The first titles released on the new console demonstrate the power of the “emotion” engine, as Sony has dubbed the guts of its PlayStation2. As the heart of the console, the emotion engine provides the processing power for the lifelike graphics: Strands of hair blow sensuously and realistically across the face of Ai Fukami in Ridge Racer V. Horses bob and sway gracefully in a sumptuous scene, as warriors ride into battle in strategy-simulation game Kessen. Kessen’s gameplay, of course, is a complete mystery to me — it speaks Japanese and I don’t. Still, I’m impressed by the smooth mobility of the general’s facial expressions as he speaks to his troops. And as developers learn to harness the power of the new engine, the gaming industry expects truly astounding second- and third-generation PlayStation2 games to emerge.

Sony sold 720,000 PlayStation2 units in its first three days on the Japanese market; gamers have pre-ordered another 200,000 online. Lotteries determined which lucky Japanese gamers would be able to purchase the PlayStation2 at retailers on the first day; American gamers either have to import the machine — prices currently range between $700 and $800 — or wait till Sony officially brings it to U.S. shores, with an expected price of $300 to $400.

The PlayStation2 games are beautiful, but so are titles like Soul Calibur that run on the Sega Dreamcast. The battle for dominance in the multibillion-dollar gaming industry is far from over. Sega got a head start by releasing the Dreamcast
console more than a year ago in Japan, and following up with a $100 million marketing campaign for its September 1999 U.S. launch. But this week Sony got an incredible start in Japan with the best console launch sales to date; it will no doubt put serious muscle into the PlayStaion2′s U.S. launch. But the battle will likely be fought and won with the next generation games, the titles that will release in the coming years once developers get a grip on the new consoles’ engines. No matter which company comes out ahead, gamers seem
to be winning thanks to the speed and beauty of the latest machines.

The bad news was that Software Etc. and Sega made a mess of the much-hyped affair, part of Sega’s $100 million marketing campaign for the Dreamcast. This in turn called into question Sega’s ability to pull off the turnaround it desperately needs.

At the San Jose event — one of the four simultaneous U.S. midnight launches scheduled also in Atlanta, Las Vegas and Minneapolis — the Software Etc. staff was only beginning a dry run of checkout procedures 30 minutes before the doors opened. The stressed retail staff grumbled that Sega should have “warned them” or better prepared them for the event. Sega P.R. had to relinquish control of the actual store opening to Software Etc. staff.

While hundreds waited in the rain, Dreamcast buyers were admitted 10 at a time. Most customers had pre-ordered to guarantee they could get a Dreamcast on 9/9/99 — launch day. Still, runners had to fetch the consoles and the specific games ordered before buyers could approach the handful of cash registers. Actually getting a Dreamcast could have taken all night. When I left at about 12:30 a.m., only the first 20 or so Dreamcasts had been sold. With several hundred people in line and four people working the registers, it looked like slow going.

It was a frustrating kickoff for the latest-generation console, widely recognized as Sega’s last hope in its losing market-share battle with Nintendo and Sony’s Play Station. After it disappointed gamers with its last console, the Saturn, the company that once dominated the gaming scene with 60 percent of the market now claims an embarrassing 1 percent, according to the Wall Street Journal. The Dreamcast launch came on the heels of the recent ouster of Bernard Stolar, CEO of Sega of America, and disappointing Dreamcast sales in Japan. It was a critical test of Sega’s ability to recast itself. Sega must reassure consumers and observers that it has a winning product and a competent team. The scene in San Jose seemed to demonstrate that the company has yet to pull itself together.

For diehard fans, though, none of this mattered. “Sega’s gonna survive on the quality of its games, not on its CEO,” said fan Henderson Stansbury. Two teenagers camped out all night to be first in line, and a pair of brothers turned up at 9 a.m. Wednesday to make sure they were among the first in the door. Others waited hours in the rain, protecting themselves with trash bags and newly acquired T-shirts.

Rene Fromholditreu, who had pre-ordered his Dreamcast online only to find his order mysteriously canceled, turned up anyway, hoping to buy a console after all the preorders were filled. “It’s great,” he said of the system. “That’s why I’m waiting to buy one.”

“That just shows how dedicated our consumers are to this product,” said Sega spokeswoman Jennifer Walker, casting an eye toward the drenched, patient fans. Perhaps. The system is good; the games are good — and most everyone in the gaming industry agrees that a three-way run between Sony, Nintendo, and Sega is the best thing for gamers. But no one wants to see the fans get soaked. It just makes you wish Sega could get its act together.

