Though Sega looked at options to bring the service to PCs, the rise of cable modems and Internet gaming drove away the demand for such a service. At its peak, the Sega Channel had over 250,000 subscribers, but by 1997, the number had dropped to 230,000, two years after Nakayama shifted focus from the Genesis to the Saturn. This placed the release of the Sega Channel during the Genesis' decline from the market. This decision was made to support the Sega Saturn, which had been released in Japan already. In early 1995, Sega CEO Hayao Nakayama ended development on the Sega Genesis and its add-ons, the Sega CD and Sega 32X. During the planning stages of the service, Sega looked to capitalize on the rental market, which had seen some success with the Sega CD being rented through Blockbuster, Inc., and was looking to base the service's games and demos to sell more cartridges. The Sega Channel expanded into Canada in late 1995, with an approximately Can$19 monthly fee.

US fees varied depending on location, but were approximately US$15 monthly, plus a $25 activation fee, which included the adapter. By June 1994, 21 cable companies had signed up to carry the Sega Channel service. In the US, national testing began in June, and deployment began in December, with a complete US release in 1994. In April 1993, Sega announced the Sega Channel service, which would use cable television services to deliver content. By 1992, the Mega Modem peripheral could be found in bargain bins at a reduced price, and a remodeled version of the Mega Drive released in 1993 removed the EXT 9-pin port, preventing connections to the Meganet service. Due to Meganet's low number of games, high price, and the Mega Drive's lack of success in Japan, the system was a commercial failure. Another phone-based system, the Mega Anser, turned the Japanese Mega Drive into an online banking terminal. A North American version, the 'Tele-Genesis', was announced but never released.

Operating through a cartridge and a peripheral called the Mega Modem, it allowed Mega Drive owners to play 17 games online. In 1990, Sega started its first internet-based service for Genesis, Sega Meganet, in Japan. Released in Japan as the Mega Drive in 1988, North America in 1989, and Europe and other regions as the Mega Drive in 1990, the Sega Genesis was Sega's entry into the 16-bit era of video game consoles.

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