Sega Scores Points as Sony Fumbles Lead

The launch of Sony’s PlayStation 2 video game console this fall was supposed to nuke rival Sega’s Dreamcast machine, but production fumbles by Sony and radical promotions by Sega have catapulted Dreamcast back into the game.

And none too soon. With Nintendo and Microsoft poised to deliver fancy new consoles late next year, Sega and its year-old Dreamcast had seemed doomed to die quietly as industry leader Sony jostled to stay ahead.

But Sony failed to ship the 1 million units it promised for PlayStation 2’s October debut, and retailers say the system is, for all practical purposes, unobtainable--and won’t be widely available for the holidays.

So as frustrated shoppers come up short on PlayStation 2, more and more are turning to Dreamcast, according to sales data. Sega executives estimate that Sony’s bobble could help them grow Dreamcast’s user base to 5 million by next spring, and position Sega--a company many analysts and gamers had written off--as a serious contender in the next round of video game wars.

“Our week-on-week sales have grown 82%,” crowed Peter R. Moore, president and chief operating officer of Sega of America. “We couldn’t be more excited.”

Even so, sales of the $149 Dreamcast lag far behind the original PlayStation, which sells for $99. PlayStation 2, which plays DVD movies in addition to video games, costs $299. Although about 2.5 million Dreamcasts have been sold, well over 27 million original PlayStations are in use.

Despite the fact that the PlayStation offers comparatively primitive 5-year-old technology, it outsold the Dreamcast by about 2 to 1 for much of this year, according to the market research firm PC Data.

In recent months, Dreamcast sales have picked up. But not at the expense of the original PlayStation. Dreamcast’s gains have come largely by chipping away at the $99 Nintendo 64, which suffers from a reputation among gamers as catering too heavily to kids.

Sega also has been winning converts because of a slew of ground-breaking games and a new computer network designed to let people play games through Dreamcast’s built-in modem--no other video game console allows networked gaming. Notably, buyers who sign up for the new network get a rebate that essentially makes Dreamcast free.

“The momentum was building anyway for the Dreamcast because of its large library of very good and very unique games, and because it is more affordable than the PlayStation 2,” said Matt Gravett, a game analyst with PC Data. “The systems have been running neck and neck, but now they’re moving in different directions.”

Sony’s success with the original PlayStation had persuaded a great many gamers to skip the Dreamcast. Once it became apparent that PlayStation’s successor would be difficult to come by, however, many took the plunge.

“I held off buying a Dreamcast until August, when it became obvious I wouldn’t be able to get a PS2,” said Kelly McCollum, a Web site developer. “For me, it’s all about the killer app, and the Dreamcast has some cutting-edge games I wanted to play.”

“People who wrote the Dreamcast off are taking another look at it now, and they’re seeing that it’s got a lot going for it,” Gravett said.

Sony stoked the hype for more than a year, but its failure to deliver as many machines as promised “upset customers and retailers. Now Sega has positioned itself to capitalize on Sony’s mistakes. They really botched the problem of managing people’s expectations. It’s simply impossible to find a PlayStation 2 right now, and this is when people are buying for the holidays,” Gravett said.

Some say Sony is delivering even fewer consoles than it’s claiming. “They committed to delivering 500,000 on Oct. 26, then another 100,000 a week for a total of 1.3 million in North America by year’s end,” said Felicia Kantor, a research analyst with Lehman Bros. in Manhattan. “But there’s between 500,000 and 700,000 in the retail channel. If you do the math, there should be between 700,000 and 900,000.”

Major retailers agree Kantor’s math is correct. But none would speak on the record for fear of alienating Sony and losing out on any shipments they may have coming.

“Inventory shows the entire chain has maybe a dozen units,” one executive said. “But all that really represents are boxes that have been lost or stolen. I have nothing to sell except software and accessories, which, incidentally, aren’t selling without the console. We are not happy.”

But Sony insists that it is meeting its commitments.

“There’s not much we can do to respond to reports that are just speculation,” said Molly Smith, director of public relations for Sony Computer Entertainment America. “This, from my perspective, isn’t a huge story. We’re shipping in exactly what we promised. Our corporate challenge right now is to get as much product as we can into this market. Our priority is the consumer. This is all a little overwhelming for us as well.”

Meanwhile, Sega executives are practically salivating at the opportunity to put their product in front of consumers desperate for a new video game console under the tree.

“We have been the Rodney Dangerfield in this industry,” Moore said. “People still have some level of suspicion over previous missteps.”

In particular, Sega’s disastrous Saturn launch five years ago left enraged gamers holding a $400 box that quickly went belly up. Relatively few developers made games for Saturn, and Sega abandoned the console.

Sony used that failure to make its name synonymous with gaming to the current generation of players, much as Nintendo did a decade ago. Consequently, about a quarter of American households have a PlayStation.

Moore said he believes that the positions are now reversed. Suddenly, it is Sony that, having teased consumers into a frenzy, can’t deliver, and it’s Sega that has a high-quality product in the wings.

The next weekend will be key for Sega, Moore said.

“Right now, people are still holding out hope that they can find a PlayStation [2]. Sony has given false hope to a number of consumers. But at some point, people are going to have to decide whether or not they’re going to drink the Sony Kool-Aid.”

Moore said he doesn’t think his product is second best, but he acknowledges that Sony has done a masterful job of presenting the PlayStation 2 as more entertaining. He thinks that if people really compare PlayStation 2 and Dreamcast, they’ll pick his console.

“There’s going to be a lot of lists that need to be filled soon. If, God forbid, the PlayStation 2 is at the top of your list, you’re not going to get it. We’re going to dominate this space for the next year.”

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Sega’s Surge

Sales of Sega’s modern Dreamcast videogame console, below, finally started to take off in the third quarter, but largely at the expense of the Nintendo 64 sytem, not the 5-year-old original PlayStation. the question is how well Dreamcast will do against PlayStation 2.

First Quarter 2000

Console game system unit share by quarter. Excludes Game Boy.

Sony Playstation: 50.8%

Nintendo 64: 33.6%

Sega Dreamcast: 15.6%

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Third Quarter 2000

Sony Playstation: 52.0%

Nintendo 64: 26.1%

Sega Dreamcast: 21.9%