DENVER-In what could spark the second coming of The Sega Channel, Pace Micro Technology-The Americas said last week that it has integrated Sega Corp.'s Dreamcast console gaming platform into advanced cable and satellite set-top boxes that feature on-board hard drives.
The combination will allow consumers to play high-quality games and quench the thirst of "casual" gamers, Pace said at a briefing and demonstration with reporters here.
That same combination also drew skepticism from Pace's set-top rivals, who said MSOs might not want to pay extra for a game platform.
Pace's advanced box, which the company likes to call a "home gateway," also uses its hard drives to handle personal video recording, allowing viewers to record and "time shift" television shows.
The vendor's hard drive, at 40 gigabytes, can hold as many as 60 Sega titles, said Andrew Wallace, Pace's senior vice president of worldwide marketing.
That same hard drive would also store Sega games, giving operators the option to make downloaded titles available to subscribers under pay-per-play or pay-for-time scenarios. Pace, a big backer of home-networking technologies, said the hard drive could also serve as a "games jukebox," allowing users to port the games to handheld devices through wireless connections. Pace said its Sega-enabled set-top is expected to hit the market early next year.
Besides games, Pace's 3D-graphics capable boxes could also "spice up" other applications such as electronic program guides, the company said.
Though Pace has a market-leading position in Europe and the U.K., the company's surge into the U.S. cable market has been relatively sluggish, chalking up orders from just two MSOs: Time Warner Cable and Comcast Corp.
Of those two, the Pace boxes Comcast ordered include an option for a hard disk drive. Comcast vice president of digital television Mark Hess said the MSO presently has no plans to add the Sega option.
"We're interested in gaming in general and we'll investigate" the Sega option, Hess said. He added that gaming could eventually become part of Comcast's ITV repertoire, and could range from high-end "twitch" games to simpler ones such as chess and checkers."
What we like about Pace is that they're innovative. They're on the right track," Hess said.
TIMING QUESTIONED
Still, the timing of the announcement was suspect. Sega, the brains behind "Sonic the Hedgehog," has been under extreme heat in the console gaming market from competitors such as Nintendo Corp., Sony Computer Entertainment Inc. and Microsoft Corp., which plans to launch its new "Xbox" this fall.
Coupled with disappointing console sales and record losses, Sega last week announced it would scrap production of the Dreamcast box and focus on licensing the technology and its library of games to makers of competing consoles, personal digital assistants and personal computers.
Sega also announced plans to bolster its efforts behind multiplayer gaming over the Internet and a Napster Inc.-like, peer-to-peer model that would allow budding programmers to create their own games and share those files with others.
Despite Sega's about-face, the video game console arena is expected to continue to explode as the equipment becomes more versatile, adding features like high-speed connections and DVD support. According to Cahners In-Stat Group (a sister company to Multichannel News), sales in that area will blossom from last year's $4.1 billion to $7.8 billion in 2004.
Pace's U.S. set-top competitors greeted the news with raised eyebrows, noting skepticism about costs and the potential obsolescence of the Dreamcast platform.
Scientific-Atlanta Inc., whose "Explorer 8000" will include a hard drive when it begins shipping this summer, said it has most of the hardware and processing power it would need to integrate Sega's technology. What it is missing is the 3-D graphics acceleration technology, S-A vice president of product strategy Bob Van Orden said.
"There's not a market for that incremental cost," VanOrden said. "Our customers didn't want to pay for that part."
For the near-term, S-A will continue to focus on titles such as "Tetris" or solitaire-games that could be run on the company's existing platform, he added.
How much more Pace's Sega boxes will cost are a bit hazy, mostly because the company declined to provide specific figures.
CHEAPER THAN CONSOLES
When pushed on the subject, Wallace said the incremental cost per box will be less than the cost of a Dreamcast console, because many components aren't required. The added cost "won't be that high," Wallace said. Last week, Sega slashed console prices to $99 expedite sales of its Dreamcast inventory.
Pioneer New Media Technologies vice president of sales and marketing Mark Gurvey predicted Sega's proprietary platform would not outlive the box in which it will reside.
"It's much more cost effective for the MSO to provide open standards that will allow download applications rather than to execute applications on a firmware or hardware option with a limited life span," he said.
Pioneer's latest set-top entrant, the "Voyager 3000," does not include a hard drive, though the company is looking into field trials later this year and into 2002, Gurvey said.
Regarding obsolescence, Wallace countered that Pace's integrated box could attract casual gamers who don't want to shoulder the expense of a stand-alone gaming console, and would be perfectly happy playing titles that might not be on par with next-generation console games.
Of course, providing a platform for high-end gaming is nothing new to the cable industry. Companies such as Into Networks Inc. and Media Station Inc. have a host of PC-based software-on-demand (SoD) deals in place with cable operators.
SoD's move to the set-top could come in the not-so-distant future, Media Station senior vice president Allan McLennan said, adding that Pace's integration deal with Sega is a "strong validator" for on-demand gaming.
"The Pace-Dreamcast association is going to be the first of many that will come to market over the course of the next 12 to 18 months," McLennan predicted.
As set-tops quickly take on PC proportions in terms of processing power and memory, "there is nothing keeping us from going into the ITV/set-top box environment," he said.
