Why Sonic the Hedgehog Needs to Jump Onto the Info Highway

Michael Schrage is a writer, consultant and research associate at the Massachusetts Institute of Technology. He writes this column independently for The Times

Sonic the Hedgehog doesn't have to worry much about becoming road kill on Japan's information superhighway: Sega won't even let him on. Nintendo's Street Fighters--whose high-bandwidth blood lust makes even Japan's most violent manga comics seem mild--aren't I-way cruising for a bruising either. We won't even talk about Super Mario. . . .

If Japan looks back from the next century to review multimedia opportunities missed, the unwillingness of its top video game companies to get on the Internet will probably prove the biggest. Sega and Nintendo may be the world's most popular video game companies, but they refuse to play on-line. The network roads to Japanese multimedia are not being paved with joysticks and blaster buttons. Though roughly half the nation's households with children have video game consoles, the two companies are not about to use them as profitable platforms for on-line interaction.

"We have no interest in the on-line market," says a Nintendo spokesman. "We're interested in on-line games, but we have no plans at this time," says the spokesman for Sega. As a result, Japan may be squandering the last, best chance it has to define digital pop culture entertainment for the world's teen-agers.

While American media companies are furiously trying to figure out how to put themselves on the Internet and the Baby Bells shell out the Big Bucks to Creative Artists Agency Chairman Michael S. Ovitz to bring a bit of Hollywood to their networks, Japan's top two entertainment companies offer radically different ideas for bringing telecommunications to their consoles. For Nintendo, the answers orbit some 22,400 miles overhead; for Sega, the answers lie underground. For some reason, neither of the two seems willing to pick up the phone.

Last fall, Nintendo paid $8 million for a 20% stake in St. Giga, a troubled Japanese satellite broadcaster. In June, the company announced that it would collaborate with the Itochu Corp. trading company to satellite-transmit video games nationwide to the country's 14 million Nintendo game consoles. Downloading games from the sky is an interesting distribution concept but one that effectively eliminates any chance for network games where people play with or against each other.

The same holds true for Sega. In July, Japan's No. 2 video game giant established Sega Digital Communications Ltd. to put its video games on cable. Only about 1.6 million Japanese homes now receive cable--a 5% penetration rate, compared to the 60% penetration rate in the United States--but the company is optimistic that its Sega video game channel will be a "killer app" that prompts an explosion in demand. The company is aiming for 100,000 subscribers to its service by 1997. Sega will offer the service through regional cable operators for about $30 a month, nearly three times the cost of the comparable Sega Channel in the States.

But here, too, the fun only flows one way: Sega's Megadrive technology reads signals for local cable and displays the game on the TV set. It doesn't allow you to play other people. They only sell personal--not interpersonal--interactivity.

In fact, the entire concept of on-line interactivity and network community seems alien to the two companies so used to selling games as cartridges. Indeed, both companies view their cable and satellite links as just another way of distributing games rather than as new media for interactive entertainment. Technically, it would be a snap for Sega or Nintendo to sell inexpensive modem cartridges priced at less than $50 that would let people play games with each other over telephone lines. Just selling the modem cartridges alone could generate hundreds of millions of dollars.

To be sure, both companies have played with the idea. However, neither company has come close to leveraging its installed game base and turning the networks of NTT, Japan's dominant telephone company, into the world's most profitable virtual video game community. For its part, NTT has done little to encourage this new way to boost network usage. Both Nintendo and Sega seem married to the notion that their games are entertainment products rather than launching pads for new kinds of services.

Of course, on-line services have become one of the fastest-growing segments in the global media market. The Internet has been explosive; companies like America Online, CompuServe, Delphi and Prodigy have all enjoyed consistent double-digit growth. Microsoft plans to roll out its Marvel on-line service sometime next year. On-line services have also begun to boom in Japan. Niftyserve, an on-line service co-owned by electronics giant NEC, has seen its growth double to half a million subscribers in less than two years. Fujitsu's popular PC VAN is almost as big. Games are an important ingredient in all these services.

Yet, much to the dismay of the domestic industry, Sega and Nintendo are conspicuous by their absence. Apparently, media convergence doesn't mean bringing their brand of intense interaction to interactive networks. Perhaps they should become more familiar with "Doom," the ultra-violent, ultra-popular network game from ID Software that is redefining the business model of on-line entertainment. ID gives away the first installment of the search-and-destroy software and then charges people for successive installments. The company's revenue has taken off like a rocket.

Ultimately, Nintendo and Sega may prove victims of their own success. They see the rise of on-line networks, but they decline to take advantage of the opportunities those present. They are taking the path of least resistance on the information superhighway. That's terrific news for American video games.

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