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Sega Web Strategy Includes Sega-Branded
Internet Access

By Rachel Beck   Associated Press
NEW YORK — Realizing online gaming will play a big role in the future of the video-game market, Sega Enterprises Ltd. is stepping up its Web presence with the launch of a new Sega-branded Internet service provider this fall.

Sega is expected to unveil today its plans for a new online entertainment company that includes SegaNet, a high-speed Internet service provider with multiplayer gaming as well as chat capabilities and information about its video games.

The company is the first of the video-game manufacturers to give a defined blueprint of how it will use the Internet to enhance playtime.

"Developing a credible online strategy is a necessity not a luxury in today's marketplace. The Internet is the top priority," said Sean McGowan, an analyst at the investment firm Gerard Klauer Mattison.

Just a year ago, Sega wasn't a contender in the U.S. video-game market. It failed to come up with a gaming system that could compete with rivals like the Sony PlayStation and Nintendo 64.

Then came its launch of Dreamcast last September. Since then, Sega has roared back and now commands a nearly 15 percent share of the U.S. video-game hardware market.

By the middle of April, the company expects more than 2 million Dreamcast units will be sold here, far above expectations.

But whether Sega can keep up this pace remains in question as its competitors bring their new gaming platforms to the United States. Sony is expected to launch PlayStation2 here next fall, while Nintendo's Dolphin and Microsoft's X-Box are expected in 2001.

With its rivals on its heels, Sega is looking for ways to hold onto its audience, and much of that strategy involves the Internet.

Up until now, people could access the Web through the modem-ready Dreamcast and whatever ISP they subscribed to, including everyone from America Online to Earthlink.

Once online, a user could download new characters and some game enhancements from Sega's Web site, but there was very little in the way of multiplayer online gaming.

Now, Sega is stepping up its online offerings.

It is forming a new company called Sega.com, which will be completely independent from parent Sega Enterprises Ltd. Sega.com already has received $100 million in funding.

Part of the new company will be SegaNet, a more advanced version of the Sega.com Web site — which will remain up-and-running for non-SegaNet users.

Dreamcast and PC users can subscribe to SegaNet, which will not only offer them online access but also will supply them with a wide range of content, such as tip sheets and cheat codes.

It will also offer a high-speed Web connection, which will allow online gamers to play against one another at a faster pace.

"They are creating a community of serious gamers, and it is a smart move," said Liz Leonard, a senior analyst at research firm Gomez Advisors in Lincoln, Mass. "There is a huge market out there of people who want to not only play games online but talk about strategy, etc."

Those who sign up for SegaNet will pay $21.95 a month, which is in line with many ISPs currently available. Those who agree to a two-year contract will get a check for $200 in return and a free keyboard.

When the ISP is launched next fall, consumers can sign up online or at most retail chains where Sega's products are sold. Sega has no plans currently to sell its hardware or software online itself.

Online gamers must still buy Sega's software, and only a few games, including Quake III and NFL 2K1, will be Web-compatible at first. Sega plans to quickly expand that roster.

Sega sees its moves online as an important step in breaking the business cycle in the video-game market. Generally, it takes about five years from the time a new gaming console hits store shelves until it is replaced by a more techno-savvy platform.

The Internet allows Sega to constantly offer enhanced play value to its customers, and give them more advanced games without having to buy a whole new system.

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