Who's Got Game? Beleaguered Sega Hopes to Get Back on Top in the Videogame Wars with Dreamcast, the First of a New Generation of Superfast, Supercool Fun Machines

Newsweek, September 6, 1999 | Go to article overview

Who's Got Game? Beleaguered Sega Hopes to Get Back on Top in the Videogame Wars with Dreamcast, the First of a New Generation of Superfast, Supercool Fun Machines


Like a pied piper for the digital age, a 46-foot armored truck blaring hit tunes from "The Matrix" and "The Spy Who Shagged Me" is surrounded by 20 kids outside a San Mateo, Calif., Toys ''R'' Us. They're eagerly waiting to try out Sega's 128-bit Dreamcast videogame system. Four times more powerful than a Pentium II processor, it will kick off a new era of console gaming in the United States when it debuts on Sept. 9--at least a year ahead of its competition. "Dreamcast is the best system I've ever played," says Michael Aptekar, 16, after he finishes playing TrickStyle, a futuristic skateboarding romp. Ricky Whipple, 11, however, is taking a wait-and-see approach. "I want to see how the games on the [next] PlayStation compare to the Sega games before I buy anything."

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. …

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