Video game industry meets amid big transition

SAN FRANCISCO: This week, when the $20 billion worldwide video game industry meets in Los Angeles at its annual trade show, dubbed E3, it could coin a new game title: "Anticipation."

The industry is now undergoing one of the major transitions it experiences every few years, as it waits for new generations of video game console hardware to be introduced. And, as gamers-in-the-know wait for the new systems, prices start to drop on old products, sales slump and game makers post losses.

The much-anticipated industry event will be the U.S. launch of Sony Corp.'s PlayStation2 sometime in the fourth quarter. So at E3, all eyes and ears will be on Sony Computer Entertainment America executives when they host a press conference on Wednesday, in the hopes that they will disclose the launch date and possibly the pricing of their hot new system, which has been lauded in the gaming press for its super-fast graphics and realistic three-dimensional images.

PlayStation2 was released in Japan earlier this year. Video game developers will also be demonstrating their first games designed around the PlayStation2, with companies like industry leader Electronic Arts Inc. planning to demonstrate seven new software titles for the PlayStation2.

"What I'm interested in seeing are the applications of this new technology, the first Playstation2 games," said Joe Funk, editor-in-chief of Electronic Gaming Monthly. "Hopefully, we will also see some glimpse of the Dolphin from Nintendo."

Nintendo Co. Ltd., which has been riding the wave of popularity of its Pokemon characters on its Gameboy handheld consoles, needs a new hit. Analysts said that the popularity of the Pokemon characters is starting to ebb and it needs a new console to replace the ageing Nintendo-64.

At last year's E3, short for Electronic Entertainment Expo, Nintendo reaped much attention by announcing a surprise pact with International Business Machines Corp.. IBM agreed to manufacture the chips for a new Nintendo video game console code-named the Dolphin, but since then details of the system have been sparse.

Indeed, after software behemoth Microsoft Corp. announced in March that it would enter the video game business with its own console, now called the X-Box, No. 2 Nintendo said that it would delay the North American and European launch until the first half of 2001. No further details have been disclosed. Nintendo also plans a press conference on Wednesday, but a spokesman said the news would primarily be software related.

"I'm sure they will talk about it behind closed doors, I don't know if they will talk about it publicly," said Ed Roth, a video gaming analyst at NPD Group Inc. in Port Washington, N.Y.

But, amid the anticipation of the eventual shoot out between Sony, Nintendo, Sega Enterprises Ltd. and now Microsoft, game developers are coping with price drops and sluggish sales.

Just Tuesday, when Santa Monica, Calif.-based Activision Inc. reported a fiscal fourth quarter net loss, it also forecast a loss for its first fiscal quarter, and predicted its own sales would fall 10 percent in fiscal 2001, and earnings will drop 30 percent for the year, amid the transition.

Last week, Electronic Arts told analysts that it expects overall industry sales to drop between five to 10 percent in 2000 from 1999 and in March, Acclaim Entertainment Inc. predicted a loss for its fiscal second quarter.

"We expect the console transition will result in a slowdown of software sales as the momentum shifts to new platforms like the Playstation2," said Activision Chairman Robert Kotik, on a conference call. "Lower average software prices and lower unit sales are having a negative effect on industry sales."

(C) Reuters Limited 2000.