After all, the Dreamcast is Sega’s best, and maybe last, hope. The new 128-bit gaming console is impressive, the graphics are incredible, it moves fast, costs only $199 — and it comes with a built-in 56K modem for online play purposes, a first for a console. But right now that is not enough; it needs to be a smashing success.

Dreamcast has to turn Sega around. In 1993, Sega controlled more than 50 percent of the video game market. Its Genesis console, released in 1989, was enormously popular; at the time many a kid joked that SEGA stood for System Eating Grade point Average because of the amount of time spent playing it. But the Saturn, Sega’s 32-bit console released in 1995, suffered from all kinds of problems — including a lack of third-party developer support, few titles at launch, and an expensive $400 price tag. Sega lost its market share rapidly as Sony’s PlayStation became the platform of choice, and Sega eventually stopped supporting Saturn, much to the ire of the gamers who had made the pricey commitment to its platform.

Now, folks like Jarett McCarthy, 19, a hardcore gamer and a hardcore Sega fan, are wary. “I think that they burned us by going into [Saturn] half-assed. If you look back, [Sega was] able to succeed against the superior Super Nintendo Entertainment System with their Genesis by advertising aggressively and releasing games that were as good as, if not better than, their Nintendo counterparts. With the Saturn though, it seemed as if they gave up … after the PlayStation started to beat them out in console sales. Then they started releasing fewer good games and not porting certain excellent Japanese titles,” he says.

McCarthy expresses only “cautious” excitement about the Dreamcast. “I think that they are going to have to win people all over again,” he says.

Sega knows this — and is going all out, with a $100 million marketing campaign and efforts to entice game makers to build cool games for the new platform. If the console fails to win over huge numbers of gamers, conventional industry wisdom says, it will be the end of Sega. The company has been hemorrhaging money of late — it reported a net loss of almost $400 million in April — and its market share has dwindled a pathetic 5 percent, according to some reports. Meanwhile, the Dreamcast hasn’t done as well as expected in Japan, missing its target of 1 million units sold by last March.

So, a great deal of weight has been placed on the United States launch, which is why it’s so surprising that Sega would make such a major and unexpected executive change so close to Sept. 9 — launch day.

Speculation about the reasons for Stolar’s departure is widespread. The official company line is “not to comment on personnel decisions.” But the timing was certainly odd. Some Sega staffers think that parent company Sega of Japan wanted one of its own in the top slot to bring the two divisions closer together (Kezuka worked at the Japanese offices prior to moving to the United States earlier this year). Perhaps, say some, Stolar was pushing a different strategy than Japan. Others say that Stolar was a stiff public speaker and made for an awkward front-man, which is not what Sega needs right now. Certainly, he never inspired the respect that Shigeru Miyamoto, Nintendo’s prize game maker and gracious unofficial company representative, garnered — or even that of Howard Lincoln, Nintendo of America’s smooth chairman.

At a recent industry conference, Peter Moore, Sega of America’s senior vice president of marketing, jokingly called Stolar the “Prince of Darkness,” in a lightly veiled reference to Stolar’s reputation among many gamers. Stolar’s popularity took a decided hit when Sega stopped supporting its Saturn. The Saturn was in serious trouble before Stolar arrived on the scene, but it was on his watch that the company ultimately pulled the plug and, for many, he is associated with its demise.

Startling as Stolar’s departure may be, it is only one of several personnel changes. Sega Enterprises, the parent company, let go of nearly 1,000 people in Japan after announcing the $400 million loss. And in the United States, things haven’t been running perfectly smoothly. For instance, Stephen Ackroyd was brought in as vice president of and general manager of business development to manage Sega’s network
gaming and e-commerce business model last September, but was gone by March. Since then, Sega has hired several new executives with the hope of reinvigorating the company’s brand — and to distance Sega from the Saturn debacle. Moore, who was at Reebok when Sega had its Saturn problems, has spoken loudly and often about Sega’s previous mistakes, and repeatedly promised that things will be different this time around.

“We screwed up,” Moore told retailers in back in April. “Everything that went wrong with Saturn, we’ve learned from: insufficient distribution; poorly thought out marketing campaign; hardly any software at launch — all of those things have been resolved and are well in our past.”

