User:Namcokid47/History of Namco

The history of Namco, a Japanese multinational video game developer and publisher, began with the foundation of Nakamura Seisakusho Co., Ltd. (株式会社中村製作所) in 1955. Founded by businessman Masaya Nakamura, the company began as an importer and producer of rocking horses and coin-operated electro-mechanical arcade games for Japanese department store roof gardens. The Namco name was inducted as a brand in 1971, an abbreviation of Nakamura Manufacturing Company, which later became the company's official corporate name in 1977. Namco purchased the financially-unstable Atari Japan from Nolan Bushnell in 1974, giving the company the rights to distribute Atari video games in arcades and amusement centers across the country.

The resources gained from the purchase of Atari Japan allowed Namco to begin production of its own video games in-house, starting in 1978 with Gee Bee. In 1979 the company released its first major hit Galaxian, a shoot 'em up that gained attention for its then-impressive usage of RGB graphics. Namco's biggest success was Pac-Man in 1980, which became a social phenomenon and one of the best-selling and highest-grossing video games of all time. The success of Pac-Man made Namco one of the leading video game companies in Japan, who began producing hits such as Galaga, Dig Dug, Pole Position, and Xevious. Namco became one of the first third-party developers for the Nintendo Family Computer in 1984, with its games causing sales of the console to jump by nearly one million units. Namco acquired a controlling stake in Atari Games in 1985, before selling it off in 1987 over disagreements between executives.

After bitter disagreements with Nintendo over licensing contracts for the Family Computer, Namco began supporting other competing game consoles such as the Sega Genesis, PC Engine, and PlayStation. The PlayStation benefited from Namco's support, gaining a strong foothold in the home console market and giving it an edge over its competition. Namco also began construction and development of theme parks, video arcades, restaurants, and virtual reality software. A corporate merge with long-time rival Sega was attempted in 2001, which failed due to opposition from Sammy, a company that Sega considered merging with.

In 2005, Namco merged with toy and game company Bandai, forming Bandai Namco Holdings. Bandai's financial success and back catalog of established brands was a reason for Namco's decision to merge, seeing Bandai as a leader in both industries. The two companies worked independently under the umbrella holding corporation until March 31, 2006, when Namco's video game operations were merged into a new company called Namco Bandai Games, known today as Bandai Namco Entertainment. In the same day, a new company called Namco was established as the theme park and prize machine branch of Bandai Namco Holdings. A corporate restructure in 2018 caused the company to be renamed to Bandai Namco Amusement.

Origins and acquisition of Atari Japan (1955–1977)
On June 1, 1955, Japanese businessman Masaya Nakamura founded Nakamura Seisakusho Co., Ltd. in Ikegami, Tokyo. The son of a shotgun repair business owner, the struggling post-World War II economy in Japan made him unable to find work. Nakamura established his own company after his father's business saw success with producing pop guns. Beginning with only US$3,000, Nakamura spent the money on two mechanical rocking horses that he installed on the roof garden of a Yokohama department store. The horses were loved by children and turned a decent profit for Nakamura, who began designing other kinds of amusement games such as goldfish scoopers and picture viewing machines. The business underwent a reorganization in 1959, when it changed its name to Nakamura Manufacturing Company. Noticing Nakamura's successful business, the Mitsukoshi department store chain approached him with the idea of designing a children's ride for the roof of its store in Nihonbashi, Tokyo. He designed a moving train named Roadaway Race, using his experience with shipbuilding to construct it. Roadaway Race was a hit and Mitsuokishi requested similar rides for all of its stores.

Along with Taito, Rosen Enterprises, and Nihon Goraku Bussan, the Nakamura Manufacturing Company became one of Japan's leading amusement companies. When Roadaway Race proved successful, it began work on other mechanical games at a similar scale. One of these was Torpedo Launcher, a submarine warfare shooting gallery later titled Periscope. While its games sold well, Nakamura Manufacturing lacked the manufacturing lines and distribution networks that its competitors had, which made the production of games longer and expensive. Because other manufacturers had exclusive rights to do so, the company was unable to place its games inside stores. Nakamura Manufacturing opened its own production plant in 1967, moving its corporate office to a four-story building in Osaka. It struck up a deal with The Walt Disney Company to produce children's rides in the likenesses of its characters, and another with Tsuburaya Productions to produce gun shooting games using Ultraman characters. Nakamura Manufacturing's partnership with Walt Disney allowed the business to expand its operations and become a driving force in the Japanese coin-operated industry.

