Sega Is Seeking Just a Little Console Elation


Sonic the Hedgehog is down, but he may not be out.

In the weeks before the opening of the 1997 E3 interactive software trade show in Atlanta, Sega of America, the U.S. arm of Sega Enterprises Ltd., has repeatedly faced the brunt of bad news on the front lines of the home console video-game wars. With Sega’s Saturn 32-bit video game console fighting for market share behind Nintendo, maker of the high-power N64 unit, and Sony, the force behind the wildly popular PlayStation, some analysts suggest that this year could be Sega’s last in the consumer video games hardware business.

“We have 100 titles due out this year and quite a few planned for next year,” Sega spokesman Dan Stevens says. “The Sega Saturn is not going anywhere.”

During the last few weeks, Sega did seem to be going nowhere as it announced May 27 that a proposed merger between Sega Enterprises and Bandai, maker of the massive-selling Power Rangers and Tamagotchi virtual pet, fell through because of internal resistance from Bandai.


The following week, Sega said that even as its consumer games revenue for its 1996 fiscal year rose to $1.97 billion from $1.78 billion in 1995 on sales of 4.16 million Saturn units, the company forecast Saturn sales would plummet 118.9% to 1.9 million next year.

“In my mind, Sega’s console market is increasingly bleak right now,” says William Zinsmeister, research analyst for IDC/Link Resources Corp.

IDC/Link estimates that by the end of 1997, the U.S.-installed base for the Sega Saturn will be 4.7 million, with N64 at 5.5 million and the PlayStation at 7.2 million.


But according to Christian Svensson, editor of Next Generation Online, the home video game war won’t be decided by one generation of platforms.

“I just look at the 32-bit/64-bit wars as just another battle, and Sega happened to lose this battle,” he says. “Their next system will answer a lot of the complaints people had about the Saturn.”

The “next generation” Sega box Svensson refers to is nicknamed Black Belt. Although Sega has not officially shown its hardware hand yet--Stevens denies its very existence--Next Generation Online reported that Black Belt will contain a Microsoft operating system, and documents filed by 3Dfx Interactive with the Security and Exchange Commission revealed that a chip set based on the company’s Voodoo Graphics architecture will provide the graphics power.


“Everyone thought the Saturn was very difficult to develop for,” Svensson says. “But with Microsoft providing DirectX-like functions for the Black Belt, anyone familiar with developing for the PC could turn around and develop for this in no time. It’s also conceivable that 3Dfx’s graphics technology will be two to four times more powerful than what you see in current personal computers by the time the Black Belt hits.”

According to Svensson, Sega will be purchasing 700,000 shares of 3Dfx’s 4.2-million share initial public offering scheduled for later this month, and the Black Belt will probably hit shelves late 1998 or early 1999.

In the meantime, Sega will do what it can to continue to increase its revenue even as its console stands in third place.

Recently, the company announced it will drop the price of the Sega Saturn from $199.99 to $149.99 following price drops earlier in the year by Nintendo and Sony. And like its competitors, Sega will not be hawking new hardware at E3, June 19-21, but instead will concentrate on software in order to service its installed base of Saturn users.

“I’m not prepared to write off Sega,” says Zinsmeister, noting that Sega Enterprises group sales jumped 12.5% for the fiscal year 1996. “They are one of the pioneers of this entire industry.”


David Pescovitz ( is the co-author of “Reality Check” (HardWired, 1996), based on his monthly column in Wired.