PLAYSTATION 2 LAUNCHES BIG IN JAPAN, TARGETS U.S.

DAN ALAIMO

TOKYO -- The next big thing in video games is on the horizon, and this one looks like it will have very long legs.

Sony PlayStation 2, which is off to a strong start in Japan, is headed for U.S. store shelves later this year, possibly by summer's end. In addition to increased game rentals, retailers can also look forward to more DVD movie rentals and sales as the new game system doubles as a DVD player. The 128-bit device is also designed with Internet capability, but this will not be tapped until high-speed service and modems become available sometime in 2001.

Sony Computer Entertainment, Foster City, Calif., reported that Sony sold 980,000 PlayStation 2 units during its first weekend on sale in Japan, March 4-5. It was priced at the equivalent of $370 in U.S. dollars. More than 600,000 were sold through traditional retailers, with the remainder sold on-line, the company said. The on-line traffic was so heavy that Sony was forced to temporarily shut down its Web site. Because of a shortage of memory cards, there was a 10-day lag in production, but sales were expected to reach 1.4 million by the end of March.

The new game platform started its life-cycle in Japan with 10 new software titles, with 1.3 million units shipped into the market. Retailers selling the system also reported a sharp uptick in DVD video software sales, Sony said. Reviews of the game titles were unenthusiastic, but industry observers noted that it usually takes some time for game developers to catch up to and take full advantage of the technical capabilities of new systems.

On the competitive front, Sega Enterprises of Tokyo predicted that it would sell a total of six million Dreamcast game systems by March 2001, but it also reported increased financial losses and disappointing Dreamcast sales in Japan. The Sega system has Internet capability now, but cannot play DVD video.

Meanwhile, Microsoft Corp., Redmond, Wash., was apparently set to make an announcement about its own game system at a game technology conference on March 10, according to press reports. The Microsoft system will be competitive in price and technology with the new Sony and Sega systems, but will not be available until next year.

The hype accompanying the PlayStation 2 launch was unprecedented, even for the high-octane video game business. For example, Newsweek ran a cover story on March 6 titled, "The Amazing PlayStation 2: How Sony will Change High-Tech Forever." But some industry observers noted that the buildup was at least in part warranted because of the game system's integration of games, DVD video and the Internet.

"Sony understands where the world is headed," said Jeremy Schwartz, senior analyst, Forrester Research, Cambridge, Mass. "An awful lot of the hype is justified." With the PlayStation's track record -- the original system sold more than 70 million units in this country -- it will attract leading game developers, retail support and consumers when the new version reaches the United States. All this will combine to give it a leg up on its competition and make it a long-lasting hardware platform, industry observers predicted. Therefore, supermarkets should watch for chances to bring the games into their rental inventories at the earliest opportunity, as well as for other promotional openings, they said.

PlayStation 2 is "at the crossroads of that convergence" of the computer world, set-top boxes and video games, said Howard Stringer, chief executive officer, Sony Corp. of America, New York. This will enable Sony to leverage its assets and become a major player in Internet technology, he said.

In Japan, where consumer response to DVD has been slower than hoped for, "PlayStation 2 will definitely open a new door for the DVD market," said Kazuharu Miura, analyst at the Daiwa Institute of Research, Tokyo.