In 1970, Nakamura Manufacturing released its first arcade game, a driving game titled Racer. The name Namco, an abbreviation of Nakamura Manufacturing Company, was inducted in 1971 as a brand for several of its machines. The company grew to having ten employees, which included Nakamura himself. It established a partnership with Kansei Seiki Seisakusho (Kasko), one of the largest amusement game providers in Japan; Nakamura Manufacturing was given the rights to distribute several of Kasco's games to other parts of the country. It saw continued success with its arcade games, which had become commonplace in bowling allies and grocery stores. A deal with Honda was secured to produce a motion-based ride based on its Dax line of minibikes. The company also established a robotics division to produce robots for entertainment centers and festivals, such as those that distributed pamphlets, ribbon making machines, and a robot named Putan that solved pre-built mazes.

In August 1973, Atari opened a Japanese division named Atari Japan. Founded in 1972 by Nolan Bushnell and Ted Dabney, Atari made ground in the industry with the release of Pong the same year. Bushnell decided to capitalize on his company's success by opening a division in Japan, whose coin-op market was quickly expanding in size. Led by Hideyuki Nakajima, a former employee of the Japan Art Paper Company, Atari Japan was established to import Atari video games into the country and sell them to other companies. The subsidiary was a financial disaster and nearly collapsed in its first few years of operation, attributed to the lack of consumer interest in its games and poor maintenance. Bushnell was forced to close the company in 1974 due to undercapitalization; he tasked his fixer Ron Gordon with finding a buyer for the company to recoup some of its lost profits. After being rejected by Sega and Taito for Atari's poor showing in Japan, Nakamura Manufacturing accepted Gordon's offer to purchase the company for US$1.18 million. Nakamura informed Bushnell that his company wouldn't be able to pay the money by the deadline; with no other takers for Atari Japan, Bushnell allowed Nakamura to only pay $550,000 and then $250,000 a year for three years. The acquisition allowed Nakamura Manufacturing to distribute Atari games across Japan, and made it the country's sixth-largest video game company by revenue. The Atari Japan purchase was not an immediate success, in part due to the medal game fad of the 1970s. While Nakamura Manufacturing saw some success with imports such as Kee Games's Tank, the Japanese video game industry's decrease in popularity did not make them as profitable as hoped. The market become more viable once restrictions on medal games were imposed by the Japanese government in 1976, as Nakamura Manufacturing began returning higher profits; its import of Atari's Breakout was so successful that it lead to rampant piracy in the Japanese game industry. By the end of the year, Nakamura Manufacturing was one of Japan's leading video game companies.

Galaxian, Pac-Man, and arcade success (1977-1984)
Nakamura Manufacturing changed its corporate name to Namco in 1977. It opened a division in Hong Kong named Namco Enterprises Asia, which maintained video arcades and amusement centers. As Namco's presence in Japan was steadily rising, Nakajima suggested to Nakamura that he open a division in the United States to increase worldwide brand awareness. Nakamura agreed to the proposal, and on September 1, 1978 established Namco America in Sunnyvale, California. With Nakajima as its vice president, Namco America's aim was to import games and license them to companies such as Atari and Bally Manufacturing. Its first import was Shoot Away, an electro-mechanical clay shooting game that was successful in Japan.

As the video game industry prospered in Japan during the 1970s with the release of Taito's Space Invaders, Namco turned its attention towards making its own video games. While its licensed Atari games were still profitable, sales were decreasing and the quality of the hardware used began deteriorating. Per the recommendation of company engineer Shigekazu Ishimura, the company retrofitted its Ōta manufacturing facility into a small game division and purchased old stock computers from NEC for employees to study. Namco released Gee Bee, its first original game, in October 1978. Designed by new hire Toru Iwatani, it is a video pinball game that incorporates elements from Breakout and similar "block breaker" clones. Gee Bee fell short of the company's sales expectations and was unable to compete with games such as Space Invaders. However, it allowed Namco to gain a stronger foothold in the video game market. In 1979, Namco published its first major hit Galaxian, one of the first video games to incorporate RGB color graphics, score bonuses, and a tilemap hardware model. Galaxian is considered historically important for these innovations and mechanics built off of those in Space Invaders. It was released outside Japan by Midway Games, the video game division of Bally, where it became one of its best-selling titles and formed a relationship between it and Namco.

