Sega shifts focus away from hardware
By Yuri Kageyama
Associated Press
TOKYO — Sega Corp. recently treated reporters to a 1998 in-house film never shown publicly — a "yakuza" movie depicting a turf war in which gang bosses are played by Sega executives. The warring gangs are named Sega and PureSute — the abbreviated Japanese name for PlayStation, the hit video game machine from Sony Corp.
Associated Press
But earlier this year, Sega was forced to abandon its Dreamcast console, whose sales never caught up with rival PlayStation 2. Because the inventory was cleared with slashed prices, Dreamcast sales only recently reached 10 million. PlayStation 2, which went on sale last year, has already doubled that number.
This month's Tokyo Game Show included an elaborate display of Sega Corp.'s latest products. After abandoning its Dreamcast console this year, Sega has focused on producing video games for other companies' machines.
The failure of Dreamcast has made Sega rethink its role in the video game market. It's no longer focusing on hardware, but on making games for other machines — not only PlayStation 2 but also Nintendo Co.'s new GameCube and portable Game Boy Advance and Microsoft Corp.'s soon-to-be-released Xbox.
So far, the shift from machines to games seems to be helping Sega's finances. The company said Wednesday it expects a first-half pretax profit of $36.7 million, a turnaround from its original forecast of a $19.6 million loss. Revenue should reach $790.4 million, up from an original forecast of $668.1 million, Sega said.
Sega and other Japanese game designers will be critical factors in the three-way video game machine war that is sure to intensify over Christmas. While there were concerns after the Sept. 11 terrorist attacks in the United States that demand for video games would slacken, now it appears that any negative impact would be minimal because families are expected to spend more time and money on activities at home.
GameCube goes on sale for $199.95 in the United States on Nov. 18, three days after Xbox. Xbox, the only machine among the three with built-in hard disk and broadband access, costs $299, the same as PlayStation 2.
"The balance of power will be decided by the availability of software," said Jay Defibaugh, analyst with Credit Suisse First Boston in Tokyo.
That's why wooing game software-makers is extremely critical for the machine makers. Even more critical is clinching exclusive games — and Sega isn't about to stake its future on any one machine.
It is making 13 games for Xbox, including versions of the Internet-linking "Phantasy Star Online" and"Shenmue," whose Dreamcast version has sold more than a million copies. To market its Sonic games, Sega has chosen Nintendo, a machine believed to be a good draw for younger children. And it's offering some of its strongest titles, such as "Virtua Fighter," to PlayStation 2.
Because of its lead in the market, PlayStation 2 has a huge edge in its game lineup, with nearly 300 games. Sony's machine is likely to have the easiest time acquiring games because designers generally want to make titles for the console that has sold the most.
Nintendo's GameCube has just three games out in Japan so far — two Nintendo originals and "Super Monkey Ball" by Sega. But Nintendo, which has a powerful lineup of in-house games such as "Mario" and "Zelda," says it plans to sell 1.1 million consoles in the United States.
Microsoft, meanwhile, expects to have about 20 Xbox games when the machine goes on sale in the United States. But that's just the start; Hirohisa Ohura, managing director of Microsoft's Japan unit, said 150 games are being manufactured for Xbox.
Sega has also decided to use the Xbox motherboard, a main computer part, for its arcade games — an area that Sega dominates. Ohura said that Microsoft and Sega are also working together to develop online games for personal computers in North America and that more online tie-ups are in the works.
