Video-Game Wars Part II: The Battle for Awareness

MOVE over Nintendo, here comes Sega.

A new chapter of video-game wars has opened complete with propaganda battles, disputed casualty figures, and claims of victory from both sides. But one thing has changed for good, analysts say: the "town" is big enough for both of them.

"Clearly Sega has become a force to be reckoned with," says David Leibowitz, an analyst for American Securities in New York.

Nintendo of America Inc., has long enjoyed an 85 percent or better slice of the industry's more than $4 billion market, the remainder divided among Sega of America, NEC Technologies Inc., Atari, and others. But last year, Sega got a jump by introducing a new system that uses 16-bit technology. The unit produces clearer graphics and color and more sophisticated effects than the 8-bit systems introduced by Nintendo and Sega in 1985 and 1986.

The company has been able to sell 3 million of the new, cereal-box sized consoles that hook into the back of a TV set and drive about 160 different video-game cartridges. The new territory has been carved out by "a hip hedgehog with an attitude," Sega's description of its video character, Sonic the Hedgehog. High-speed graphics, a maze that rotates 360 degrees, and the best video game of the year award from Electronic Gaming Monthly provided the company with a breakthrough into consumer consciousness tha t has long eluded it.

"Sonic the Hedgehog has become the breakaway software that sells hardware," adds Sean McGowan, toy analyst for Gerard, Klauer, Mattison. "He's faster than other video characters, and can spin, jump, and go through walls," says Colin Mayer, a 12-year-old video-game buff.

According to Bill White, head of promotion for Nintendo, the company's share of the video-game market dropped from 85 percent in 1990 to 79 percent in 1991, with $3.5 billion of the industry's $4.4 billion sales. Twice Magazine, a consumer electronics publication, puts the figure at 70 percent for Nintendo, 20 percent for Sega, and 10 percent for others.

Nintendo followed Sega into the 16-bit market in September and claims to have captured 60 percent of the market in its first four months by selling 2.1 million Super NES consoles. That would be double Sega's 1 million units sold for the entire year, and is disputed by several analysts.

"There seem to be two wars going on, one on the toy shelves and another in the company press releases," says Mr. McGowan. "If you talk to retailers, there is no question Sega is selling at a faster rate than Nintendo."

Nintendo counters that its 16-bit system is sold by twice the number of outlets as Sega. Mr. White acknowledges that his company has been looking over its shoulder at Sega because of a "tough retail environment" exacerbated by the recession. Having introduced its new system for $199 - compared to Sega's $149 - the company has already told outlets to cut $20 off the price. "A $50 difference during recession turned out to be a big deal," McGowan says.

The good news for Nintendo is that sales of its 8-bit technology continued far stronger in 1991 than industry experts had expected. Sales of 4.5 million consoles brought in $2 billion, more than all of Sega's and Nintendo's 16-bit sales combined. And despite the introduction by Sega and others of hand-held units that require no television set, Nintendo retains 80 percent of that market: 4 million "hardware" sets and 18 million "software" games sold. The next generation

Analysts say the true video-game wars are set for 1992-93 when yet another level of game is introduced known as CD-ROM. Units using compact discs that can hold huge amounts of information will make possible game-playing in what is called "real time": with real movie or video footage instead of computer-generated animation.

"CD-ROM will put you in a real airplane or race car," explains Bob Seligman, editor of Toy and Hobby World Magazine. Sega will show prototypes at a trade show in Chicago in June, and market CD-ROM late in 1992. Nintendo will roll out its model in January, 1993.

Video-game industry sales are projected to hold steady at $4 billion in 1992. Some analysts say the boom of recent years is over. Paul Valentine, of Standard & Poor's Corporation, says the bubble may burst this year.