AT&T to wire Sega's Dreamcast

Embattled video game maker Sega of America Inc. has signed AT&T as the preferred Internet provider for its next-generation Dreamcast system, say sources close to the companies.

The console -- due to be released in the U.S. on Sept. 9 -- will come with a 56Kbps modem and use AT&T's Worldnet service. As part of the agreement, AT&T and Sega will co-market what will be known as the Sega Dreamcast Network, said the source.

AT&T will use its standard pricing scheme with the network: $9.95 (£6) for 10 hours, $19.95 for 150 hours and $21.95 for unlimited access. Later, broadband access via digital cable lines could be a future possibility, said one source. AT&T bought cable provider TCI earlier this year.

The announcement turns the Internet market into a whole new game. Dreamcast and other game machines may look chintzy, but for companies looking to bring more "eyeballs" to their content, the next-generation consoles are as valuable as gold. "You are looking at a device that comes with a modem and you don't need anything else," said Jeremy Schwartz, game industry analyst with Forrester Research Inc., stressing the simplicity of the solution.

The video game consoles could also tilt the playing field away from the Internet titans America Online Inc. and Yahoo! Inc. by putting a whole new market on the Internet: non-PC users. Gary Gabelhouse, CEO of video game industry watcher Fairfield Research Inc. in the US, estimates that 38 percent of today's video game players do not have a PC.

Potential new Internet subscriptions are also big. Sega already has 200,000 customers who have pre-ordered the Dreamcast, and the company hopes to hit 1.5 million by March 2000. Sony's PlayStation 2 is expected to do far better, garnering at least 20 million users -- the number of original PlayStations sold in the U.S. today.

Yet, Gabelhouse questions whether consumers will actually want to connect to the Internet through their game machine. In a study conducted by Fairfield, video-game player rated "Internet access" near the bottom of the list of features they wanted in a next-generation game machine -- only "run Windows OS" placed lower. Dreamcast has both features. "Sega having Internet access with their game machine is not a platform maker," said Gabelhouse. "However, it could be a platform breaker if they didn't have it."

Far more important in consumers' minds is the item that topped Fairfield's list, he said. "Sony's (upcoming PlayStation 2) has backwards compatibility -- that's going to sell machines."

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