The space shooter genre was ubiquitous by the end of the decade, with games such as Galaxian and Space Invaders being commonplace in Japanese amusement centers. As video games often featured the killing of enemies and shooting of targets, the industry possessed a predominately male playerbase. Toru Iwatani began work on a maze video game that was targeted primarily towards women, with simplistic gameplay and recognizable characters. Alongside a team of nine others, he created a game named Puck Man, where players controlled a character that had to eat dots in an enclosed maze while avoiding four ghosts that pursued them. Iwatani based its gameplay on women eating sweets and desserts, and designed its characters with soft colors and simplistic facial features. Puck Man was test-marketed in Japan on May 22, 1980 and released in July. It was only a modest success; players were more accustom to the shooting gameplay of Galaxian as opposed to Puck Man's visually-distinctive characters and gameplay style. In North America, it was released as Pac-Man in December 1980. Selling over 400,000 arcade units total, Pac-Man is the best-selling arcade game of all time. Its simplicity and design has made it a fixture in popular culture and spawned a multi-million-selling franchise.

Namco regularly released several successful games throughout the early 1980's. It released Galaga, the follow-up to Galaxian, in 1981 to critical acclaim. With its fast-paced action and power-ups, Galaga usurped its predecessor in popularity. 1982 saw the release of Pole Position, a racing game that is the first to use a real racetrack (the Fuji Speedway) and laid the foundations for the genre itself, and Dig Dug, a maze chaser that allowed players to create their own mazes. Namco's biggest post-Pac-Man success was the vertical-scrolling shooter Xevious in 1983, designed by new-hire Masanobu Endo. Xevious's early usage of pre-rendered visuals, boss fights, and a cohesive world made it an astounding success in Japan, recording record-breaking sales figures that hadn't been seen since Space Invaders. The game's success lead to merchandise, tournament play, and the first video game soundtrack album. The same year, Namco released Mappy, an early side-scrolling platformer, and the Pole Position sequel Pole Position II. Endo went on to design The Tower of Druaga a year later, one of the first hugely-successful action role-playing games. Druaga popularized the idea of note sharing and video game guidebooks, influencing games such as Nintendo's The Legend of Zelda. 1984 also saw the release of Pac-Land, a Pac-Man-themed platform game that paved the way for similar games such as Super Mario Bros., and Gaplus, a moderately-successful update to Galaga. The success of Namco's arcade games prompted it to launch its own print publication, Namco Community Magazine NG, to allow its fans to connect with developers.

Success with home consoles (1984-1989)
Following a motherboard revision and product recall in 1983, the Family Computer (Famicom) soared in popularity and became the country's dominate game console. It had sold over 1.2 million units, outdoing its competitor, the SG-1000. The Famicom's success generated high demand from consumers, who often requested for new games. Only sixteen titles were available by 1984, all of which were first-party. Nintendo was also unable to keep up with production of new games and systems. Hoping to curb the demand, Nintendo announced that it would initiate a licensee program that allowed third-party companies to produce games for the Famicom for a cut of the profit. This would allow for expansion of the console's game library and the establishment of relationships between other developers. Namco and Hudson Soft were the first to apply for the program. Namco had shown interest in releasing Famicom games before but Nintendo was not accepting support from other companies, and neither was Sega with the SG-1000. While it partnered with Takara and Casio to release its games for their home computers, they were commercial failures and hurt the company's finances. Nakamura secured a deal with Nintendo president Hiroshi Yamauchi which gave Namco several preferential terms, such as the ability to produce its own cartridges and release as many games as it wanted.

Namco established a subsidiary named Namcot in 1984 which was to act as its console game division. The "T" stands for "tomorrow", signifying Namco's efforts in keeping up with a changing market. In September 1984, Namcot released its first four titles: Galaxian, Pac-Man, Xevious, and Mappy. Xevious sold over 1.5 million copies and became the Famicom's first "killer app". Namco's arcade game ports were considered high-quality and helped increase sales of the console. Namcot also began releasing games for the MSX, a popular Japanese computer. Namcot was financially-successful and became an important pillar within the company. When Namco moved its headquarters to Ōta, Tokyo in 1985, it used the profits generated from the Famicom conversion of Xevious to fund its construction (the building was nicknamed "Xevious" as a result). Namcot also began development of original software, such as the space combat simulator Star Luster. The Talking Aid, a speech impairment device, was part of the company's attempts in venturing into other markets.

