Sony, Nintendo Plan Video Game System : Electronics: The firms have joined forces to popularize sophisticated home entertainment technology based on compact discs.

SAN FRANCISCO — In a landmark agreement that promises to have a major long-term impact on the home electronics business, Sony Corp. said Friday that it will join forces with Nintendo Ltd. in marketing a new type of video game system.

The alliance links two of the world’s most successful and innovative consumer electronics firms in an effort to popularize home entertainment systems based on compact discs. Such machines provide far better graphics and sound quality than current video game systems, and analysts say they could form the basis for a new breed of “multimedia” computers for the home.

The Sony-Nintendo agreement--announced by Sony on the eve of the biannual Consumer Electronics Show in Chicago--promises to steal much of the thunder from Philips, which is unveiling its long-awaited Compact Disc Interactive (CDI), a home entertainment and education system.

Philips and Sony had once been allies in the development of CDI, but Sony now appears to be going its own way. Philips, for its part, has recognized that games will be an important selling point for the CDI technology. The Netherlands-based firm reportedly has reached an agreement of its own with Nintendo to make Nintendo game titles available on CDI discs.

But the Sony-Nintendo deal is much more far-reaching.

By year-end in Japan and the beginning of next year in the United States, Sony will introduce a compact disc-based game machine, called the Play Station, that will also be able to play Nintendo games written for a new, high-powered Nintendo machine.

Simultaneously, Sony will roll out at least 10 compact disc games--most of them based on characters and themes drawn from movies being produced by Sony’s Columbia Pictures affiliates and music being promoted by Sony’s record company, formerly CBS Records.

“We will be tying in with a lot of the entertainment products in the Sony companies and with outside companies,” said Olaf Olafsson, president of Sony Electronic Publishing. “We’re working with a lot of people (in Hollywood) on both the movie and music sides. In the entertainment business, games are another form of entertainment.”

That is a principle that Nintendo grasped very well as it built its remarkable empire, which now controls an estimated 80% of the $5 billion U.S. video game business. Sales of Nintendo machines and game cartridges are largely driven by the popularity of characters such as moustachioed Mario, of Super Mario Brothers fame.

But the Nintendo juggernaut has slowed recently, and analysts have wondered whether consumers would be persuaded to buy the company’s new machine, which will be formally introduced today. The new system, which uses 16-bit computer technology, offers much better graphics than the existing eight-bit Nintendo machine, but it also costs more and will not play games produced for the older Nintendo system.

Jonathan Seybold, a Malibu-based expert on compact discs and other new-media technologies, noted that Nintendo’s competitors in the game business--NEC and Sega--already offer 16-bit machines. The NEC system, he added, also uses compact discs.

The deal with Sony, Seybold said, means Nintendo, too, is adding to its 16-bit machine the ability--perhaps as an option--to use compact discs. “Nintendo has been the laggard, and this is the way for them to catch up,” he said.

Nintendo declined comment Friday.

Philips, meanwhile, has for years been developing CDI as an interactive educational tool that would allow a user to call up a fully illustrated entry from an encyclopedia, for example, with the touch of a button. But the CDI system--and the similar CDTV system being marketed by Commodore International--cost about $1,000; many wonder whether consumers will pay that price for a system with vaguely defined uses.

Sony said pricing on its new system had not been finalized, but Olafsson said it would be in the “several-hundred-dollar” range.

Seybold said Philips’ agreement with Nintendo, allowing it to put Nintendo games on CDI discs, represents an admission that the game market is an important driver for the new technology.

CDI, CDTV and the Sony-Nintendo format are not technically compatible; as in home computing and videotape technology, that raises the prospect of a prolonged battle to establish an industry standard.

Such a contest would be significant, because these systems may form the basis for a whole new breed of home computer/entertainment system that has much of the functionality of a personal computer and can also handle video and sound.

“We see this as a very important project,” Olafsson said.