The embattled creator of game character Sonic the Hedgehog is looking for salvation through a 25-foot phone cord that comes with each Dreamcast. The phone cord is an emblem of the Internet initiative Sega has staked its survival on. The company hopes to revive Dreamcast sales by linking players across the United States with games played on the Web via the modem-equipped console.
To make it sweeter, Sega promises to refund the US$200 Dreamcast price to people who sign on to the company's SegaNet Internet service for two years. Games are scheduled to come online Sept. 7.
Many praise Sega for the bold Internet move: It's the first to offer sports and action games played online via a console instead of a personal computer.
Still, skeptics say the gambit is doomed to fail. Slow Internet speeds and other shortcomings could lead people to shun the egg shell-colored Dreamcast for powerful new consoles from rivals Sony and Microsoft.
"Sega always has really interesting strategies. And for so long, they've been the underdog. You really want them to be able to win once or twice," said Lisa Spicer, an analyst with ING Barings in Tokyo. "I don't see it happening this time."
The stakes are high for Sega: The company has lost US$1.12 billion (121.4 billion yen) in the past three years, and its shares are near their lowest level in 11 years. Sega recently replaced its top executive with 74-year-old billionaire Isao Ohkawa, the founder of CSK, which owns 20 percent of Sega.
If the Internet strategy flops, Sega may have to abandon the 2-year-old Dreamcast in the face of competition from rivals such as Sony's PlayStation2, Microsoft's Xbox and Nintendo's N64.
Such a move could signal Sega's exit from the market for home video game systems. The company dominated rivals in the early 1990s, though it has lagged badly since.
While Sega tries to outflank larger rivals with a Web strategy, critics say the company risks alienating players because Internet access via standard phone lines is too slow to accommodate speedy and complex video games.
Others say Sega faces a challenge just to change the behavior of gamers who are used to simple consoles and competing with friends rather than strangers they meet on the Internet.
"What for many is mindless entertainment becomes a science experiment," said Mike Ribero, executive vice president of Midway Games, which makes games for Dreamcast.
Competition grows
Sega's hurdles are compounded by Dreamcast's slow sales.
The system has already been a failure in Japan, where gamers have spurned the Dreamcast in favor of Sony's PlayStation2. In the United States, the Dreamcast exceeded expectations following its introduction last September, with more than 1 million units purchased in 1999.
Sega has failed to maintain that momentum even as Sony's supply of PlayStation consoles dwindles as the company prepares for the U.S. introduction of the PlayStation2 in late October.
Sega sold 80,000 Dreamcast units in February, 60,000 in March, 43,000 in April and 34,000 in May, according to retail data provided by game publishers.
"There's a huge missed opportunity for Sega now," said Robert Lindsey, a senior vice president for marketing at game publisher Capcom, the maker of Dreamcast titles such as "Code Veronica." "The longer they wait to get their message across to the consumer, the tougher it will get."
Sega rebates
Lindsey and other software publishers say Sega can still spur demand by trimming the Dreamcast retail price from US$200 to US$150. They would offer consumers a low-cost alternative to the PlayStation2, which is expected to retail for about US$300.
Instead, Sega is offering a US$50 dollar rebate. The US$200 rebate will kick in later this year for those who agree to pay US$22 a month for Internet access for two years. The access can be used for games or scaled-down Web surfing. Sega says the rebates will help sell more consoles while convincing consumers to use the online functions.
The company also says online play will lure people to the Dreamcast over Sony and Microsoft, both of which plan to delay Internet functions while offering more advanced consoles that double as DVD players. Sony and Microsoft say they're holding back because Internet services right now lack the capacity to make online games appealing.
Many game industry insiders say Sega's rivals are doing the right thing by waiting for high-speed connections to become more widespread.
Developers for game maker THQ scrapped plans for Internet functions with the forthcoming "WWF Rumble" wrestling game after struggling with the speed of Web connections over regular phone lines, chief executive Brian Farrell said.
"We just couldn't find a way to make it fun," said Farrell, who was wary of sullying the game's reputation with poor online play.
Sega says Genuity, formerly GTE's Internet unit, will provide the network and guarantees the games will work properly.
Online games
Once people sign on for games, Sega hopes to offer other Web activities such as music and email. The company figures it needs 220,000 subscribers to run a profitable online service.
Sega is scrambling to drive demand for the Dreamcast in the United States to avoid repeating the company's failure in Japan, where it has been overshadowed by Sony.
"The Dreamcast can't be compared to the PlayStation2," said Toshio Haga, a manager at the Tomihisa Musen game shop in Tokyo's Akihabara electronics district. Haga typically sells out of PlayStation2 consoles the day they arrive. Customers buy five to six Dreamcasts in an average week, he said.
Sega's fate could ultimately rest with new leader Ohkawa, Japan's ninth-largest individual taxpayer last year. Ohkawa took over as Sega president when Shoichiro Irimajiri stepped down May 26, partly because of poor Dreamcast sales in Japan. Ohkawa has made little secret of his desire to harness the Internet to boost earnings.
"From now on, we are steering toward becoming an Internet company," Ohkawa said when unveiling the management changes.
Pronouncements like that lead some to speculate that Sega will scrap the Dreamcast and press forward as an Internet games developer. Others wonder whether the company could be takeover bait for the likes of Microsoft, which needs games for the Xbox console it plans to introduce next year.
Peter Moore, the president of Sega's U.S. unit, said the Dreamcast is "the fulcrum" of the company's strategy, and Sega has a "huge commitment" to the console.
Still, he acknowledged the uncertainty Sega faces while employing an unprecedented Internet strategy: "No one knows what our company will look like three years from now."
Play video
There are currently no comments for this post.