Game Consoles Going Online (News) August 4, 1999

Game Consoles Going Online

August 4, 1999

Sega's much-anticipated Dreamcast game system, set for launch in North America next month, will include a feature new to home gaming systems: a 56K modem, which when used in combination with the machine's controller will reportedly allow not only access to an online game-playing arena but also to the entire Web.

According to reports citing inside sources, Sega is expected to announce today that AT&T's (NYSE: T) WorldNet will be the preferred Internet service provider (ISP) for the system. A ZDNN story suggested that WorldNet would use its regular pricing schedule, with broadband access a possibility in the future. European Dreamcast users heard similar news in May via a partnership with British Telecom (NYSE: BTY).

How much success Sega will have wiring gamers to the Web is hard to say, and a significant near-term impact on AT&T's topline probably isn't likely.

But the issue of non-PC Internet access is still one investors should be watching closely, particularly as it points to a larger issue: the convergence of the Internet, television, and telecommunications onto a single platform. It's something that, from a consumer's perspective, is potentially earthshaking.

Imagine one terminal that can handle phone calls, messaging, Internet access, e-mail and television programming. Throw gaming into the mix? Why not? Online interactive gaming has managed rapid acceptance with games like Everquest that link up thousands of players online -- although that has, until now, been the province of the PC.

Now imagine three or four of these units scattered around a single house like televisions in a suburban rambler. Maybe each of the kids has their own; maybe the family uses one; maybe one shares space in the house with a PC and a television.

And there isn't any reason to assume that such a unit would be unaffordable. Just look at the precipitous drop in the price of home electronics -- particularly PCs -- over the past several years and it becomes increasingly likely that a one-stop interactive device would be, in time, a pretty practical purchase. With the advent of "always-on" cable access, it becomes even more practical.

It's not that far-fetched. Sure, the CFO of cable set-top box and modems maker General Instrument Corp. (NYSE: GIC), Eric Pillmore, told us in a recent StockTalk interview that although "there will continue to be a demand from consumers for the PC," his company nevertheless offers a set-top box that lets users watch TV, send e-mail, and make a telephone call all at the same time.

America Online (NYSE: AOL), meanwhile, is working on AOL TV, a project being developed in connection with Gemstar International Group Ltd. (Nasdaq: GMST) that would offer consumers interactive programming through set-top boxes using 56K modems (with broadband to come, of course). It's supposed to become available next year.

Then you've got Microsoft's (Nasdaq: MSFT) WebTV unit, an interesting if commercially tepid concept that allows Internet access from your television through either its own network or outside ISPs.

The entry of a gaming company like Sega only increases the heat.

The wide commercial acceptance of such a product is almost definitely years off. But unlike many of the whiz-bang futuristic gadgets that look so cool in science fiction movies, the technology for this one is already here. It's up to the market to catch up.

By Dave Marino-Nachison (TMF Braden) (TMF Braden)

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