Thanks to "survivin" for PMing the Sega story to me...
www0.mercurycenter.com
Sega console fading fast
BY DAWN C. CHMIELEWSKI
Mercury News
Sega, the company that brought arcade-quality gaming to America's living rooms a decade ago with its revolutionary Genesis console, is fading into irrelevance.
Game developers are abandoning Sega's newest platform, the Dreamcast, and the nation's second-largest discount retailer dropped it from inventory in August -- long before the peak holiday buying season. Even Sega admits sales are lagging its own projections -- by about 1 million units. All this comes as Sega stood poised to exploit the appetite for next generation 128-bit systems that Sony left unfulfilled this fall because of shortages of the PlayStation 2 console.
``I can tell you from our software sales that the Dreamcast market is dismal,'' said one game company executive, who asked not to be identified. ``The retail community is telling me it's going to be a closeout business after the first of the year.''
Sega is at a pivotal moment in its history. Industry insiders wonder how long it will continue to support the money-siphoning Dreamcast console, which drained $357.4 million from company earnings last fiscal year. The Dreamcast is expected to cost Sega even more -- $359.2 million -- by the end of its current fiscal year in March.
The analyst and game communities are alive with speculation that Sega will ditch the Dreamcast hardware -- and 14 years of tradition, with it -- and do what it does best: develop great games, albeit for one-time rivals. Sources inside and outside the company said Sega entertained an offer from Microsoft Corp., which wanted Sega's top selling titles for its new Xbox game console, due out next fall. Sega received but rebuffed overtures from giant Electronic Arts, these sources said.
Sega Corp.'s chairman, Isao Okawa, fueled speculation that the company might leave the hardware business in remarks last year to U.S. game developers in San Francisco -- comments that company officials now say got garbled in translation.
But just two weeks ago, Okawa attempted to quash rumors that Sega would stop making its dream machine. He told analysts in Tokyo that the Dreamcast is the centerpiece of Sega's new initiative to put Sonic the Hedgehog, NFL 2K1 and other popular Dreamcast titles on every device imaginable, from TV set-top boxes and PCs to mobile phones and handheld organizers.
Okawa sees the Dreamcast chipset in Internet-connected devices everywhere, letting gamers go online to find opponents from anywhere in the world through Sega's online network. Sega already embarked on this new play-games-anywhere strategy last month, offering Dreamcast games through NTT DoCoMo Internet-connected cellular phones.
And it would be hard for Sega to quibble with Okawa-san's vision. Even though he's now 75 years old, and fighting a battle with cancer, he remains a force in shaping the game company's future. He is Sega's largest single shareholder, a billionaire benefactor who invested another $712.7 million in April through a third-party stock offering that effectively retired long-term debt due in June and September.
``This is his strategy,'' said one Tokyo-based analyst. ``As long as he is alive and as long as his pockets remain deep, it's difficult to make a pure prediction that he'll get out of the hardware business, because he looks at this as central.''
Sega of America put it another way.
``The strategy going forward is to continue to support the Dreamcast with the best content made and make it the most successful 128-bit console on the market,'' said Chris Gilbert, executive vice president of operations for Sega of America Inc. in San Francisco.
The Dreamcast got off to a running start, selling 500,000 units in September 1999 its first month on sale -- a feat not matched until Sony's introduction of the PS2, with reported sales of 560,000.
It was a strong recovery from the Saturn, the 1995 sequel to Genesis, which sold an anemic 2 million units in the United States before Sega pulled it from the market in 1998 and wrote off $450 million in losses. And Dreamcast sales remained brisk through the end of 1999.
But after a strong start -- and positive reviews in the gaming press, which praised Dreamcast as a revolutionary console that brought fresh realism and online gaming to the video games -- Dreamcast lost momentum.
Sega sold 901,653 game consoles through November of this year, even though it was the lone 128-bit system in the market. Sega estimates its total North American sales at 2.7 million since its debut -- shy of the 5 million units President Peter Moore forecast just six months ago.
Sony sold five times as many game systems this year, even though the PlayStation represents five-year-old technology.
``Their relatively poor sales performance hasn't been for lack of trying,'' said Steve Koenig, a senior analyst for market researcher PC Data Inc. in Reston, Va. ``They've certainly done a good job getting the message out. I think that maybe they're losing the grass-roots battle and word of mouth among gamers.''
Sega's Gilbert points to a slowing economy, the dipping stock market and more modest consumer spending as factors in an industry-wide slowdown, which has affected sales of all game consoles -- not merely the Dreamcast. Indeed, console sales are off 21 to 41 percent for individual game systems.
``We're not immune to that kind of impact on the industry,'' said Gilbert. ``However, sales in December -- in particular, the last two weeks -- have been exceptionally strong. Christmas is definitely coming late,'' he said.
Gilbert predicts this last minute buying binge would push sales over the 4 million mark by year's end.
To accomplish that, Sega would have to sell nearly half as many dream machines in December as it sold over the previous 11 months.
Even as Sega makes its year-end sales push, one retailer -- Kmart -- has swept the Dreamcast off its shelves. It stopped carrying the console in August -- but the retailer won't discuss the reasons.
``It's a business decision,'' said Kmart spokeswoman Nicole Dowswell. ``We do not disclose information about vendor relationships.''
Gilbert said Sega has more than recovered from that retail blow by garnering additional shelf space and promotions with top-line electronics boutiques, such as Best Buy, Babbages and Toys R Us.
``Those retailers are far superior to Kmart, as far as their ability to sell video games,'' Gilbert said. ``Their share is far in excess of Kmart's.''
Perhaps the larger challenge for Sega is the flight of independent game developers who create games for the platform. A popular game -- like Pokemon or Tony Hawk Pro Skater 2 -- can ignite console sales. Dearth of titles can mean death. Two independent game developers say they have already shifted development resources away from the struggling Dreamcast platform. They say they're focusing instead on the new entrant in the console world -- Microsoft Corp.'s Xbox -- and Nintendo's next-generation game system, the Gamecube, due out in October.
``We have one more title to release and we'll take a wait and see attitude,'' said one game company executive, speaking on condition of anonymity. ``We all have limited R&D dollars. Our studios are busy working on Xbox, Gamecube and PlayStation 2.''
Gilbert said he had ``an inkling'' of wavering support among some game companies. That's typical of a transitional year, as the console industry moves from older systems to the next generation machines, he said. Game companies are holding off on their million-dollar development bests, waiting to see which of the four 128-bit game systems will emerge as dominant.
Dreamcast gamers won't grow bored waiting for new titles. Sega will publish 30 new games for the console next year. French developer Ubisoft, publisher of the best-selling game Grandia 2 for Dreamcast, plans to introduce nine titles.
Gilbert predicts game developers will eventually come home to the Dreamcast. It's an easy system to develop for, requiring half the development time of other platforms and, of course, it's in millions of American homes -- which is more than anyone can say of PS2 Or Xbox. Or Gamecube.
``We have highest installed base of 128 bit systems,'' said Gilbert. ``I will argue that next year, we will still have the highest installed base.'' |
