Sega shines in its new starring role

Sega Corp recently treated reporters to a 1998 in-house film never shown outside the company -- a Japanese "yakuza" gangster movie depicting a turf war in which the gang bosses are all played by Sega executives. The warring gangs are named Sega and PureSute -- the Japanese abbreviation of PlayStation, the hit video game machine from Sony Corp.

In real life, Sega lost that fight.

Earlier this year, Sega was forced to abandon its Dreamcast console, whose sales never caught up with rival PlayStation2. Getting rid of inventory at slashed prices, Dreamcast sales only recently reached 10 million. But PlayStation2, which went on sale last year, has already doubled that number in shipments worldwide.

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 PlayStation2 but also Nintendo Co's new GameCube and portable Game Boy Advance and Microsoft Corp's soon to be released Xbox.

"We are being reborn as an entertainment company," said Tetsu Kayama, Sega's chief operating officer.

So far, the shift from machines to games seems to be helping Sega's finances. The company said Oct. 24 it expects a first-half pretax profit of US$36.7 million, a turnaround from its original forecast of a US$19.6 million loss. Revenue should reach US$790.4 million, up from an original forecast of US$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 US 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 US$199.95 in the US on Nov. 18, three days after Xbox. Xbox, the only machine among the three with built-in hard disk and broadband access, costs US$299, the same as PlayStation2.

"It's going to be difficult to overcome PlayStation2's head-start," said Jay Defibaugh, analyst with Credit Suisse First Boston in Tokyo. "The balance of power will be decided by the availability of software."

That is 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 PlayStation2.

Because of its lead in the market, PlayStation2 has a huge edge in its game lineup, with nearly 300 games for the Japanese and American markets each. 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 US.