PLAYING TO WIN 1999

RANDY WEDDINGTON / Additional reporting: DAN ALAIMO

Interactive games, as part of the video mix, are gaining importance as the market matures.

U.S. video game sales at retail were up 22% in 1998 to $6.3 billion, according to market research firm NPD Group, Port Washington, N.Y. The combined number of advanced-generation game systems, like Nintendo 64 and Sony PlayStation, has reached 26 million units in the United States, NPD reported.

"For 1999, the video game industry should see sales grow somewhere between 10% and 15%, potentially hitting the $7 billion mark," said Ed Roth, president of NPD's Leisure Activities Tracking Service. "Continued availability of new software, very reasonably priced software, hardware prices perhaps reaching the $99 level, the Sega Dreamcast launch in the fall and a current massive console install base are all reasons for predicting industry success for 1999," he said.

Part of the reason for this growth was game hardware at the $129 price point with add-ons and the release of the most popular game ever, "The Legend of Zelda: Ocarina of Time." As Nintendo of America, Redmond, Wash., was quick to point out, the Zelda game, despite shortages at retail, outgrossed the top theatrical movie, "A Bug's Life," in December with sales of $150 million compared with the movie's $114 million. Also in December, a new Nintendo 64 game based on the popular "South Park" television show sold out after 241,000 units were bought in nine days.

Additionally, Sony Computer Entertainment America, Foster City, Calif., sold 2.9 million PlayStation units in December, compared with 1.4 million Nintendo 64 machines that month. Meanwhile the cost of personal computers plummeted to under $500, enhancing the existing mass market for low-priced computer games.

"This clearly demonstrates the video game industry has a lot of broad consumer appeal, that it is breaking into the mass market and then some," Kazuo Hirai, president of Sony Computer Entertainment America, was quoted as saying. "We estimate that one in six American households now has a PlayStation. There is a good possibility that the momentum of 1998 could be sustained."

"Games are taking off again after slowing down a couple of years ago," said Kirk Kirkpatrick, vice president of marketing for distributor WaxWorks Video Works, Owensboro, Ky.

He believes games can be more lucrative than movies. "Games are always rented first. No one's going to pay $50 for a game they haven't tried. After those rentals, though, anything else is gravy," Kirkpatrick said.

"Last year interactive game software, including PC-based games, was a $6.3 billion market," said Duane Koerner, supermarket sales director for Jack of All Games, a distributor based in Cincinnati. This growing market segment is quickly becoming vital to growing profitability, according to Koerner.

New technology is expected to help grow the interactive game market. "Sega will introduce a new system late in 1999," said Koerner. That system will use software from Microsoft.

The new Sega machine, called Dreamcast, got off to a strong start in Japan. Sega Enterprises Ltd., Tokyo, said it sold 150,000 of the new machines during their first day on the market in late November. The company said it planned to ship 500,000 units into the market by the end of December and sell 1 million units by the end of March.

The advent of a new generation of video games may be bad news to retailers who are now reaping the benefits of the older systems, but it will be a long time until any new machines are a factor in the marketplace. Retailers also are hoping that the game makers handle the next transition better than the last one, which saw game sales and rentals plummet.

Both companies have cut prices on older games as well. "There is already a strong sell-through market for Nintendo 64 in mass merchants," Koerner said. "And some supermarket chains are starting to venture into it. Nintendo 64 has a $39.99 retail on its classics line. In PlayStation, $19.99 is considered a complete impulse item. At $24.99 it's a partial impulse. Some supermarkets are having such success with budget-priced games that they're getting into new releases as well."

While pricing makes games attractive for supermarkets -- "This isn't a 29-cent can of beans, it's a $29 game," Koerner remarked -- and security is an issue.

Addressing security, Jack of All Games has come out with a new theft-proof display unit. It's a floor spinner, made of molded plastic, with transparent locking doors securing the product -- PlayStation games or any other jewel-boxed items. Adjustable in height, it occupies only 1 square foot of floor space.

"We've ordered one to test at one store," said Jamie Molitor, video operations director for Dierbergs Markets, Chesterfield, Mo.

"This sounds like an ideal solution," said Craig Hill, video specialist for Harps Food Stores, Springdale, Ark. "Our past sales of Super Nintendo and Sega Genesis from Jack of All Games were off floor shippers. We definitely had theft problems in some areas, so much so that we temporarily exited sell-through while we reconsidered security."

Another secured approach comes from Intune of Miami, known primarily as a manufacturer of CD vending machines. "Our newest unit is designed to hold both Nintendo and PC products," said Joseph Risolia, company president. "In September we're placing one in a Seattle supermarket, near Nintendo headquarters."

An added consideration for game buyers is the product's lack of a track record. "Movies go to bat first in theaters," said Kirkpatrick. "So their performance is easier to predict." Lacking this information, "stores need a strong distributor for guidance" in choosing games for sale and rental.

As Nintendo 64 and PlayStation grow, PC products are lagging in supermarkets. "We've tried CD-ROM in the past, but it never amounted to much," said Clifford Feiock, video coordinator for Nash Finch Co., Minneapolis. "We've been testing CD-ROM rentals for several months in one location," said Hill. "But the market has remained essentially flat."