It's All In The Games

By 2004, sales of more than 409 million optical discs for games are projected in the U.S. market alone, compared to about 281 million last year, according to key research from London-based Understanding & Solutions (U&S). Total replication output is 30% to 50% higher on the industry average for products in the distribution/inventory pipeline, a bonanza for plants across the continent.

The shift from existing CD-ROM discs to a variety of higher-capacity DVD-ROM-type software is equally dramatic. In 2000, about 4.55 million DVD-ROM-based games were sold, virtually all for the PC and Macintosh computer market. By 2004, DVD-ROM technology will account for some 272 million discs or two-thirds of the total market.

Sony's PlayStation2 (PS2), introduced last fall; Microsoft's Xbox, set for an early-fall launch; and Nintendo's GameCube, projected for October release in the U.S., all use a variation of DVD technology, and Sega Dreamcast's proprietary GD-ROM has twice the capacity of a CD-ROM.

"As the installed base of PC DVD-ROM drives, as well as PlayStation, Xbox and GameCube consoles grows, the number of DVD-ROM game titles is expected to increase very quickly," observes Simon Bryant, U&S analyst.



GIGANTIC CAPACITY LEAP

At year-end, about 17% of U.S. homes had a PC DVD-ROM drive, and only 1% had a DVD-based console, representing the first PS2 sales. Total sales of DVD-ROM-based consoles were estimated at 7.6 million worldwide. Since Sony launched the original PlayStation CD-ROM-based console in 1995, Sony Disc Manufacturing in Terre Haute, Ind., has produced about 450 million discs to meet demand in North America, according to Mark Hemmings, director of PlayStation operations. At the debut, plant capacity was about 30,000 discs a day, he recalls, with constant expansion to about 700,000 a day just before the PS2 introduction last October.

The DVD-ROM capacity for the new platform debut was about 400,000 a day, with three shifts working seven days a week. This fiscal year through next March 31, the plant expects to produce a combination of 120 million DVD-ROMs and CD-ROMs for continuing PlayStation game discs, as the new PS2 console is backward- compatible. "We anticipate a gradual shift to more DVD-ROMs as console supply catches up with demand," Hemmings says. U&S projects an installed U.S. base of 7.2 million PS2 consoles by year-end, expanding to 25.2 million by 2004.

When he officially introduced the Xbox game console at the January Consumer Electronics Show, Microsoft chairman Bill Gates called it "the future of video gaming." Targeted for a fall launch in the U.S., the DVD-ROM-based platform includes an Intel 733MHz Pentium-based CPU (central processing unit) that operates at more than three times the speed of other new consoles. Some 200 game companies worldwide have committed to create original games and extend popular franchises on Xbox.

Basic media for the new games is a DVD-9, and "Microsoft is working on some anti-piracy features that would be incorporated within the replication process," says Mike Quinn, GM, operations. "Technicolor is the first third-party replicator authorized to produce game discs for Xbox, and we'll be providing special training on the replication process." Initial production is anticipated at the company's plants in Charlottesville, Va., and Camarillo, Calif., he confirms.

"For the launch, we expect to have 15 to 20 games," says Microsoft's John O'Rourke, "about a third from our own in-house team and the rest from third-party sources. Initially, we're targeting the early adopters, mostly 16- to 26-year-old male gamers, and are committed to a $500 million promotional and advertising launch campaign."



NINTENDO'S BIG SHIFT

While Microsoft wouldn't offer any hardware or software forecasts, U&S estimates 1.9 million console sales in the fourth quarter and an installed base of 5.6 million by year-end 2002. Holiday- quarter software sales are projected at 4.4 million DVD-ROM discs, jumping to 17.8 million in 2002.

Nintendo's shift to a smaller 8cm-diameter DVD-ROM disc for GameCube is a significant departure from its current reliance on cartridge-based software for its 64-bit Nintendo64 and both Game Boy Color and the new Game Boy Advanced platform, due this summer. Featuring an IBM 405 MHz CPU and a 1.5GB-capacity game disc, GameCube is set to debut this July in Japan and three months later in the U.S., according to Peter Main, Nintendo executive VP, sales and marketing.

Unlike Sony's PS2, which has the capacity for playback of DVD movies and music discs, as well as audio CD-ROMs, "Nintendo is about the gaming experience," Main emphasizes. With commitments from Nintendo itself and a number of leading third-party publishers, he expects to have up to 28 titles for the U.S. launch.

Nintendo wouldn't officially comment on expected console or disc sales, but U&S estimates about 800,000 hardware units will be sold from October to December in the U.S., with an installed base of 2.4 million by the end of 2002. Software sales should top 1.7 million units this year, rising to 7.7 million in 2002.



NEW GAMES DRIVE SEGA

While Sega announced its exit from the hardware-console market at year-end, it remains committed to providing new Dreamcast titles this year for an installed base of 3 million U.S. homes, according to Charles Bellfield, VP, corporate and marketing communications. "We'll have about 30 new games, including some top hits ported over from our 16-bit Genesis and 32-bit Saturn platforms, and we expect an equal number from third-party providers," he says.

Sega created the GD-ROM as a proprietary disc format to double information capacity to 1.2 gigabytes, notes Kathy Schoback, director of product development. The "stamper," or master copy created for each production line, and all subsequent copies, contain a security ring. This prevents copying as well as playing the GD-ROM on non-Dreamcast DVD or CD disk players.

More than 28 million Sega and third-party GD-ROMs have been manufactured since the September 1999 launch at five licensed U.S. plants, she adds. Included are Sanyo-Verbatim, Richmond, Ind.; Maxell, San Diego; Warner Advanced Media Operations, Olyphant, Penn.; Madison, Ga.; and Technicolor, Charlottesville, Va. With console sales of another 1.1 million units estimated by U&S this year, another 36 million software sales are projected through 2003.

"The opportunities are clearly there for those replicators who are tied to a particular format or development studio," emphasizes Stephen Jones, president of U.S. operations for U&S. "For second-tier plants, there are also good openings to use some excess DVD capacity to handle an exploding demand for optical discs for games."