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Sega's Dream Machine


International Business: Video Games

Sega's Dream Machine

Dreamcast could put Sega back on top in the game world

Shoichiro Irimajiri, president of video-game maker Sega Enterprises Ltd., looked ready to whoop for joy as he strutted out of a recent meeting at Tokyo headquarters. U.S. consumers have ordered 300,000 units of the Sega Dreamcast, a lightning-fast game machine with dazzling graphics. And the Dreamcast won't hit the market until Sept. 9. "It's a record for game console launches in the U.S.," says Irimajiri, 59. "We're very excited."

Is Sega the once-and-future titan of the game universe? In this fickle business, anything is possible. In 1990, Kyoto-based Nintendo Co. was the undisputed leader, with nearly 90% of the $13 billion global market for video-game software and hardware. Then came Sega, which by 1993 owned almost half the market with its popular Genesis. With PlayStation, Sony seized the title.

Sega, now a distant No. 3, hopes Dreamcast--the first player powered by a 128-bit microprocessor--will win it back the crown. Or it could be Sega's last hurrah. After a $389 million loss in 1998 and big debt payments ahead, analysts say Sega cannot afford for Dreamcast sales to flag.AWESOME. Whatever the outcome, Sega gets credit for one awesome machine. In European tests, Dreamcast was four times more powerful than PlayStation and two times more than Nintendo 64. And it's the first game machine with a built-in modem to log onto Sega's imminent online game service. To sell this gaming marvel, Sega is mounting a $200 million global marketing blitz. In the U.S., its tactics run from trendy to downright wacky. It's sponsoring the MTV Video Music Awards and hosting hundreds of events across the country. Two huge metallic "mother ship" trucks jammed with Dreamcast consoles will visit 44 U.S. cities in the next three months. In Hollywood, gamers have splashed about in vats of mashed potatoes, looking for the letters making up "Sega Dreamcast."

The goofy antics mask Sega's desperation. Sega's sales have dropped from $3.9 billion in 1996 to $2.4 billion last year. Meanwhile, Sony is determined to launch PlayStation 2, a 128-bit machine that will play DVD-formatted games, by early next year in Japan, and in the U.S. by the following Christmas. In a recent demonstration, Sony showed off flowing graphics of supercomputer quality. "Dreamcast is better than anything on the market now," says games-industry analyst Lisa Spicer of WestLB Securities Pacific in Tokyo. "But the PlayStation 2 will be better, and Nintendo's Dolphin even better."

That's the big reason Dreamcast's early reception is crucial. In Japan, Sega has already recruited all the leading developers, enabling it to bring 70 titles to the market so far. It also has lined up such U.S. titles as the popular arcade fighting game Soul Calibur--advertised as "Hot Chicks. Massive Weapons." On Dreamcast, it will run at 60 frames a second--twice as fast as in arcades. But Sega eventually needs a much wider selection. Sony has 661 PlayStation titles in the U.S. alone.

Undaunted, Irimajiri is using a little guerrilla marketing to taunt his larger rivals. When Sony rented the Wente Vineyards golf course in Livermore (Calif.) to stage a tournament for game developers recently, Sonic the Hedgehog, Sega's video-game mascot, crashed the party in a golf cart and unloaded hundreds of golf balls with Dreamcast's logo. An airplane dragging a Sega banner buzzed overhead. And in mid-August, Sega commissioned a huge sidewalk drawing of the Dreamcast logo in front of Sony's Metreon entertainment complex in San Francisco. Gentlemanly, no. But in the game business, you play to win.By Irene M. Kunii in Tokyo, with Janet Rae-Dupree in Silicon ValleyReturn to top

TABLE

Jockeying for Supremacy

Sony

Has slashed retail price on top-selling PlayStation to $99 and beefing up U.S. marketing. Sony hopes the more powerful Play Station 2, with DVD format, will be out next year.Sega

Its new Dreamcast machine, much faster than a Pentium II-based PC and 15 times more powerful than the PlayStation, will have 16 different games. Advance orders are breaking records.Nintendo

The giant of the early 1990s aims to regain lead with its DVD-based Dolphin system, but it won't be out until 2001. Nintendo has improved graphics and cut prices on its popular N64.

DATA: BUSINESS WEEKReturn to top


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