When the North American video game crash concluded in 1985 with the release of the Nintendo Entertainment System (NES), Atari had effectively collapsed. After enduring numerous financial difficulties and losing its control in the industry, parent Warner Communications split the company into two entities. The first was Atari Corporation, which dealt with personal computers and video game consoles. The second was Atari Games, which produced arcade games and computer software. Commodore International founder Jack Tramiel acquired Atari Corporation while Warner struggled to find a buyer for Atari Games, as it continued to lose money and suffer additional layoffs. Against the advice of its accountants at Price Waterhouse, in February 1985 Namco America purchased a 60% stake in Atari Games. Nakamura was put in charge of the company. The acquisition gave Namco the exclusive rights to distribute Atari games in Japan, such as Gauntlet.

Nakamura began losing interest and patience in Atari Games not long after the acquisition. As he started viewing Atari as a competitor to Namco, he was hesitant to pour additional funds and resources into the company. Nakamura also disliked having to share ownership with Warner Communiations, fearing it could lead to him losing control of Atari Games and Namco going under. Nakajima grew frustrated with Nakamura's attempts at marketing Atari video games in Japan, and had constant disagreements with him over which direction to take the company. Viewing its acquisition as being largely unsuccessful, in 1987 Namco America sold the majority of its shares to Warner, while still retaining its right to release Atari games in Japan. The remaining portion was sold to Nakajima and a group of others;, Nakajima resigned from Namco America and became president of Atari Games. He established Tengen, a publisher that protested against Nintendo's licensing restrictions for the Nintendo Entertainment System by producing several unlicensed games. As Namco lacked a proper home console division in the United States, it gave Tengen permission to release some of its Famicom games like Pac-Man overseas.

In Japan, Namco continued to see expeditious growth. It published Pro Baseball: Family Stadium for the Famicom, which was critically-acclaimed and sold over 2.5 million copies. Its sequel, Pro Baseball: Family Stadium '87, sold an additional two million. In 1986, Namco entered the restaurant industry by acquiring the Italian Tomato cafe chain. It also released Sweet Land, a popular candy-themed prize machine. One of Namco's biggest hits from the era was the racing game Final Lap from 1987. It is credited as the first arcade game to allow multiple machines to be connected—or "linked"—together to allow for additional players. Final Lap was one of the most-profitable coin-operated games of the era in Japan, remaining towards the top of sales charts for the rest of the decade. Namco's continued success in arcades, with releases such as Pac-Mania, Galaga '88, Rolling Thunder, and Genpei Tōma Den, provided its arcade division with the revenue and resources needed to fund its research and development (R&D) divisions.

Among the first creations of Namco's R&D teams was the helicopter shooter Metal Hawk in 1988, fitted in a motion-based arcade cabinet. Its high development costs prevented it from being massed-produced. Assault, a futuristic tank game, featured massively-scrolling backdrops that were viewed as technologically-impressive for the time. While most of its efforts were commercially-unsuccessful, Namco grew interested in this new type of arcade game and began designing those at a larger scale. In 1988, Namco became involved in film production when it distributed the film Mirai Ninja in theaters; it received praise for its technologically-impressive special effects. A tie-in video game coincided with its release. Namco also developed the beat 'em up Splatterhouse, one of the earliest "violent" video games for its fixture on gore and dismemberment.

Namco unveiled its System 21 arcade system, one of the earliest arcade boards to utilize true 3D polygonal graphics, in early 1989. Nicknamed "Polygonizer", the company demonstrated its power through the Formula One racer Winning Run. With an arcade cabinet that shook and swayed the player as they drove, the game was seen as "a breakthrough product in term of programming technique" and garnered significant attention from the press. Winning Run was commercially-successful, convincing Namco to continue researching 3D video game hardware. Video arcades under the Namco banner continued opening up in Japan and overseas, such as the family-friendly Play City Carrot and mature-oriented Plabo chains.

Expansion into other markets (1989-1994)
With the "Famicom boom" becoming prevalent in Japan during the late 1980s, Namco saw continued success in the home console market. By 1989, 40% of its annual revenue came from the sale of Famicom and NES games. In the same time frame, the company's licensing deal with Nintendo had expired; when Namco attempted to renew its license, Nintendo president Hiroshi Yamauchi chose to revoke many of the preferential terms it once had, insisting that Namco follow the same terms as all other developers. The announcement enraged Nakamura, who publicly criticized Nintendo for "monopolizing" the industry. He exclaimed that Namco would cease production of games for Nintendo hardware altogether and move its operations to competing systems such as NEC's PC Engine and Sega's Mega Drive. Executives resisted the idea, as Namco halting support for Nintendo would severely hurt the company financially. Against Nakamura's protests, Namco signed Nintendo's new licensee contract. While it continued to produce games for Nintendo hardware, most of Namco's quality releases came from the PC Engine and Mega Drive. The company did not show interest in producing games for the Famicom Disk System.

