Sega's Dream Machine (int'l edition)
Business Week Online
Can Dreamcast put it back on top?
Shoichiro Irimajiri, the tanned, exuberant 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. The news from Sega of America Inc. couldn't be
better, he said. As of late August, U.S. consumers had ordered 300,000 units of the Sega Dreamcast, a lightning-fast
game machine with dazzling graphics. That's three times as many machines as Sony Corp. sold when it launched its
now-ubiquitous PlayStation in 1995. And Dreamcast won't arrive 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,
Kyo-to-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.
AWESOME. 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. Sony and Nintendo are scrambling to hit the U.S. with their
own high-powered machines over the next 18 months.
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. Its graphic processing power is four times that of the
Pentium II. And it's the first game machine with a built-in modem to log onto Sega's imminent online game service. Sega
has lined up leading game-software developers and now has dozens of titles ready. 'Sega has a great machine,' says
Shohei Tatemi, a senior executive at Capcom Co., a leading Japanese game-software house. 'If it can sell 1.5 million
units in the U.S. by next spring, it'll be on its way to success.'
To boost momentum, 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 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.
And 1999 is expected to be its third money-loser in a row. Over the next year, $800 million in payments are due on debts
Sega piled up during the game wars of the early-1990s. Not helping matters is the hasty departure over strategic
differences in mid-August of Bernard Stolar, who ran Sega of America and built up its retail network.
LIMITED WINDOW. And Dreamcast's high-tech edge won't last long. 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. the following Christmas.
In a recent software demonstration, Sony showed off 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 as
we've seen with computers, the PlayStation 2 will be better, and Nintendo's Dolphin even better.'
...
By Irene M. Kunii in Tokyo, with Janet Rae-Dupree in Silicon Valley
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