The battle for supremacy in the £20 billion (€25.39 billion) computer games industry is set to escalate as the key players stake their claim in a market that is expected to grow dramatically over the next two years. Games consoles are about to move out of teenagers' bedrooms and become mass-market home-entertainment products.
Computer games have already outperformed both video and cinema as the youth entertainment of choice, with only music ranking higher. Now, console manufacturers want a piece of every pie, with next-generation machines that can play DVD software and music CDs, as well as providing Internet access.
After a sluggish year of the type that typically precedes a leap in games technology, things will hot up on November 24th with the launch of the £380 PlayStation 2. Sony Computer Entertainment's aim is to achieve something that no other company has managed and maintain poll position across two generations of hardware.
Since the first game systems were launched in the 1970s, big names like Atari, Sega and Nintendo have seen their fortunes rise and fall. But Sony, with the global penetration of the original PlayStation - launched in 1994 and now with an installed base of 82 million - and the brute-force playing power of its new console, seems likely to keep the number one spot. But for how long?
Not a company to let an ongoing legal battle get in its way, Microsoft is proposing to spend $500 million (€590 million) unleashing its first dedicated games console, Xbox, in time for Christmas 2001. An audacious move at a time when its domination of the IT industry is under scrutiny, Microsoft has successfully courted 150 games developers to ensure strong software support for its launch.
Tellingly, Sony and Microsoft are singing the same song when it comes to the agenda. Neither is making too many claims about its hardware's multi-tasking capabilities, mindful of the need to secure the core business before expanding into other areas.
"It is a games console, not a set-top box, not a home entertainment centre, not a PC. It's a damn fine games machine," says Mr Paul Fox, European head of public relations for Xbox. "We already do all the other things, so why not do something else?"
As well as taking a shot across the bows of PlayStation 2 and Sega's Dreamcast, Mr Fox is addressing critics who have described the Microsoft console, which uses the Windows DirectX operating system, as a "PC in a box".
Sony's European president, Mr Chris Deering, is keen to develop the point: "Xbox uses off-the-shelf CPUs and generators, as opposed to PlayStation, which is built as a games console from the ground up. I think Microsoft could be making a mistake." "Games have been pivotal in the churn rate for people upgrading their computers. If it takes that element out of the PC marketplace, freezes the specs and puts the PC in front of the TV, its PC business is probably going to suffer by more than it picks up from the games market," he says.
Behind the corporate lines, the truth is that the two companies are stepping into each other's territory. They are also preparing their hardware for applications that are yet to be discovered. PlayStation 2 goes on sale as the most powerful games console in the world, but an empty expansion box for an unspecified hard drive, along with an assortment of future-proof connections, signpost much greater potential.
Like PlayStation 2, Xbox will be Internet and DVD-enabled, but its priority seems to be in outdoing Sony as a games console - its maker claims that in some departments it will offer an 80 per cent improvement over PlayStation 2.
The piecemeal approach to the launch of PlayStation 2 signal's Sony's reluctance to risk fixing its technology on shifting sands. "It is a computer, just as PlayStation 1 was a computer. More and more features will be made available through connected Internet-enabled technology," says Mr Deering. "There is a future that incorporates that on a near-term map, but it's not a day-one offering."
Lessons have been learnt from other manufacturers, most recently from Sega, which suffered problems with its Internet-enabled Dreamcast console. Partnering pan-European Internet Service Providers caused logistical and technical problems that delayed the launch of its online service, and when it did arrive there were bottlenecks.
Mr Deering elaborates: "In the past, manufacturers have been over-promising in an environment where the links in the chain are too variable, threatening the core of gaming, which is its plug-in-and-play simplicity."
Mr Fox also shares the benefit of hindsight and is similarly keen to play down the significance of Internet access for Xbox: "All of the box's separate features will be there to enhance the gaming experience - that's what we want from its online capabilities. It's not there for sending e-mail to a friend in Australia; online gaming is a much more important part of the agenda."
At present, Mr Deering is wary of the Internet "where access can vary from street to street, never mind from country to country", but Sony is already planting seeds to ensure that gaming and the Web become inextricably linked.
Its e-commerce venture, PlayStation.com, is about to go live, selling games and hardware from a central base in the Netherlands. But that's just the tip of the iceberg.
When broadband access arrives, Sony will be ready to download game upgrades and, eventually, the games themselves. PlayStation 2 will evolve into a "home server", according to its manufacturer, which paints a picture of a domestic network using mobile phones, camcorders and anything else it can dream up.
But for now, Sony is hedging its bets, focusing on the short term and keeping retailers happy, rather than posing a threat to a proven distribution chain by too much talk of the Internet.
And what of Sega and Nintendo? The console pioneers of the late 1980s have found their realm usurped by Sony, but they are not giving up without a fight. Last year Sega launched Dreamcast, the first 128-bit games console which recently posted European sales of more than one million. While this figure might have impressed a few years ago, it is probably not enough to inspire confidence in the run-up to PlayStation 2.
In its favour, the platform has delivered some of the best-looking games of the year, but its hasty decision to bundle a third-party DVD player to match the PlayStation 2 specification - albeit in two separate boxes - reeks of desperation.
Nintendo's future looks a lot healthier. Against all odds, its ageing N64 console has enjoyed a good year thanks to inspired software titles and the Pokemon craze. Its ownership of the phenomenon has generated lucrative revenue streams from far beyond the games market, while its handheld Game Boy console remains the best-selling platform on the planet.
What Nintendo repeatedly demonstrates is a profound understanding of the younger end of the gaming audience. It comes as no surprise that its next-generation console, Game Cube, looks more like a toy than a hi-tech home-entertainment box. Game Cube goes on sale in Japan next spring and is expected to undercut the asking price of PlayStation 2. As a strategy, this suggests that the Japanese giant knows its business and is sticking to it.
As for the next generation of games, the massive leap in picture quality is still to materialise. PlayStation 2's rush to market means that the first titles look comparable to Dreamcast rather than representing a huge improvement. Think PC quality and you won't be far out. That will change next year, says Sony, as developers learn to harness the processing power at their disposal and we will start to see "cinema quality graphics".
If that seems a big claim, Microsoft is equally bullish about its platform. "The quality of our games will be materially different from PlayStation 2, I can't emphasis that enough. Xbox will be a huge leap forward," says Mr Fox. "The specs are locked down and now it's just a question of waiting for the suppliers to deliver."
In the end, delivering the goods to match the hype will be the decisive factor in winning the battle. That, and the ability to second-guess what the public really wants from a games console.