In 1989, it was reported that Namco was underway with developing its own video game console to compete against companies such as Nintendo and NEC. Electronic Gaming Monthly claimed that the system, which was nearing completion, featured hardware comparable to the then-upcoming Nintendo Super Famicom. According to company engineer Yutaka Isokawa, it was produced to compete against the Mega Drive, a 16-bit console by Namco's arcade rival Sega. With the console industry being crowded by other competing systems, publications were unsure how well it would perform in the market. While the console was never released, it allowed Namco to familiarize itself with designing home video game hardware.

Tadashi Manabe replaced Nakamura as president of Namco on May 2, 1990. Manabe, who had been the company's representative director since 1981, was tasked with strengthening relationships and teamwork ethics of management. In addition, he lead Namco to reform and expand its international operations. Namco America underwent a reorganization and acquired Atari Operations in July, allowing it to operate video arcades across the United States and survey what game genres were popular with audiences. Namco Hometek was established as the home console game division of Namco America; the latter's relations with Atari Games and Tengen made the company ineligible to become a Nintendo third-party licensee, instead relying on publishers such as Bandai to release its games in North America. In Japan, Namco's R&D division finished development of two theme park attractions, which were demonstrated at the 1990 International Garden and Greenery Exposition (Expo '90): Galaxian3: Project Dragoon, a 3D rail shooter that supported 28 players, and a dark ride based on The Tower of Druaga. Part of the company's idea of "hyperentertainment" video games, Namco engineers had been drafting ideas for a possible theme park, based on Namco's experience with designing and operating indoor play areas and entertainment centers. Both attractions were commercially-successful and among the most popular of Expo 90's exhibitions. In arcades, Namco released Driver's Eyes, a 3D racing game that utilized a panoramic display; Starblade, a rail shooter praised for its cinematic presentation; Solvalou, a 3D first-person spin-off of Xevious; and Golly! Ghost!, a lightgun shooter that utilized an electro-mechanical diorama backdrop.

In February 1992, Namco opened its own theme park, Wonder Eggs, in the Futakotamagawa Time Spark area in Setagaya, Tokyo. Described as an "urban amusement center", Wonder Eggs was the first amusement park operated by a video game company. In addition to Galaxian3 and The Tower of Druaga, the park featured carnival games, carousals, motion simulators, and Fighter Camp, the first flight simulator available to the public. The park saw regularly high attendance numbers; 500,000 visitors attended in its first few months of operation and over one million by the end of the year. Namco's foray in the amusement park business was in response to its high net income and annual revenue from the end of its fiscal year. The park contributed to Namco's 34% increase in revenue by December 1992. The company also debut its "Adventure Theater System", a motion simulator co-produced by Nippon Animation, in select Namco arcades across the country.

Manabe resigned as Namco president on May 1, 1992, as his anxiety disorder prevented him from properly running the company. Handing the role back to Nakamura, Manabe instead served as Namco's vice chairman until his death in 1994. Aladdin's Castle, a video arcade chain operated by Bally Entertainment, was purchased in February 1993 by Namco Operations as part of the company's continuing expansion into the North American arcade market. Shanghai Namco, an operator of amusement centers, was opened the same year in mainland China. In Japan, Namco unveiled its 3D-based System 22 arcade board in conjunction with Ridge Racer, a racing game that incorporated drifting. With its fully-textured polygonal visuals and technological achievements, Ridge Racer is seen as a milestone in 3D video games and became one of Namco's most-successful arcade games. In 1994 it released the fighting game Tekken, designed by Virtua Fighter director Seiichi Ishii. Tekken's wide array of playable characters and consistent framerate made it outperform Sega's game in popularity and result in the creation of a long-running media franchise. Other popular titles included Point Blank, a comical lightgun shooting gallery; Alpine Racer, an alpine skiing game;  Ace Driver, a 3D Formula One racer;  and NebulasRay, a vertical shooter. In December 1993, Namco announced its intent to acquire Nikkatsu, Japan's oldest film studio that at the time was undergoing bankruptcy procedures; The acquisition allowed Nikkatsu to utilize Namco's computer graphics hardware for its films and Namco to gain a niche in the film industry. In July 1994, Namco opened a second theme park in Japan named Egg Empire, adjacent to its Wonder Eggs park. Where as Wonder Eggs had a largely fantasy-like setting and atmosphere, Egg Empire focused largely on technology and action with thrill rides and video arcades.

