Sonic X-Treme is the saddest and most interesting "lost game" story in the saga of the failed
Sega Saturn.
Sega had planned all along to have a brand-new
Sonic the Hedgehog game for the
Saturn that would showcase the console's power, just as the original
Sonic the Hedgehog game had done with the
Sega Genesis years earlier.
Sonic X-Treme (originally planned for the
32X) was to have been that game. Its loss is due in part to its develoment team and in part to
Sega of Japan (who also killed a
third installment of the then-popular
Eternal Champions series).
As with the later Sonic efforts, Sega Technical Institute (STI) in America was charged with the creating the latest version of Sega's famous character. This time they had the difficult job of creating the first-ever fully 3D next-generation Sonic the Hedgehog game. They had lots of ideas and wasted no time in throwing together levels and demos in order to demonstrate their ideas and goals. Sonic X-Treme, as was shown to a number of video game industry reporters and magazines at the time, looked spectacular. It contained full 3D environments in which Sonic could run and jump in all directions and just generally wowed all who saw it. The game was on track for release in 1997.
Now here comes Sega of Japan. STI was having some major problems coding Sonic X-Treme. Even the early demos they created took up far too much of the Saturn's resources to ever hope to make a playable game out of them. Sure, Sonic was running around in a nice level, but there was nothing for him to do there. All of the Saturn's memory was maxed out with the empty level. There were no free resources to add objects, enemies, and the other things you expect to see in a Sonic the Hedgehog game. The situation was so bad that Sega of America was pulling programming resources from other departments (such as Sega Sports) in an effort to overcome the problems. They wanted Yuji Naka's help (who created Sonic the Hedgehog in the first place along with his Sonic Team), but he was busy working on NiGHTS with Sonic Team and was unavailable. Executives over at Sega of Japan were not pleased by the reports they were getting about STI's production problems, so a delegation was sent over to review their work first-hand. By this time two bosses had been implemented in the demo level: Nack the Weasel and Metal Sonic. According to reports, the delegation came back appalled and reported the dismal findings to their superiors, who then relayed them to the corporate staff at Sega.
A short time later, sometime in early 1997, STI was coldly informed that Sonic X-Treme had been officially canceled. STI never recovered from this downfall and broke up soon after. Parts of Sonic X-Treme would later wind up in Sonic R, Sonic Jam, Sonic 3D Blast, and Sonic Adventure for the Sega Dreamcast a few years later, but Sonic X-treme itself was dead forever.
As one final nail in the coffin, development continued in little bits and several levels became playable. The project seemed to be best suited at this point for the PC; perhaps Sonic X-treme could be Sega's first original Sonic PC game. When what was left of the STI team took the demo to the Sega PC division they were shot down once again. It seems that Sega PC was only interested in ports of other Sonic games, such as The Sonic and Knuckles Collection and Sonic CD. The remains of Sonic X-treme were put to rest at last, buried as a footnote in video game lore.
References:
http://www.atani-software.net/segabase/