Fight To The Finish

Imagine yourself as ridge racer, careening in a rocket-powered car through an ever-changing, three-dimensional landscape. You roar past multicolored grandstands, swerve through tree-lined S curves, blast along sandy beaches. A ""camera,'' seemingly mounted on a helicopter, tracks your breakneck progress around the course, moving seamlessly from rear to full-frontal views as you wheel full circle in a rubber-wrenching spin turn and accelerate into oncoming traffic. Whoa! says Youichi Haraguchi, a general manager of Namco, the Japanese videogame maker: ""There hasn't been a game like this before.''

Oh yeah? Tell that to 3DO, the upstart California game maker. Right now, Ridge Racer is selling only in Japan. But sooner or later it will come to America -- and smack up against yet another road-racing video, Crash & Burn. The run-in will be more than symbolic, for the real-life videogame business has come to resemble fantasy auto racing: full of sudden reverses, hellbent chases and high-speed brushes with disaster. Four years ago Nintendo ruled the world, buoyed by titles like Super Mario Bros. Now Sega has edged ahead, lofted into dominance on the strength of its supercharged Genesis system. The competition has been bruising -- and it's about to get worse. The bloodletting will start this Christmas, then escalate. By this time next year Sony Corp. will push into the fray, offering a powerful compact disc-based system engineered for thrillers like Ridge Racer -- and backed by its almost unmatched marketing power in consumer electronics. U.S. computer makers are already selling CD-ROM PCs that are increasingly being used to play games. Witness the stellar success of Myst and The 7th Guest with their haunting, high-resolution sound and graphics. All together, it's virtual video war out there.

The stakes in this Mortal Kombat are huge. With nearly $6 billion in sales, the U.S. videogame industry is bigger than the movies. But the major players are vulnerable. After a decade of torrid growth, the market is slumping. Sega's earnings plunged 64 percent last year. Nintendo reported a 41 percent drop; its stock has declined drastically over the last year, and no respite is in sight. Nintendo has ""another bad year coming,'' predicts Joseph Osha of Baring Securities in Tokyo.

Technology drives the business. Sega superseded Nintendo on the strength of its superior ""16 bit'' Genesis. (The ""bits'' are the number of digital instructions that a computer-gaming machine can simultaneously process.) Now, Sony and Sega are leaping even farther ahead with 32-bit machines that play games on compact discs. Sony's PlayStation and Sega's Saturn, which will hit the U.S. market next year, are twice as fast as current 16-bit game players. With their huge memory capacity, CDs enable software companies to create more complex and vivid games. Nintendo will fight back with the Ultra 64 -- a robust machine that plays traditional cartridges. Meanwhile, Atari is already selling a 64-bit Jaguar.

But that's for the future. Survival in today's slash-and-parry world requires attention to the here and now, and each contender has a different strategy:

Nintendo and Sega are counting on a big Christmas to carry them to a better future. Trouble is, until their new hardware arrives, they don't have much to offer. The market for existing players has peaked. (Roughly 40 percent of all U.S. households own game players.) Meanwhile, software has become a problem. ""There are a lot of bad videogames'' out there, explains Hiroshi Imanishi, a senior executive at Nintendo, and too many of them aren't selling. Nintendo is betting that better software will help rekindle the market, and it evidently has a Christmas blockbuster with its most recent release, Donkey Kong Country. First week's sales: $30 million. Sega also has a seasonal offering: the 32X, a $159 ""power booster'' that gives Genesis players the 32-bit experience.

Sony isn't the first to market a bona fide 32-bit CD-ROM speedster. That honor goes to 3DO, whose Real Multiplayer came out last year. It hasn't taken off with consumers, partly because of its hefty price -- $700 (compared with $129 for a Super Nintendo). The company has since cut that to $399. But with PlayStation and Saturn in the wings, that might be too little too late. As the pioneer 32-bit entry, 3DO ""is running around with arrows in its back,'' says Steve Eskenazi of Alex. Brown & Sons. ""The next three to six months will be critical to its survival.''

For Sony, the challenge is to do more than cannibalize its rivals' market. ""People are looking for something new, something totally different,'' explains Teruhisa Tokunaka of Sony Computer Entertainment. PlayStation is being promoted in Japan by one of Sony's most lavish advertising campaigns ever. The goal, Tokunaka explains, is to ""expand the game market to older boys and women.'' That's one reason the Japanese giant is betting on the CD-ROM. Because CDs are so cheap to manufacture -- under $1 -- officials at Sony and Sega assert that next year's CD games will be less expensive than traditional cartridges. And that, as Sony sees it, is key to growing the games market. Lower costs should spur creativity as well. In the past, the sheer expense of cartridge games has made manufacturers wary of producing anything but the most sure-fire winners -- mainly such young-male fare as kick-boxing, sports and auto racing. But with cheaper CDs, there's less risk -- and therefore more willingness to experiment. Who knows? Maybe one day ""Wuthering Heights'' will come to us as a CD game.

At least, that's the hope. The reality is that everybody wants more sophisticated games -- but no one wants to pay higher prices. Even if the new players are priced half as much as 3DO's prototype, they may still be too costly, says Kunsoo Lee, an analyst with Dataquest Japan. He puts the ""optimum price'' for the new-generation game players at about $250.

It's too early to predict winners and losers. But Lee offers a guess: ""Sony's machine is better than Sega's, but Sega will sell more players.'' Why? ""Because its games are better.'' Sony will lock up the number-two position in the game sweepstakes, Lee believes. Nintendo will place third. But beware. All this is purely speculative; videogame companies rise and fall on the popularity of their latest games.

In the future, game-playing may not take place on ""dedicated'' machines at all. Maybe the PC will knock such traditional ""platforms'' out of the market. Maybe Nintendo and Sega will fall to IBM or Compaq Computer. Then, too, there's the challenge from interactive TV, offering at the least the possibility that games will be down-loaded to our home ""entertainment center.'' Just point, click and rent any game you want, magically through the digital ether. Analyst Eskenazi likens the coming competition to ""natural wildfire that leaves some companies standing strong -- and others burned and scorched.'' The point is that technology waits for no one. The video wars are on.

What consumers spent in 1993 in billions of dollars

Home movie videos $13.2 Recorded music 10.0 Movies 5.2 Videogames 5.0 Computer software 2.0

Top videogames can produce first-week sales that rival what giant movie hits take in when they open.

Videogame Sales Movie Openings First week of sales Biggest sales to date in millions of dollars in millions of dollars Mortal Kombat II "The Lion King" Acclaim Buena Vista WORLDWIDE $50.00 Disney $40.87 Donkey Kong Country "Interview With the Vampire" Nintendo Warner Bros. U.S. Sales 34.98 36.39 "The Flintstones" Universal 29.69