Relationship with Sony (1994-1998)


In early 1994, Sony announced that it was developing its own video game console, the 32-bit PlayStation. The console began as a collaboration between Nintendo and Sony to create a CD-based peripheral for the Super Nintendo Entertainment System in 1992. Fearing that Sony would assume control of the entire project, Nintendo silently scrapped the add-on. Sony chose to refocus its efforts in designing the PlayStation in-house as its own console. As it lacked the resources to produce its own games, Sony called for the support of third-party companies to develop PlayStation software. Namco, frustrated with Nintendo and Sega's licensing conditions for its consoles, agreed to support the PlayStation and became its first third-party developer. The company began work on a conversion of Ridge Racer, its most-popular arcade game at the time. The PlayStation launched in Japan on December 3, 1994 with Ridge Racer as a launch title. Sony moved 100,000 units on launch day alone; publications attributed Ridge Racer to the PlayStation's early success, giving it an edge over its competitor the Sega Saturn. For a time, Ridge Racer was the best-selling PlayStation game in Japan.

Namcot was consolidated into Namco in 1995; its final game was a PlayStation conversion of Tekken, published in March in Japan and in November worldwide. As the arcade version ran on Namco's System 11 board—which was based on raw PlayStation hardware —the home console version was able to be a near-perfect arcade conversion. Tekken is the first PlayStation game to sell one million copies; Namco received a Guinness World Record for this achievement. Sony recognized Namco's quality arcade conversions for helping the PlayStation gain ground in the market, leading to a strong corporate relationship between the two companies. Early promotional material for the PlayStation adopted the tagline "PlayStation: Powered by Namco", while several of Namco's arcade boards were designed after PlayStation hardware. Its experience with designing its failed 16-bit console allowed the company to produce several peripherals for the PlayStation, such as the GunCon, the NeGcon, and the Namco Arcade Stick. Namco focused primarily on the PlayStation for the remainder of the decade; while it had signed contracts to produce games for systems such as the Sega Saturn and 3DO Interactive Multiplayer, these were later dropped in favor of Sony. The company continued producing games for the Game Boy and Super Famicom, such as Tales of Phantasia, however the majority of its releases were released for the PlayStation. In December, Namco released Time Crisis in arcades, a lightgun shooter notable for allowing players to duck behind objects to avoid enemy fire. Namco Cybertainment acquired the Edison Brothers Stores chain in April 1996, and in Japan Namco opened its Wonder Tower amusement center in Kyoto.

In September 1997, N64 Magazine reported that Namco had decided to rethink its largely hostile relations with Nintendo and begin production of games for the Nintendo 64, a console struggling to receive support from third-party developers. It signed a contract that allowed Namco to publish two titles for the system: the baseball game Famista 64, and a role-playing game tentatively named Namco RPG for the 64DD peripheral. Famista 64 received mediocre reviews from the press, while Namco RPG was never released due to the failure of the 64DD. While its contractual deal proved unsuccessful, Namco stated that it was committed to supporting Nintendo hardware. In October 1998, which one publication described as being "the most stunning alliance this industry has seen in a long while", Namco announced a partnership deal with long-time rival Sega to bring some of its titles to the newly-unveiled Dreamcast. As Namco primarily developed games for Sony hardware, and were among the biggest third-party developers for the PlayStation, the announcement surprised news outlets.

For its PlayStation-based System 12 arcade board, Namco released the weapon-based fighting game Soulcalibur in 1998. Its 1999 Dreamcast port, which features multiple graphical enhancements and new gamemodes, is an early instance of a console game being better than its arcade version. Soulcalibur sold over one million units, won multiple awards, and contributed to the early success of the Dreamcast. The Tekken series, which had seen the release of Tekken 2 and Tekken 3, continued Namco's success with the PlayStation and its related arcade systems. Mr. Driller, a spiritual successor to Dig Dug, was particularly popular in Japan.

