I don’t remember the story but I do remember reading something about how Sega US was pretty hype to continue with the Dreamcast and got a bit blindsided by the decision to stop.
Fun aside: I only learned about pirating on Dreamcast thanks to an article in Tips&Tricks talking about it being a problem. As a kid I did not grok that maybe illegally downloading games is no bueno
I was a Sega fan, but I had no interest in the Dreamcast because I had been burned by the Saturn. When they did eventually decide to discontinue the Dreamcast, they had a fire sale to get rid of them. I, and a bunch of my friends, did end up getting Dreamcasts at that point since they were dirt cheap and there was a fantastic library of games that were easy to pirate. But had piracy been the key issue from the start, Sega wouldn't have been sitting on a glut of unsold consoles to begin with.
But then Sega had to go full fucking Sega and the Dreamcast had a fishing controller, a microphone, keyboard, mouse, light gun, and fucking maracas.
And Dreamcast game pirating, while it had a very visible scene, was not something a common user would do.
In the case of Dreamcast pirates, while I'm sure they wouldn't pay for every game or even most games, many of these folks would very likely purchase some games, had pirated copies not been ridiculously easily available for free.
In the specific case of the person I knew, he had purchased games for plenty of other consoles.
DC piracy flourished because of easier to find ISOs and a faster internet than the PS1 gen of consoles. PS2 had piracy issues at the same time of the DC, but PS2 piracy was much tougher to do due to the larger game disc sizes transferring over the wire and subsequent uncompressed video and code developers didn’t have to optimize for and pirates had to compress or cut to compensate.
That was in Brazil btw.
I see this narrative parroted a lot but more than likely Dreamcast (and it's piracy) had very little to do with sega's exit from the hardware market.
Sega, the company, was already hanging on by the thread by a time the Dreamcast launched since they'd already been in massive debt at that point from previously launching and abandoning hardware projects in quick succession such as the Sega CD that 32x and the Saturn. Also, If I remember correctly this was during a recession in Japan. Around this time Sega was already looking at several companies to sell to.