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Plays The Thing: Are You Game?

3/26/2000 7:00 PM Eastern

How about a set-top box, priced at about $300, with
built-in Internet access and a ready-made audience of 20 million households? It's got all
kinds of interactivity and it doesn't need OpenCable certification. Oh, and let's throw in
a digital-video disc player at no extra cost.

Now that's an appealing set-top box. Of course, it
doesn't have a mega-channel tuner or other television features, but it has a powerful
processor and a big brand name on the outside.

Sony's PlayStation 2, a video game system just released in
Japan and headed to the U.S. by autumn, and Microsoft's X-Box, due in about 18 months, are
aiming for the same home screens that cable covets. Obviously, in a multiset household,
there is room for several boxes. But the real message behind these new game devices is
that next-generation viewers are ready for a new kind of nonlinear, interactive
entertainment -- not just the linear, sequential programming that conventional TV has
delivered for 50 years.

Talk about appetite: Sony's Web site in Japan -- where
PlayStation 2 was first available for sale -- was closed down after it received up to
500,000 hits per minute in the first moments the device was available. Sony's first
shipment to America -- one million units -- is already pre-sold out.

Put into the context of today's TV quiz-show fad (which
entitles Game Show Network President Michael Fleming to gloat about his prescience), the
looming deluge of video-game consoles presents a vast opening for the next 50 years of
entertainment. Online games of all sorts -- from interactive trivia to full-blast twitch
games -- create a sizable opportunity in the broadband environment. It's one that includes
new forms of revenue sharing.

Sony, Microsoft and their constellations of cronies are
ready to battle into this market. Indeed, their machinations in the coming year will be a
spectacle in itself. Microsoft (which stumbled in its previous video-game console alliance
with Sega Dreamcast) is hustling its X-Box to market. But by the time it shows up next
year, Sony may already be up to PlayStation 3 -- a box of even more immense power. As Fred
Dawson chronicled in these pages last week, Sony's current digital set-top box alliance
with Cablevision sets the stage for entry into the broadband business with a
multi-application device.

Of course, Microsoft's investment in AT&T Corp. (which
has its own pockmarked history of online games during its pre-cable era) buys presence
there. The X-Box includes a 600-MHz processor, an nVidia graphics processor that is at
least three times faster than current products and an 8-gigabyte hard drive, ideal for
downloading broadband content and multiplayer connectivity.

Ultimately, the habit-forming addiction of entertainment
games may be the major appeal for broadband networks.

Several other ventures are also scrambling for a stake in
the $15 billion annual video game arena. For example, VM Labs, which developed the
"Nuon" enhanced DVD technology (basically DVD capability on a chip) recently
added new alliances that point toward set-top deployment. Motorola Inc. has long held
interests in the gaming category, and its StreamMaster set-top box (deployed overseas
before Motorola's takeover of General Instrument Corp.) provides a glimpse of where this
interactive set-top capability is heading.

While the hardware vendors duke it out during the coming
year, the most raucous action may be on the software side. The usual array of developers
and publishers are being joined by a new breed of software suppliers, some of whom are
latching onto the real-time audience-participation options and spinoffs of today's
televised game shows. It's a way to ease couch potatoes (let's start calling them
"mouse potatoes") into the interactive era. Shows like Twenty One and Who
Wants to Be a Millionaire
already use Web sites to encourage play-along participation.

Next month, Fox Family Channel will launch Paranoia, an
interactive game show that uses technology and software from Buzztime.com, a newly formed
subsidiary of NTN Communications. The program package allows home viewers to affect the
outcome of each game and win prizes as they play along with the telecast. Buzztime.com
will also develop and produce an off-line version of the game that will be available at
all times, even when the live game is not being telecast. For the time being, viewers will
have to play along via their Internet connection (dial-up online or cable modem) via the
Web site www.paranoia.excite.com, but the converged opportunity merely awaits the
right set-top box.

Overall, the online-games industry is in upheaval these
days. Uproar, considered a hot online game purveyor, issued its IPO in mid-March; priced
at about $35, it sank within days to the $25 range and has sat there. Electronic Arts,
long a mainstay in games software (and developer of the doomed 3DO console system), has
also taken a financial beating in recent weeks. Analysts foresee a slowing of software
sales during the next few months as consumers await PlayStation 2 and (longer term) X-Box
machines and software.

The crowded online-games sector includes sites such as
Boxerjam, which has attracted more than 2.5 million users to its ad-supported games and
puzzles that are distributed via America Online, Yahoo and Sony Station. Boxerjam's
rich-media commercials have a video-quality look.

These mixed signals are typical of a business in
transition. The set-top box of tomorrow -- and more importantly, the services it delivers
-- is heading toward an entirely different kind of blast.

I-way Patrol columnist Gary Arlen challenges you to a thumb
war, anywhere, anytime.

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