This time around Sega is promoting its console big-time. The plan is to build up an extensive community of gamers before Sony and Nintendo can get next year’s PlayStation 2 and Dolphin into gamers’ hands. So, Sega has deluged retailers with glossy marketing materials and unleashed pre-release rental units at a video store chain. Its advertising campaign includes sponsorship of the MTV Music Video Awards — conveniently airing on Sept. 9 — and ads featuring the cool Dreamcast logo, (a spiral, often swirled inside a hazel or orange eye), in Spin, Rolling Stone, Vibe and gaming publications, plus airtime on Fox, ESPN, WB and UPN.

The “It’s thinking” ad campaign is slick and high-tech, with movie-like commercials conveying the message that the Dreamcast is an intelligent machine with the power to communicate through its network connection. (The early teaser campaign offered a more mysterious collage of provocative, fast-moving images and faces whispering “It’s Thinking.”)

But more important than any marketing or advertising, the Dreamcast will launch with a strong lineup of games. Thirteen titles will be available Sept. 9, including Sega’s platformer Sonic Adventure, starring Sega’s popular mascot, Sonic, in a 3-D world; Namco’s fighter Soul Calibur, which has received rave reviews for its graphics, control and depth; and Midway’s quick and entertaining boxer, Ready 2 Rumble. There are plans for 14 more games to be released before the new year — and game demos will come with the official Dreamcast magazine, published by Imagine Media.

Plus the built-in modem will enable users to upgrade games online, as well as send e-mail, chat, check stats, participate in communities and most importantly, engage in head-to-head play. Sega recently announced a deal with AT&T to provide online services, but at the time of launch, no games with head-to-head play will be available. Sonic Adventure will take advantage of the modem in small ways (you can upload and download scores and stats, for example), but head-to-head racing in the much-anticipated Sega Rally 2, along with all other serious online gaming, will have to wait. “The building of the infrastructure is an enormously complex undertaking,” says Moore.

All of the effort is absolutely necessary if you talk to some gamers. One employee at Electronic Arts, a game-making company that has no public plans to build a Dreamcast game, said he was impressed by the Dreamcast’s showing at the gaming convention E3, but that he is “not particularly motivated to buy a Dreamcast because I think the PlayStation 2 will be significantly better.” The employee, who asked that his name not be used, owns a Nintendo 64 and plays games on his PC as well, getting in ten to 20 hours of gaming a week — and he says he is “intrigued by the DVD aspect” of the PlayStation 2, which will be DVD-based, as opposed to the GD-Rom format of the Dreamcast. He’d be thrilled if Sony rigged the new PlayStation to play DVD movies as well as games — though that’s not currently part of the plan. (If Sony doesn’t make the PlayStation 2 movie-compatible, the Electronic Arts employee says he “wouldn’t be surprised if there was a hack out for it shortly” after the system’s release.)

But what impresses this gamer most about the PlayStation 2 is what he hears from other game developers. “Everything I know from the industry says the number of games for the PS2 will be astounding,” he says. It’s going to get “a lot of support,” he confides, far more, he suspects, than what the Dreamcast has now.

Still, Sega is not without prospects. In fact, something at Sega is working — be it the marketing blitz, the gorgeous screenshots of new Dreamcast games like Sega Sports NFL 2K, or the recently hired executives. Sega announced that it has more than 200,000 pre-release orders for the system.

“These are among the strongest pre-sell results we’ve ever seen, and they do indicate a very high level of demand for the system for this holiday season,” says Sean McGowan, an analyst at market research firm Gerard Klauer Mattison & Co. And Sega is, at the moment, on track to meet its goals of selling 1.5 million Dreamcast units by March 31, having surpassed its pre-order targets.

“They’re doing some things very differently,” says McGowan, who credits Sega with having a “dramatically better product than anything else on the market.” By going after a broad swath of retailers, rather than the few it targeted with the Saturn, and launching in September rather than May, when kids are getting ready for camp and outdoor activities, he says, Sega is showing that it has changed. Beyond all that, “the price is terrific,” he says. “For $199, buyers get the best deal ever on a new system at launch, as measured in ‘power per dollar.’ And a modem. Finally, the number of titles available at launch and within three months of launch is, perhaps, the best ever.”

Yet McGowan sounds a note of caution. “I think the 500,000 to 1 million buyers of Dreamcast in the next six months are people who have been waiting four years for a new video game system, so even if they plan to buy the PlayStation 2, they don’t want to wait another year. And they may be just as likely to buy [Dreamcast, and also] PlayStation 2 and Dolphin when they are launched. The real battle is not for the hearts and minds of the first million. It’s the next 30 million that matter, and that battle comes after Christmas 2000.”

