While cutting-edge technology has boosted PC games and delivered double-digit, year-on-year growth for the industry, video games are reaping seemingly all the audience and the attention.
The coming lineup is stunning: Sega Enterprises Ltd.'s (segny) Dreamcast has already sold 2 million units; Sony Corp. (sne) will deliver its PlayStation2 this fall; Microsoft Corp. (msft) will follow with the X-Box next year; and Nintendo Co. Ltd. (ntdoy) is expected to announce a similar release date for its Dolphin player.
It's the Age of the Console.
"There definitely seems to be a shift," said Matt Gravett, senior analyst with market researcher PC Data. "Microsoft jumping into the market seems to indicate that as well. They want to get in on the console side of things."
At the Electronic Entertainment Expo, which starts Thursday in Los Angeles, game makers and players will hope for a glimpse of where the console market is headed.
While the wait for next-generation consoles may make 2000 a slightly down time for the game industry, those same consoles herald a new, more exciting era for interactive entertainment.
As many as a third of all U.S. homes have consoles already. Currently, 23 million PlayStations, 13 million Nintendo 64s and 2 million Dreamcasts inhabit American homes.
Moreover, those game players are being used. A recent study commissioned by the Interactive Digital Software Association pegs three out of five Americans who are 6 or older as game players.
And it's that game culture that has vaulted the industry into the stratosphere.
Last year alone, game revenues -- for both PC and video games -- exceeded $8.4 billion, according to market researcher The NPD Group, topping the $7.5 billion brought in by movies at the box office and growing twice as fast.
"If you go back 20 years ago, the PC market is a line that goes up," said Ed Freis, vice president of games publishing for Microsoft, pointing out the steady growth in the PC game market. "The console market is very cyclical: The peaks and valleys revolve around the timing of the player launches."
Freis believes the coming of PlayStation2 and Microsoft's own X-Box announcement have thrown a couple of wrenches into the digital works, casting enough doubt in the market that consumers will deliver a down year to game makers.
Yet increasingly, more money and effort is moving toward the living room -- rather than the den -- in a split along genre lines, said PC Data's Gravett.
"Sporting games and shooter games will move to the console," he said. "I don't think it will wipe out the PC industry, but most of the money is being made on the console side."
On the other hand, he said, console games require a much larger ante than PC games. "Marketing for the console side is much more costly. You have to take into account TV advertising, which is not normally done for the PC."
A spokesperson for one Top 3 PC developer, who asked to remain anonymous, said developing software for the PC is also much easier.
"It's an open platform, so you don't need to submit your ideas to the console maker every step of the way. The downside on the PC is the (quality and testing) problem."
The last remaining hole in the puzzle for console games is the online piece.
Sega has gotten there first. While both Sony and Microsoft have announced plans to include an Internet connection with their devices, with every player equipped with a 56Kbps modem, Dreamcast owners will be able to buy games that connect to the Web.
Success depends on more than a prepared installed base, however. "So many people have tried online gaming, and so many people have failed to execute -- including ourselves," said Charles Bellfield, director of marketing for Sega of America. "But the experience has not been that immersive."
Sega has pared back hopes that it would reach 4 million units sold in the United States by the end of the year. Instead, it has put its bet on profitability and the extra revenue it can generate through a successful online strategy.
"With this new model, we need to focus on the core gamer and not the generalist," he said. "If you are a game developer and you need to differentiate yourself, your option with Sega is the online component."