Financial decline and restructuring (1998-2005)
As a result of the Japanese Recession affecting the demand for video games, specifically arcade games, Namco experienced decline in its sales by 1998. While it saw success with the release of titles such as Tekken 3, the company's arcade game division slumped by 21% in March as sales sharply declined. Namco Cybertainment underwent Chapter 11 bankruptcy protection in August, forced to close several hundreds of its under-performing arcades across the United States. According to its 1998 annual report, Namco reported a 26.3% drop in its net sales, attributed to low consumer spending. In October 1999, the company acquired Monolith Soft, a developer known for its action role-playing games such as the Xenosaga series. Namco entered the then-new mobile phone market by releasing ports of its games, including Galaxian, Pac-Man, and X-Day, for i-Mode cellular phones the same month.

In February 2000, Namco introduced the Cyber Lead II arcade cabinet, which featured PlayStation and Dreamcast VMU memory card slots that allowed players to transfer game data between systems. The Cyber Lead II also supported Sega's NAOMI arcade system.

During a meeting with industry analysts on October 25, 2000, Namco supposedly hinted at a major financial loss. On October 29, Nihon Keizai Shinbun reported that it experienced a group net loss of ¥2.1 billion; as the company was known for its consistently high sales earnings, the announcement spread fear among analysts. Claiming that the struggling Japanese economy and dwindling coin-operated game market were to blame, Namco announced it would begin scaling back its financial forcasts to accomodate for its losses. As the Japanese game market began to decline during the mid to late-1990s, its effect started seeping into the global arcade game industry as well. The Wonder Eggs park, which by that point had seen an attendance number of six million visitors, was closed on December 31, 2000. Following Sega and Taito's lead, Namco began closing many of its under-performing video arcades. While its arcade cabinets and games were still proving profitable, sales were lower than expected. In February, it reported further losses from a securities appraisal loss, restructuring Nikkatsu, and writing off a pension fund shortfall, which costed the company over ¥6.1 billion. By March 31, a total of ¥6.5 billion had been lost, which the company blamed on diminishing markets and high research and development costs.

In response to its falling sales, Namco laid off 250 employees—which it referred to as "early retirement" —and began finding ways to restructure itself and increase income. In addition to beginning development of games for Nintendo's GameCube and Microsoft's Xbox, company management was shifted while its arcade division was heavily restructured. Namco saw strong success with the release of Taiko no Tatsujin, a popular drum-based rhythm game. The company entered the pachinko industry with machines based on its intellectual properties including Pac-Man, Xevious, and Gator Panic. In 2002, Nakamura resigned from his position as Namco president, instead taking on a ceremonial role in its management.

Particularly with its consumer game division, Namco began seeing improvement within its sales. The PlayStation 2 conversion of Taiko no Tatsujin, bundled with a drum controller named the Tatacon, was among its most-successful products. It also saw profits from Xenosaga Episode I, developed by subsidiary Monolith Soft, and Ace Combat 04: Shattered Skies, the fourth installment in its Ace Combat series. In addition to co-developing Triforce, an arcade system board designed after the internals of the GameCube, Namco established a business alliance with Nintendo that allowed the two companies to collaborate with each other on GameCube games. Projects under this alliance include Star Fox Assault, Pac-Man Vs., Mr. Driller Drill Land, Mario Superstar Baseball, and the GameCube – Game Boy Advance link cable peripheral. The company's overseas operations had seen considerably less financial success; Namco America and Namco Hometek both underwent a corporate restructuring in September as a result of decreasing profits. Namco's disappointment in the quality of Hometek's releases led to the latter being stripped of its research and development operations.

Around the same time, Namco set up a "game school" called the Namco Digital Hollywood Game Laboratory, following in the footsteps of Konami with their Computer Entertainment School in 1997; headed by Nakamura, the school allowed students to experiment with possible game ideas to hopefully become a fully-fledged game. The game to come out of the school was Katamari Damacy (2004), a sleeper hit for Namco that won several awards and placed on multiple "greatest games of all time" lists by publications. Namco purchased a 60% stake in Japanese developer Wolf Team in 2003, a then-subsidiary of Telenet Japan — best known for creating the Tales series, Wolf Team was later renamed to Namco Tales Studio the same year and became the primary developer for the franchise.