But right now, the next-generation systems from Sony and Nintendo are basically still on paper, and Sega is looking to get hold of gamers early and hook them, long before next year’s releases of other systems. “I’d rather be where I am right now,” says Moore, “than having the promise of where Sony might be a year from now. The ball’s in our court; if we screw it up, drop it, fumble it, it’s our own fault.”

Sega’s marketing campaign and attempted seduction of gamers will continue into the coming months, and will receive a helping hand from the Dreamcast itself. Dreamcast users will be able to connect to Sega-sponsored community areas, which will build loyalty, and also keep Sega in touch with who its users are and what they are looking for. “The great thing is that everyone who is a part of the [Dreamcast] network is 100 percent a consumer,” says Moore, “because they need to own the hardware to be on the network”

“I like to say I get to boys in their bedrooms,” Moore jokes, “but my PR department says that’s not the right thing to say.”

It’s this sort of edginess, Moore’s impulse to talk about boys in their bedrooms, that Sega is shooting for — a hip, xtreme, raw image that harkens back to the days when the Genesis was king and cool. Sega is aware that this is its last chance; it’s lost so much money and market share in past years that it simply can’t withstand another failure.

It’s not clear whether Stolar’s reported ouster was related to this drive to change, and it will be months before the effectiveness of any of the company’s changes can be measured. But many gamers sound hopeful about the Dreamcast’s chances of success. Says gamer Adam Richardson, who has been playing on a Dreamcast console imported from Japan, “I am looking very much forward to [the U.S. Dreamcast] launch. I have played the system and many of its games extensively and I feel it is something that has been a long time coming.” A long time coming indeed.

“Ruekilla” (his gaming handle) is a 24-year-old student who says he “made $1,747 in two weeks by selling platinum, then the next week sold my character for $1,500.” He has sold four of his own creations, because he was “getting out of control” and spending too much time playing. “People need to make extra cash somehow,” he says. “This is a quick, easy way to do it, and if you earned it, you can sell it.”

Earning items like platinum or precious jewels is part of the fun of a role-playing game, or RPG. To play EverQuest or Ultima Online, you first buy the game itself and then establish an account that allows you to enter the online multiplayer world. Then, you choose a character and begin wandering the world. Along the way, you build up experience, gather items like platinum pieces by killing monsters or doing good deeds, forge alliances with other characters and so on. Through such efforts your character can gain new skills (like the ability to craft armor) and magic spells, as well as the ability to move into higher levels of the game. But it can be quite time-consuming to build a high-level character — which is why some people are opting to buy ready-made accounts instead.

Twenty-one-year old “Jim” (who, like most of the gamers interviewed for this story, prefers to remain anonymous) is an administrator for an Internet service provider — and an EverQuest fanatic. He says he plays as much as 60 hours a week and claims to have reached level 24 in less than a day — an extraordinary feat. Jim has played so much and gotten so good, he’s now trying his hand at building characters for people who are either too lazy, too impatient or too busy to build their own. And he’s charging real-world money for his services.

So far, he estimates that he’s made about $2,000. He has “personally built about six [characters] now,” but says that more than “20 total have passed through my hands.” Three friends pitch in and help when he’s too busy. And, he says, there is a waiting list of about 30 people who want him to build characters for them too. Jim is considering taking a vacation from his regular job to concentrate on gaming; he figures he “could easily make $10,000 in a month if I had the time.”

Jim wants to build the characters now, while the market — and his services — are hot. EverQuest formally launched in March; so it’s had time to become popular, but not enough time for most players to fully develop their skills. But Jim expects that before long, “more and more people [will] become experienced and stronger and able to obtain the things they want” all by themselves. So, he’s looking at “character building” as a short-term career; he figures three months from now the demand will have dwindled. But, at $10,000 a month, he could put away a chunk of change before the market slows.

Of course, not everyone who offers goods on eBay meets with the success Jim and Ruekilla have found. A powerful character — a level 31 wizard with all kinds of accouterments — was listed at a greedy $1,000 a few weeks ago; but even as the auction reached its final hours, not a single bidder had emerged. And seller “oogog” had no luck auctioning a server and domain name, planeteverquest.com, for $20,000; perhaps it was priced a bit high.

