware makers so far in this generation.

As much as I loved Twilight Princess and Super Mario Galaxy, the Wii is another Nintendog in my book when it comes to games. It's been out for a year and has two games that I like -- Brawl will likely lift the list to three once it finally emerges...shades of GameCube and N64.

Okay, I play one other Wii game -- Wii Sports, the only game that uses the Wii remote in a way that does not seem contrived. If Nintendo released Galaxy and Twilight Princess using a standard controller, that would be just fine with me.

When you look at Wii, you see a tie ratio that is really stuck at 3.4x -- cumulative software divided by cumulative hardware for the last five months. People who buy the Wii buy it to play Wii Sports and maybe pick up a title here and there, but they are not using it as their game machine. It's a party machine," Taylor said.

"Everybody is waiting for the title that will wake up the install base of Wii [owners] and get them charged up. It hasn't happened yet."

Interestingly, a study Taylor did for Nintendo showed that Wii software sales and hardware sales match up well against the first year sales of PS2 -- the most successful videogame console of all time. Wii and PS2 had similar hardware sales in the first year and the ratio of software to hardware is surprisingly close.

"Where things start to diverge a little bit is if you compare the average unit sales per SKU," says Taylor. "The unit volume of the average title for the first 12 months is a decent amount lower for the Wii. If you take out Nintendo and look at the third-party experience, the number is quite a bit lower."

In other words, the average Wii owner has purchased 3.4 games over the last year. The grand majority of those games were published by Nintendo. Madden 08 for Wii did not sell especially well, neither has Super Monkey Ball. Wii Play, with its packed-in Wii remote, on the other hand, is a constant bestseller.

"From Nintendo's standpoint and from a macro standpoint, things look pretty hunky-dory. From a third-party profitability or opportunity standpoint, it's a little bit different," Taylor said.

With the exception of Ratchet and Clank Future, Sony doesn't have any first-party games I want to play this holiday season. In fact, I haven't seen any A+ games on PS3 at all.

This year, with the videogame market at its absolute biggest, so much of the success seems like a triumph of marketing instead of game-making.

More PlayStation 3 News...