Sega Plans Internet Access Service for Gaming
In a bid to fend off broad assaults by video game rivals, Sega of America Inc. will announce plans today to revamp its business by creating a company and an Internet access service, then spinning off the operation with $100 million in funding.
The new corporation, Sega.com, will start its SegaNet Internet service this fall to let customers play against each other over the Net with a Sega Dreamcast machine, which was launched last year.
Following the recent practice of giving away personal computers in exchange for Internet access, Sega.com will give rebates of $200 each for those who sign up for two years of online service.
The rebate covers the cost of the Dreamcast device; the service will cost $21.95 a month. Subscribers also will get a free keyboard.
Today’s move is designed to keep Sega competitive with giants Sony Corp. and Microsoft Corp., both of which recently announced blockbuster developments in the game and entertainment industry. It also reflects Sega’s hopes to lure gamers away from PCs, which allow users to play a limited number of games over the Internet.
Software developers praised the move, noting that games--not hardware--make up most of the profits of the video game industry.
“It’s the old razor blade theory: Give away the razor and make all your money on the blades,” said Brian Fargo, chief executive of game publisher Interplay Entertainment Corp. in Irvine.
But industry analysts remained cautious, describing Sega’s move as risky.
“Sega led with Internet innovation, but all signs are that Sony has [executed], and will execute, better,” said Dan Lavin, research director for IV Associates, which tracks high-tech trends. “This is probably too little, too late.”
Sega of America, based in San Francisco, is a division of Sega Enterprises Ltd. in Tokyo, which is funding the spinoff. Sega.com also will be based in San Francisco.
Today’s news reflects the ongoing battle among technology companies to control the consumer electronics world, which is shifting away from personal computers and toward television and other digital appliances that are connected to the Net and to each other.
Although consumers today typically get onto the Internet through PCs, growing numbers are going online through TVs, cellular telephones and other devices.
This is the market that Sega is trying to target, officials say. About 25 million homes in the United States have a video-game machine of some sort--but no computer and no Internet connection--according to researchers at Cahners In-Stat Group.
“We’re pitching this as a high-performance Internet service,” said Greg Chiemingo, Sega.com’s vice president of marketing.
Sony and Microsoft also are repositioning themselves at the center of the Internet revolution.
For Sony, the future is the PlayStation2 video-game console, released in Japan and set to hit the U.S. this fall. Sony plans to bundle the machine with a keyboard and an external high-speed modem.
For Microsoft, the X-Box entertainment center will let people play games, listen to music CDs, watch DVD movies and surf the Web.
Analysts say that by betting on online gaming and giving the hardware away, Sega will be able to distinguish itself from its rivals, which have hundreds of millions of dollars to spend on marketing.
The nearly $7-billion U.S. video game industry is dominated by Sony and its hot-selling PlayStation devices. Sony holds 53% of the console market share, with an estimated 25 million PlayStations sold in the U.S. and 70 million worldwide.
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