Other troubles, too, have beset account auctioners on eBay. Origin, the maker of Ultima Online, said last month it had dismissed one of its employees for taking advantage of his position with the company as a game master — a staffer paid to play, help newbies, solve problems and generally keep things running smoothly. The industry scuttlebutt is that the game master was selling items on eBay.

Origin declined to elaborate on an announcement it posted on June 28, which said that the company “found reason to believe that this employee was engaging in activities that breached the trust that must exist between a company, its employees, and its customers … We are grateful to players who bring these incidents to our attention, as these reports are used to ensure that [Origin] representatives are providing the best possible service at all times.”

Given that the game master, or GM, is supposed to be in the game to help out — and that he has far more power in the game and access to items than an ordinary player would, precisely so that he can assist others — using that power for personal gain is sketchy behavior at best.

“I think firing the GM is too nice,” Scott Holmes, co-owner of the EverQuest Guilds fan site, said in an e-mail. “If UO [Ultima Online] has any legal recourse they should take it; that GM has permanently tarnished UO’s reputation.” He says that among his friends, “UO has come up in conversation five times in the last week, and the conversation always starts with the GM who was selling items on eBay and ends up with ‘I’m glad I don’t play there.’”

Origin may now be keeping a tight watch on GMs, but it has absolutely no objection to players selling items on eBay: “It’s not illegal in Origin’s eyes,” says spokesman David Swofford. Although Origin obviously prefers that people play the game from start to finish themselves to get the full Ultima Online experience, Swofford says that most of the people buying accounts are already players and may well be buying new characters simply to broaden their experiences in the game, something he thinks is of real value.

As for people creating characters solely for the purpose of selling them and using the game to make money, the Ultima world “is a reflection of the real world,” he says; “people are welcome to play the game that way.”

But Ultima Online is no longer the prime RPG territory. These days EverQuest, created by 989 Studios and published via Sony’s Station Web site, is the hot ticket. And EverQuest’s makers are less enthusiastic about the commercialization of their game. An EverQuest spokeswoman said she couldn’t comment until her response had been vetted by 989′s legal department — but more than a week after we first spoke, the lawyers had approved no statement.

Meanwhile, eBay — the site of most of the auctions — takes a hands-off approach to dealing with the sales of EverQuest and Ultima accounts. All transactions are “between the buyer and seller,” according to Kevin Pursglove, eBay’s senior director for communications. If a seller were doing something illegal, or if a company complained that intellectual property rights were being infringed upon, eBay would investigate, but otherwise it stays out of all transactions. EBay would neither confirm nor deny receiving complaints regarding Everquest and Ultima.

The RPG community itself is split on its view of the trade in characters and items. More hardcore players seem to be in favor of playing the game through, rather than buying your way in, but so far there have been no protests against the practice. “About half don’t like it, and the other half are the ones making money,” said one player.

A thread running on the EverQuest Guild message boards right now talks about this very issue — and there’s little to no hostility over it. “If they want to miss out on the fun of building their own character and waste $1,000, then I don’t really care,” posted “Falpus.” Another poster joked, “I wouldn’t sell my guy for [$1,000]; someone else’s guy — that’s different. Hey, anyone have a level 50 character I can sell?”

EverQuest fan Holmes, however, isn’t making any jokes about the auctioning. “I think it undermines the quality of the game. I have played on text MUDs [multi-user domains] for years, and when a character is sold, the rest of the characters resent the character. The new owner did not earn that character or put in the many hours to get it to where it is now. The distrust for the character turns to distrust of the gods [in the game] and the game itself, as it leads to assuming the gods themselves are selling characters and items, and then players leave,” he says.

“There are two types of players who make up the RPG community,” adds Holmes. “You have the players who want to role-play and have fun, which I would say is about 75 percent of the people, and the other 25 percent who will do whatever it takes to make sure they have the best character possible.” Here Holmes is adamant: “No one likes the 25 percent and the 25 percent don’t even like each other.”

A 19-year-old student named Serge takes a more world-weary view of it all: “I don’t have any problems with selling items; I’m not particularly happy with it, but it was obvious people would do it. Buying items … well, there’s a sucker born every minute.”

But, Serge figures, players stand to benefit from the market for items and characters. “Once you tire of the game, your time spent playing it isn’t a complete waste,” he says. Serge figures that in five years, time spent playing the game could be a whole new career; he predicts people will be making big money on gaming.

