Sega Denies Rumors It Will Drop Dreamcast

A besieged Sega Corp. fended off rumors Tuesday that it would cease to manufacture its Dreamcast video game console and start making games for rivals.

“We totally, utterly confirm our commitment to the Dreamcast technology and platform,” said Charles Bellfield, director of marketing for Sega of America Inc. in San Francisco, the U.S. arm of Sega Enterprises of Japan.

Bellfield did not rebut speculation, however, that Sega is in talks to develop games for rival game console makers, including Sony Corp. and Microsoft Corp. Microsoft and Sony declined to comment.

But in a recent interview, J Allard, general manager of Microsoft’s forthcoming Xbox game console, said, “We think Sega games would look great on Xbox.”

A Tokyo newspaper said Tuesday that Sega plans to stop production of the game console by March.

“Sega may be denying that it is getting out of the console business today, but that doesn’t preclude it from exiting the market in the next few months,” said P.J. McNealy, senior analyst at Gartner Group, a research firm, in Silicon Valley.

Sega’s Dreamcast console continues to lose market share to Sony and Nintendo in U.S. video game console sales, despite relatively strong sales in December. Sega had hoped to gain ground after Sony ran into parts shortages for its new PlayStation 2 console last fall.

In December Sega sold 463,750 Dreamcast consoles, compared with 515,000 Sony PlayStation 2 consoles and 640,000 Nintendo 64 units, Video Business, an online industry publication, said Tuesday.

Sega also faces Microsoft’s Xbox entry to the game console business this year, as well as Nintendo’s new GameCube console.

Sources say Sega is close to licensing its Dreamcast game platform to Pace Micro Technology, a set-top box manufacturer in England. Bellfield also suggested that Sega intends to license its Dreamcast operating system for playing Sega games on cell phones, personal computers and even hand-held organizers.

Sega’s Dreamcast fell to a meager 15% of new game consoles sold last year in the U.S., compared with 47% for Sony and 37% for Nintendo. In 1999 the Dreamcast claimed a 22% share, said the NPD Group Inc., a market research firm in Port Washington, N.Y.

Analysts expect Sega to post losses in the hundreds of millions of dollars in its fiscal year ending March 31. Because of Sega’s shrinking market share, there was speculation last month that the company was talking merger with Nintendo. Both Sega and Nintendo denied a deal was in the works.

Sega shares in Tokyo were up 16% in early trading today, to about $12.56 a share.

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Times staff writer Jon Healey contributed to this report.

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Video Game Wars

Sega’s share of the console market fell nearly 32% between 1999 and 2000 amid a weak year for the console industry. Sega sold 1.3 million of its Dreamcast video game consoles last year, about one-third in the month of December.

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Market share in the U.S. (hand-held consoles not included)

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1999

PlayStation: 48%

Nintendo 64: 30%

Sega Dreamcast: 22%

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2000

PlayStation and PlayStation 2: 47%

Nintendo 64: 37%

Sega Dreamcast: 15%

Source: NPD Group Inc