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Sega's Dreamcast takes a cue from PCs

Equipped with a high-powered chip, modem, and other PC features, Sega's Dreamcast--like other gaming machines coming to market--can ostensibly duplicate, and even improve upon, many of the core functions of home PCs.

Buoyed by initial reaction to its new high-end gaming machine, Sega can start to dream big.

At midnight Thursday, Sega launched its highly anticipated Dreamcast game console at events held around the United States. In San Jose, California, gaming enthusiasts even weathered thunderstorms to be the first to get their hands on the system.

With strong first-day sales to so-called early adopters, executives now must work to get the system into the hands of average consumers.

Equipped with a high-powered 128-bit chip, modem, and computer-like features such as email and Internet capabilities, Sega's Dreamcast--like other gaming machines coming to market--can ostensibly duplicate, and even improve upon, many of the core functions of home PCs. The question, therefore, is whether these consoles will begin to displace the PC, or merely live on as game machines.

Aside from goblins and ghouls in the gaming world, Sega will have to fight the good fight in the market for gaming products. The company has faltered in past product launches, and now faces stronger competitors such as Sony and Nintendo, which will begin to ship their own high-end gaming units to the United States next year.

Initial indications are that Dreamcast will be a holiday-season hit. Sega is touting 300,000 advance orders, and first-day sales may set entertainment industry records, the company claims.

The console will generate nearly $45 million in sales within the first 24 hours of availability, according to Chris Gilbert, senior vice president of sales for Sega of America. That would outpace the current record held by the movie Star Wars: The Phantom Menace, which sold $28 million of tickets its first day in theaters earlier this year, he said, citing revenue estimates from Exhibitor Relations Company.

By releasing Dreamcast now, Sega will grab CNET's complete Dreamcast guide the lead in the market, but it is uncertain whether gaming fans will flock to this new platform that could take the PC to task.

"The Sega and other forthcoming consoles are truly great machines, but that doesn't mean they will displace the PC," said Jon Peddie, president of Jon Peddie Associates, a research firm covering digital media technology. "One reason is that PCs are not that expensive, so people can afford to have both."

The game console market is big business. The market for video games totaled around $15 billion last year, and reached around $6.3 billion in sales of software, according to NPD Group, a research firm.

Sony has sold over 55 million of its PlayStation consoles since their introduction, which now account for over 40 percent of the company's overall profit. Sega's Saturn machines, in comparison, were not warmly received and have relegated the company to the No. 3 spot in the market.

PC makers, meanwhile, are faced with a continuing slide in average selling prices and profits on their products. PCs do have an advantage when it comes to choice of software, however. Additionally, PC makers are scrambling to improve their graphics performance to dent some of the appeal of the consoles, and hopefully snag the cash that customers might otherwise spend on a dedicated gaming machine.

Part of the pull of PC gaming is a player's ability to log on to the Internet and play other gamers, industry observers have noted.

"People want to play people, and PC developers know how to connect people through the Internet," said Richard Doherty, president of consulting firm the Envisioneering Group. Sega and others are only now beginning to learn about consumer behavior in an interactive environment.

Gaming first, PC later
Yet early on, Sega won't be selling the system as anything but a game machine, even though it has the ability to download Internet content and display it on a television, similar to WebTV's offering.

Instead, the company will focus consumers on Dreamcast's ability to let players download game hints, tips, new characters, scores results, and enable them to keep track of scoring in real time.

"Games itself are a real pull, and not these other services," like email and Internet browsing, said Charlie Bellfield, director of marketing communications for Sega. However, there are plans to allow expansion of the system's capabilities, he said, without giving further specifics.

The competition mounts
Sony has already announced plans for a new PlayStation next year, in a move to deflect some of the attention from Sega's new offering. Sony, for its part, is promising its system will include a 300-MHz 128-bit processor.

However, on the eve of a launch announcement, there are still questions about Sony's ability to launch the system on schedule.

Nintendo has chimed in as well, saying it will sell its next-generation machine, dubbed the "Dolphin," in time for the holiday shopping season in 2000.

Additionally, there are reports that Microsoft is developing its own game console platform based on Windows CE.

"Somebody is going to control the technology that we play games and get information through," said Greg Fischbach, chief executive at Acclaim Entertainment, which makes game software. "If you see Sony and Nintendo [sets] as being the future set-top box, then you would see a motivation for Microsoft to do that," he told Bloomberg

Ed Roth, president of Leisure Activities at NPD, said it makes sense that Microsoft wants to take a more active role in the game console market. "They [Microsoft] see the growth in the various game platforms rising at a much faster rate than the PC platform," he said.

One source at Microsoft said the reports were "misconstrued," and that the company wasn't developing a game console, however.