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Can Sega make a comeback? Which company will come up with the key digital home electronic appliance of the future?

In a bid to stay in the running with Sony and Nintendo in the home video game market, video game maker Sega Enterprises Ltd. announced at a news conference in Tokyo Tuesday it will follow two key strategies: lower prices and online gaming.

Sega’s salvo opens the second round of the game machine wars being waged by Sony, Nintendo and Sega, each of whom desperately seeks success in the market for different reasons.

For fiscal 1998 ended in March, Sega suffered consolidated net losses of 42.88 billion yen, marking its second consecutive year in the red.

Sega had pinned most, if not its last, hopes on Dreamcast, a next-generation game machine that debuted in Japan last fall.

But Dreamcast sales have fallen short of Sega’s target. Shipments had reached only 1 million as of May, against the firm’s initial projection of 1.5 million units — by March.

As part of its lower price strategy, Sega will slash the price of Dreamcast from 29,800 yen to 19,900 yen beginning June 24.

Sega President Shoichiro Irimajiri said the new price will be much lower than the cost of Sony’s next-generation game machine, PlayStation2, expected to be released this winter.

Sony Computer Entertainment Inc. stunned industry experts earlier this year when it gave a sneak preview of PlayStation2’s massive calculation power, courtesy of new graphics chips jointly developed by Sony and Toshiba Corp. Sony has invested 50 billion yen in a joint venture with Toshiba in Oita Prefecture to produce semiconductors for the game machine.

But industry observers expect PlayStation2 to be significantly more expensive than Dreamcast, given the huge development and production costs needed to develop the chip and an entirely new game from scratch.

“It will take considerable time before (PlayStation2) falls below 20,000 yen in Japan and $199 in the U.S., which is the level at which a game machine begins to spread among general users,” Irimajiri said.

Sega has already announced that Dreamcast will debut at $199 in the U.S. market on Sept. 9 and at 199 pounds in Europe on Sept. 23.

Sega’s second key strategic focus — network games — is also dependent on Dreamcast. Sega’s machine is currently the only game console equipped with a high-speed modem.

Sega plans to launch gaming services that will enable Dreamcast users in the U.S., Europe and Japan to compete with each other via the Internet. The service is scheduled to begin overseas in the fall and in Japan by the end of next March.

But observers point out that telephone charges are still relatively high in Japan, which makes it difficult for users to connect to the network for long periods.

Irimajiri said his company is negotiating with certain firms to procure lower Internet access fees but declined to give further details.

Nintendo Co., which once dominated the global market, is also lagging behind Sony.

While 50 million units of PlayStation have been shipped worldwide so far, only 20 million units of Nintendo’s flagship Nintendo 64 have been sold.

The sense of crisis apparently prompted Nintendo to form an alliance with Matsushita Electric Industrial Co. to jointly develop a next-generation home game machine that will use Matsushita’s state-of-the-art technologies for versatile digital discs.

Sony, which is tacitly acknowledged as the sole winner in the game machine arena so far, has its own reasons to desperately defend its stake in the video game business.

The Sony group is now heavily dependent on profits from the video game business, and revenues from traditional electronic products have dropped rapidly in recent years.

Suffering from a worldwide decline in prices, operating profits of the Sony group’s electronics divisions have plummeted 58.7 percent to 129.85 billion yen in fiscal 1998. Profits from video games, however, have surged 16.7 percent to 136.5 billion yen compared with the previous year.

In March, Sony announced it wold make Sony Computer Entertainment Inc., progenitor of the PlayStation, into a wholly owned subsidiary, bringing the rapidly growing unit closer into the Sony’s group’s fold of core companies.

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