This morning's Asian Wall Street Journal says Sega will pull out of the video game console business to concentrate on more lucrative software endeavors. Naturally the company is denying the report: Why abandon the system publicly until the last possible moment? But the reality is that the video game market is about to get even more competitive in the year ahead with two new machines coming out. The top dogs have always been rotating in a niche where there seems to be no room for third -- much less fourth -- place.
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The article quotes Ascii executive Kazuhiko Nishi, a friend of Sega President Isao Ohkawa, but Sega denies the report. This doesn't mean the story is false; it's in the company's best interest to hold off on any kind of official statement if the story is true. After all, there are still plenty of Sega Dreamcast boxes sitting on store shelves worldwide, and no one wants to pay up for an orphaned system.
Our own David Marino-Nachison takes a closer look at the video game industry in the new Industry Focus 2001, and it's easy to see why the year ahead will be a time of change in the industry. Nintendo's GAMECUBE and Microsoft's (Nasdaq: MSFT) Xbox are both scheduled to be rolled out in the latter part of the year.
Yes, Microsoft.
The Xbox's specs are jaw-dropping, but being better isn't always enough. When Nintendo and Sega grew to dominate the market for 8-bit and then 16-bit play machines, 3DO (Nasdaq: THDO) and console pioneer Atari entered the fray with superior systems. They failed. The reason? Software. If you don't have the right games -- and enough of them -- you might as well be driving a Ferrari through a school speed zone.
That is why it's encouraging to know that leading game maker Electronic Arts (Nasdaq: ERTS) has already signed on as an Xbox software developer. The GAMECUBE should also have a captive audience with N64 fans looking to upgrade within the Nintendo family.
The N64 is the second best-selling console, trailing only Sony (NYSE: SNE), whose original PlayStation continues to be the most popular system as production continues to ramp up for the still hard-to-find PlayStation 2.
The industry rarely hands out bronze medals. Just as 3DO and Atari's Jaguar failed to remain viable third-party developer candidates, the success of Sony's PlayStation eventually pushed Sega into the unloved and unprofitable third-place position. The Sega Dreamcast has failed to move the company up in the rankings, and with Microsoft looking to place in the console race next year the writing is on the wall. Third place is rough. Fourth place is impossible.
With more published yet denied reports earlier this week that Sega would merge with Nintendo -- and then merely teaming up with Nintendo to produce titles for the upcoming handheld Game Boy Advance, maybe the company has accepted its corporate calling. Dreamcast's bust might prove to be Sonic's boom.
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