Sega strikes back at Sony with price cuts

Sega today announced a series of initiatives to promote its Dreamcast gaming console, striking back a day after rival Sony made waves with news about its PlayStation 2.

The competition between Sony and Sega heated up today at the Electronic Entertainment Expo (E3) trade show in Los Angeles, with Sega announcing a variety of partnerships, an upgraded Web browser and a new discounted pricing plan, all designed to steal some of Sony's momentum with its PlayStation2.

Yesterday at E3, Sony announced initial pricing and the launch date of the U.S. version of the PlayStation 2.

Sega will discount the Dreamcast by $50, for a limited time, bringing the price of the Dreamcast down to $149, compared with $299 for the PlayStation2 when it launches in October.

"We have secured our base of hardcore gamers, and now with the $50 introductory offer and the free SegaNet subscription, Sega Dreamcast will reach a broader installed base of consumers and deliver networked gaming to the masses," said Chris Gilbers, vice president of sales at Sega, in a statement.

As part of its strategy of appealing to nongamers, the company said yesterday it is working with InnoMedia to allow Internet-based telephony over the Dreamcast console and last month unveiled a digital camera that works with the device.

Sega also said last month that it will offer a $200 coupon to customers who sign up for the SegaNet service, in a subsidy model similar to that of many PC makers who give away computers in exchange for long-term service contracts. Some analysts called the move risky but necessary, given Sega's relatively weak cash position compared with consumer electronics giant Sony.

Sega also announced a series of marketing promotions, including sponsorship of Ozzfest 2000, a summer concert tour featuring Ozzy Osbourne. The company also said it has upgraded the browser used in the Dreamcast to include support of more multimedia technology.

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With their next generation gaming consoles, Sony and Sega are both trying to position their devices as far more than typical video game players. Each console comes with an Internet connection and Web browser, although Sony's comes in the way of an add-on expansion card, while Sega includes a built-in modem, browser and Internet service, SegaNet.

Sony and Sega are not alone. Microsoft earlier this year announced it will sell its own multi-purpose console, the Xbox, and Nintendo will jump in next year with the Dolphin.

Analysts expect the market for these types of nontraditional computers to be huge. Overall, the market for devices, including set-top boxes, handheld computers and gaming consoles, is expected to grow from 11 million units shipped in 1999 to 89 million units in 2004. The market will grow from revenues of $2.4 billion last year to $17.8 billion in 2004, according to research firm International Data Corp.

Sony in particular is angling to use the PlayStation as the linchpin in its home strategy, hoping the popularity of the gaming device will drive sales of other Sony networked devices and consumer electronics appliances. Yesterday, Sony announced that the PlayStation 2 will be released in the United States with an estimated retail price of $299.

Sony said it plans to crank out 1 million PlayStation 2 units for the launch, with 2 million more units to ship through March 31, 2001. But the road so far has not been completely smooth. Sony incurred a huge loss last quarter from marketing expenses in preparation for the launch, and the PlayStation was hit by problems with international distribution of the DVD player included with the console.