If you think videogames are just child’s play, think again. Last year the videogame industry raked in $6.3 billion (between software and hardware), just shy of the record $6.9 billion movies earned at the box office. Games designed for the personal computer like Quake and Myst may get the headlines, but the bulk of software revenues flow from game systems like those from Sega, Sony and Nintendo that you connect to your TV. According to PC Data, last year’s top-selling PC game, Starcraft, grossed $35 million through this June. By comparison, Nintendo’s Zelda: Ocarina of Time has grossed $137 million even though it shipped eight months later. Sony is currently the king of the hill; one out of every six U.S. households owns a PlayStation. In fact, Sony’s game division contributed 40 percent of the parent company’s overall profits last year–more than movies, TV, music or consumer electronics. This year analysts predict that overall videogame revenues will surpass movie revenues for the first time in history. “It’s not a toy business,” says Stewart Halpern, an analyst at Bank of America Securities. “It’s very much akin to Hollywood.”
If the three console companies were movie studios, family-oriented Nintendo would be Disney; Sony would be, well, Sony, and Sega would be long-suffering MGM, desperately in need of a hit. About every five years videogame companies bring out new hardware. As recently as 1993 Sega had 50 percent of the market. But its expensive, complicated 32-bit Saturn flopped spectacularly in 1995; today Sega’s U.S. market share is less than 1 percent. The 128-bit Dreamcast, which debuted in Japan last November to much fanfare, was supposed to bring Sega back from the dead. But hobbled by a lack of games to play on it, Sega missed its March 1999 sales target of 1 million. There were reports that disappointed Japanese fans were returning their Dreamcasts and using the refund to buy more PlayStation games. The company laid off 1,000 employees after posting a net loss of $400 million this April. And the Aug. 11 departure of U.S. president Bernie Stolar, whom many credit with winning back retailers who were burned by Saturn, has not boosted confidence. Analysts give Sega six to nine months to re-establish itself; otherwise, they predict, it’s game over.
The signs of pressure are visible at the company’s San Francisco headquarters, where two big-screen TVs continuously count down the days, hours, minutes and seconds to the Dreamcast launch. “We’re not a huge company,” says director of marketing Charles Bellfield. “Our stock isn’t doing as well, and we aren’t all driving Porsches. But we are passionate about what we’re doing.” To prove it, they’re spending $100 million on Dreamcast promotion, using street teams and edgy TV spots–think “The Matrix” in Japanese with subtitles–to win over cutting-edge kids. “A lot of older people said they didn’t get our ads,” says Peter Moore, the company’s 44-year-old senior VP of marketing. “We said ‘Thank God’.” Sega is sponsoring the MTV Music Video Awards, and it plans to send the armored truck packed with Dreamcasts on the road with Limp Bizkit and DMX.
But all the flashy ads and rock ’n’ rap stars in the world don’t mean a thing if the games aren’t cool. There will be 16 launch titles, more than for any previous console debut. A good example is NFL 2K, which is unquestionably the best football game ever made. What’s new is that it subtly draws you in by reproducing the visual syntax of televised football perfectly, using the same sequence of shots that you would see on “Monday Night Football.” Hit an opponent high and he topples over; tackle him at the knees and watch his arms fly out as he crumples to the ground. Sega used more digitized player movement than any previous football title, even recording two players simultaneously for realistic blocks and tackles. “You’ll see some nasty hits,” says VP of product development Greg Thomas, who worked on the game. “They’re ‘SportsCenter’ quality.” In the equally mind-blowing NBA 2K, you’ll be able to watch replays from any of the 15,000-or-so seats in the house.
A demonstration of Sony’s next machine, expected to hit stores next year, shows that Sega’s competitors don’t plan to let it have the field to itself for long. PlayStation R&D chief Dominic Mallinson zooms in on a computer-generated pond to show how the rippling water reflects sunlight and distorts the seabed as little fish dart around below. The as-yet-unnamed 128-bit system, dubbed PlayStation 2 by the press, effortlessly displays faces with strands of hair, cascading fireworks and swaying trees. And all the action is computer-generated on the fly, not prerecorded animation being played back, as in “A Bug’s Life.” That’s why Sony refers to its graphics chip as the Emotion Engine; it’s not that the machine has feelings, but its “Toy Story”-level graphics have enough resolution to let developers create games capable of generating emotions in people who play them.
Nintendo is leapfrogging 128-bit technology with a 256-bit, 400-megahertz IBM PowerPC chip in its upcoming console, code-named Dolphin, also due in 2000. It hasn’t done any demos, but confidently state that the new system will “meet or exceed” PS2. Ironically, it’s the simplest of technologies that is keeping the company healthy in Japan, where the Nintendo 64 has struggled. The portable 8-bit Game Boy, with its 1-megahertz processor, has sold 80 million units since its 1989 release, making it the best-selling videogame system in history. More advanced machines have failed to unseat Game Boy because in the handheld market performance matters less than size, battery life and a bundled copy of the highly addictive Tetris. Game Boy outsells all of the state-of-the-art consoles in Japan, including the moderately successful Nintendo 64. Since that’s largely due to the wildly popular Pokemon, Nintendo hopes to boost sales of N64 by selling a device that connects it to the Game Boy, letting kids battle Pokemon on their TV sets in high-resolution color.
Taking a page from the PC market, videogame makers see the next frontier for consoles and handhelds on the Internet. Sega’s Dreamcast is the first console to include a modem, offering downloadable adventure-game add-ons and, eventually, multiplayer online gaming. Japan-based SNK will one-up that in October with a wireless link to its new Neo Geo Pocket Color handheld that could allow up to 64 people to connect within a 100-yard radius. But the ultimate no-wires-attached approach comes from Nintendo, which will soon offer the ability to link Game Boys to exchange data–e.g., trade Pokemon–via mobile phone.
With the line between consoles, PCs, the Internet and home-entertainment centers blurring, console manufacturers may be even better positioned than the Microsoft-Intel alliance to thrive in a post-PC era. Microsoft was hot to jump in bed with Sega, providing Dreamcast with its Windows CE operating system. The Redmond, Wash., giant hopes to make gaming on the PC simple enough to challenge the consoles by improving Windows support for games and making its own titles easier to play. Even Apple’s Steve Jobs wants in: before he unveiled the iBook at Macworld in July, he brought out a 30-year-old game developer to show an unfinished bleeding-edge game called “Halo” running on a Mac. At $7 billion a year and counting, this is one kids’ game that all the big boys want to play.
