Sega Gets Into Internet Game

Sega Enterprises, Inc. Tuesday
unveiled its plans to launch a new online entertainment company that
includes SegaNet, a high-speed Internet service provider with multi-player
gaming and chat capabilities.

Anticipating that the online gaming market represents a large role in the
future of video games, Sega (SGNY)
intends to step-up its Web presence this fall, just in time for the
holiday surge in the sales cycle.

The new company dubbed Sega.com will be operated independently from parent
Sega Enterprises Ltd. Sega.com has already received $100 million in funding
for its Internet gaming venture.

Dreamcast and computer users can subscribe to SegaNet for online access and
a variety of gaming content including tip sheets and cheat codes to its games.

Subscribers signing up for SegaNet services will pay $22 a month for the
high-speed Internet access and content. Those customers who agree to a
two-year contract for Internet service will get a $200 rebate a free keyboard.

When the ISP is launched next fall, consumers can sign up online or at most
retail chains where Sega’s products are sold.

Initially, only a few games like Quake III and NFL 2K1 will be released for
multi-player access over the Web. However, Sega expects to quickly expand
its Web-based game roster to spur sakes if its software, which online
gamers must still buy at retail outlets.

Charles Bellfield, Sega spokesperson, said the firm needs to distinguish
itself from the competition, so Sega is placing its bets with online gaming
and giving its console away for free.

“The market is all about leapfrogging each other and the consumer is
confused,” Bellfield said. “Sega needs to distinguish itself from its
rivals, which have hundreds of millions of dollars in their coffers to
spend on marketing, so Sega is placing its bets on online gaming and giving
its console away for free.”

Just a year ago, Sega wasn’t a contender in the U.S. video-game market. It
failed to come up with a gaming system that could compete with rivals like
the PlayStation and Nintendo 64.

Then came its launch of Dreamcast last September. Since then, Sega has
roared back and now commands a nearly 15 percent share of the U.S.
video-game hardware market.

Whether Sega can keep up this pace remains in question as its competitors
bring their new gaming platforms to the U.S. Sony Corp. (SNE)
is expected to launch PlayStation2 next fall. Meanwhile, Nintendo of America,
Inc.
plans to unleash its Dolphin platform and Microsoft Corp. (MSFT)
announced it will to begin distributing its X-Box in 2001.

With its rivals waiting in the wings, Sega is seeking a way to lock-up its
audience now, and much of that strategy involves its Internet game plan.

By the middle of April, the company expects more than two million Dreamcast
units will be sold in the U.S., far above its original sales expectations.
Bellfield said Sega’s goal is to distribute four million more Dreamcasts by
2001 with its new give-away program.

Brad Huang, Sega.com president and chief executive, said the Internet
marketing move is a risky venture, but that the firm would not need to
spend as much as conventional ISPs do to acquire customers with online
gaming as the lure.

“In the first two years, we will break even,” Huang said. “It will be
community building.”

Sega is convinced that its target audience of serious gamers ranging from
12- to 24-year-olds wants to play games over the Internet. Cu

rrently
Dreamcast console is the only console that gaming unit with a modem
pre-installed. The modem can be popped out and switched for an Ethernet
connection for broadband Internet access.

“Our audience wants to go the next level,” Bellfield said. “They want
rivalry and competition and they can only get that by competing with each
other.”

Sega tapped GTE Internetworking, a
division of GTE Corporation (GTE)
to provide the managed Internet access services for its SegaNet ISP.

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