Sega Zeros In On Networked Entertainment

Peering past the glare of the release of Sonys new Playstation II, Sega Enterprises, Ltd. Friday announced it is broadening its network initiatives in the race for convergence.

Sega will be selling off unused inventory, closing unprofitable amusement facilities, optimizing distribution systems, and integrating overseas subsidiaries. In addition, Sega has started a program of semi-independence of the Software R&D Division and AM Facility Operation Business to improve cost management and creative development and has implemented changes to its management structure.

Sega is repositioning itself as an “online network and content company” focused on new Internet opportunities, developing a global Internet infrastructure and online network games and applications.

With the introduction of the new Dreamcast video game console and development of four online network companies in Japan, America, Europe, and greater-Asia, the company has made an effort to establish a network business by building a worldwide consistent low latency network in four regions to enhance the Dreamcast experience (e.g. Sega’s online networks and Voice-Over IP for audio and the Dreameye Camera for video). In addition, Sega has developed online multi-player network games, boosting its Sega Dreamcast online network.

Personnel change restructuring will be part of the push, as Senior Managing Director Hideki Sato, Toshimichi Oyama, Tetsu Kayama, move to new posts.

Sega’s new opportunities for growth include “[email protected],” an experimental broadband service using a fiber optic network between arcade and amusement locations.

Among Sega’s announced network strategies rolled out in the U.S. and Europe in September:

  • SegaNet ISP and gaming network service in the U.S.
  • “Free Dreamcast” rebate program for subscribers who signed up for 18 months on SegaNet
  • A new price for Dreamcast hardware in the U.S. and Europe ($149.95 dollars in the U.S., $149.99 pounds in Europe)
  • More than 20 network games, such as Phantasy Star Online, NFL2K1, NBA2K1, and QUAKE III ARENA, by the end of the fiscal year.

The U.S. market may be a barometer of the potential of this strategy. Analyst P.J. McNealy of Gartner Group, comments, “Sega has five things going for it that Sony doesn’t: They have hardware in stock. They have plenty of hardware in stock. They have a modem that comes with the machine. They have games online. And they are half of the price of PlayStation 2.”

The European market looks hopeful for the company as well. “The Dreamcast is the essential Christmas purchase and the games players console of choice this Christmas, says Dean Van Velson, Gem Distribution. Retailers are making sure they can fulfill Christmas demand for a new console by promoting Dreamcast, and demand has never been higher; eagerly awaited console masterpieces like Shenmue are guaranteed to make it a Dreamcast Christmas.”

On the downside, with the adoption of a new price point for the U.S. and European market, Sega will experience an 18.5 million deficit during this coming year. The company is looking to overcome this with an aggressive stance to increase software sales and network subscribers, increasing revenue per customer and establishing a network community ahead of competitors.

Sega hopes to have completed a foundation for its online network business by the end of this year, with strategies which include:

  • A new program, “ES (Electronic Service) Changes The World,” focused on delivering services and content over the internet.
  • Centering on online network video game content, narrow and broadband electronic services to the online community, and location-based amusement centers.
  • Business and content moves tapping its content library, its ability to develop content, and experience in building a low-latency gaming network.

Sega also sees new market oppor

tunities in leveraging its content to take advantage of new Internet appliances. Sega will provide content to existing platforms such as PCs, mobile phones, and handheld PDAs, will provide an online network and content to today’s wireless devices and the next generation Broadband wireless products, and will provide content to Set Top Boxes (STBs) and consumer entertainment devices in conjunction with hardware manufacturers.

Sega describes five key elements of its new network business strategy: (1) Create a global networked gaming community by continuing to develop game software, providing tools and software to ASPs, and developing alliances with ISPs; (2) Strengthen the network business for mobile phones through a multi-protocol strategy by forming alliances with industry leaders, providing content for the formats interlocking with i-mode and other network technologies, developing technological know-how for API (application programming interface) and server development operations and promoting business expansion overseas; (3) Electronic distribution and download of content; (4) Developing Broadband content and fiber optic network with strategic partners; (5) Internet video conferencing and telephone business.

With both Sony and Sega stretching to get the Convergence brass ring via PC-like game centers, expect a whole new ballgame when Microsoft and Intel jump into the pool with competing approaches next year. Who else is waiting in the wings? All the players are looking over their shoulders, as Convergence turns into Collision, courting King and Queen Consumer with more options than those final arbitrators may need or want.

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