In April 2003, Namco offered to merge its operations with Sega, who were struggling financially following the commercial failure of the Dreamcast. The merge would have established a new company named Sega Namco; it would have become the largest Japanese video game developer, surpassing Nintendo, Konami, and Square Enix in revenue. Namco claimed that a merge was necessary in order for the company to remain competitive in the industry, and believed that Sega's development teams and catalog of recognizable properties would prove beneficial for both parties. When Namco applied its offer, Sega already announced its intent to merge with pachinko manufacturer Sammy Corporation. After a failed attempt to overturn the merge, Namco withdrew its offer the same day Sega stated it turned down the offer to merge with Sammy. In August, Namco opened an office in Korea, where it hoped to bring significant expansion to the Korean game market.

Shigeichi Ishimura, one of Namco's board members, became company president on April 1, 2005; Nakamura retained his role as chairman. In celebration of its 50th anniversary, Namco released NamCollection, a compilation of some of its most-popular PlayStation game, for the PlayStation 2 in Japan. Its Namja Town theme park opened Riraku no Mori, a companion park that held massage parlors for visitors; Namco believed it would help make relaxation a source of entertainment. In the arcade industry, the company released The Idolmaster; its unique cross between rhythm games and life simulations made it successful in Japan, resulting in the creation of a multi-million-grossing franchise.

Merge with Bandai (2005-2006)
During a series of board meetings held on May 2, 2005, Namco announced its intent to merge with Bandai to create Namco Bandai Holdings, a new entertainment conglomerate. A Japanese toy manufacturer and video game publisher, Bandai had attempted to merge with Sega in 1997; strong opposition from Bandai executives and the unprecedented worldwide success of the Tamagotchi lead to the proposal being called off. In a joint statement, both companies declared increasing competition in the industry and their difficulties in securing sustaining profits as its motives for merging their operations. The merge was a ¥7 billion stock swap where Bandai acquired Namco for $1.7 billion, swapping each of its shares for 1.5 shares of Namco Bandai Holdings. Bandai retained 57% ownership of the holding company while Namco held the remaining 43%. Takeo Takasu, the president of Bandai, was appointed vice president and representative director of Namco Bandai Holdings, while Namco's Kyushiro Takagi became chairman and director. Namco Bandai Holdings was established on September 25, creating Japan's third-largest video game company after Nintendo and Sega Sammy Holdings.

The two companies became subsidiaries of and operated independently under the umbrella holding company. Namco released Ridge Racer 6, a launch title for the newly-unveiled Xbox 360, in October; it also collaborated with Nintendo to produce Mario Kart Arcade GP, an arcade adaptation of the Mario Kart series developed for the Triforce arcade system. The company entered the massively multiplayer online game market with Tales of Eternia Online, an action role-playing game based on its Tales franchise. It celebrated the 25th anniversary of its Pac-Man series with the release of Pac-Pix, a puzzle action game for the Nintendo DS.

On January 4, 2006, Namco Hometek and Bandai Games—Bandai America's consumer video game division—were merged to create Namco Bandai Games America. The video game, mobile phone, and business program operations of Namco and Bandai were merged and transferred to a new subsidiary, Namco Bandai Games, on March 31, 2006. Namco Bandai Holdings spun-off Namco's amusement park and video arcade operations into a subsidiary the same day, which retained the original Namco name. This second Namco company assumed control of its predecessor's theme parks, such as Namja Town, and also served as a distributor for arcade games designed by Namco Bandai Games. Namco Europe was folded into Namco Bandai Networks Europe on January 1, 2007, serving as the website and mobile game division of Namco Bandai Holdings. Namco Bandai Games used the Namco brand on several of its video games until February 2014.

Namco Cybertainment, which had become a subsidiary of Namco Bandai Games America, was renamed to Namco Entertainment in January 2012 after enduring numerous financial difficulties. It was renamed again in 2015 to Namco USA, who partners with chains such as Walmart and AMC Theatres to host its video arcades in their locations. As of 2018, Namco USA, Namco Funscape, and Namco Enterprises Asia remain the last companies within the holding company to continue using the original Namco label. During a corporate restructuring on April 1, 2018, the second Namco company was renamed Bandai Namco Amusement to unify the Bandai Namco brand with other similarly-titled subsidiaries. Amusement absorbed the arcade cabinet production operations of Namco Bandai Games, which had renamed itself to Bandai Namco Entertainment in 2015. Bandai Namco Entertainment and its subsidiaries continue using the Namco brand for a variety of products, such as mobile phone applications, streaming programs, and its line of eSports-focused arcade centers in Japan.