“Demand [for in-game items and characters] is not an issue after a certain point,” he argues in an e-mail. “There are enough new players coming in so that there will always be a ‘floor price’ for low amounts of platinum. (If your 5,000-platinum auction doesn’t get enough, auction off 100 platinum lots and it will.) … In the next few years, I think you’ll see a lot of people making in the $50,000 a year range just playing games.”

Ruekilla agrees that making a lot of money is possible. “At level 50, my character made around 5,000 plat a day,” he says. “I could sell 35,000 plat a week, selling at about $800 a bundle, so that means $5,600 a week. ” He admits that this is only possible “if you’re lucky and can find people to buy all that platinum. Making $1,000 a week is totally realistic though,” he adds.

The idea of going pro has long been pushed by the Professional Gamers’ League (PGL), which was formed in 1997 with the goal of turning gaming into a spectator sport and building a stable of “professional gamers.”

Several years ago, Thresh, a master Quake player, was heralded as the first real “star gamer,” the Michael Jordan of the PGL. He won Quake developer John Carmack’s Ferrari and big prize money in Quake tournaments — and the hype was hot in both the mainstream and gaming press. But though the PGL is still holding tournaments and awarding prizes (Bon “Kuin” Danan recently won $10,000 in a Quake II tournament), it just hasn’t taken off the way some hoped it would — and the buzz about pro gaming has all but disappeared.

Aren’t the young men who think they can make a living playing RPGs and selling characters overly optimistic?

“I seriously doubt that there would be enough of a market to make a living selling RPG items or characters,” says John Gray, a computer consultant, who at 31 has racked up 15 years of RPG experience. “Earning the items to be sold would be a very time-intensive process … If you could make a living doing that, I’m probably in the wrong career!”

It would indeed take a lot of time and energy to earn a living building characters for others and selling items — enough that the pleasures of gaming might simply be converted into the stresses of work. That’s probably why most of the people you are likely to encounter while playing EverQuest are doing just that — playing.

In fact, a few weeks of probing the gaming community turned up not one soul who is actually succeeding at it. Instead, the waning demand expected by Jim is already noticeable. As recently as three weeks ago, a quick scan of eBay turned up a half-dozen items selling for $800 or more; on Friday, there were no EverQuest-related auctions to be found at such prices. And platinum pieces, which sold for a dollar apiece two months ago, are now often priced at three to the dollar.

What would-be pros would need to stay in business is a constant stream of new RPGs, creating fresh demand for new items and characters. But the major-hype games don’t come out every day; the next one expected to be a big deal — Asheron’s Call — isn’t scheduled until this fall. Another approach would be to figure out a way to auction on eBay pieces from other game genres — like first-person shooters, 3-D action-adventure games, racing games, sims and the whole lot. But that would take a monumental shift in the gaming industry.

It’s too early to consider character building a true profession, but that’s not stopping the dreamers. Jim, for one, plans to use his formidable gaming skills to supplement his income for as long as he can.

Not that Sega seems to think so. Wandering around the company’s E3 booth Thursday with David Karraker, vice president of Sega’s PR agency, Access Communications, I heard nothing but confidence. Sega’s Dreamcast machine is built and coming out, unlike the other two “next generation” machines from Sony and Nintendo, which are still in development. Third-party support for Dreamcast is “terrific,” says Karraker — although “decent” might be a better word. And take a gander at the 46 games on the show floor and the dozens more lined up for release, he suggested.

After spending some time playing the various games and seeing what Sega had to offer in terms of good games actually on their way to the Dreamcast, I have a higher opinion of its chances of success, though I’m still not convinced that it’s going to be the industry-sweeping sensation Sega is touting.

When Nintendo announced that it was going to build its new machine around DVD, instead of the cartridges it has used in the past, it entered into direct competition with Sony, whose PlayStation 2 will also be DVD. Sega’s machine is based on the older CD format, so it’s not entering this head-to-head DVD machine contest.

Everyone agrees that the console industry benefits from having three companies making hardware — better competition means more and better games and cheaper hardware. For that reason, most observers, me included, would like to see Sega survive and prosper in this market.

Gamers buy systems based on the games available: They want to put their dollars into the system that has good hardware, but, more importantly, into one that’s going to provide them with great game-play and fun. This much the Dreamcast can do. However, as the gaming industry gets larger and works harder to draw in the mass market, more than just serious gamers will be buying console systems. And to them, the question of whether the system they’re buying is just for games or might be used for watching movies may well matter, giving Sony and Nintendo a huge advantage. If that happens, Sega could be in a world of hurt.