Playing for Keeps

The fate of 3DO -- and the course of the video-game industry -- could be decided in the next few weeks

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Journalists who cover the computer and video-game business always look forward to the annual pre-Christmas visit from Trip Hawkins, chairman and founder of the upstart game-system company called 3DO. Hawkins is a rarity in the uptight game industry -- a straight-shooting top executive who actually enjoys the products he sells. His press tours, first as chairman of Electronic Arts and then as front man for 3DO, usually combine a lively round of game playing and a dose of blunt talk about the business -- shaded ever so slightly to set his own company apart. This year, however, there was no hiding the fact that Hawkins' firm is up against the wall -- surrounded by enemies and running out of lives. "The price is right, and the software is in place," he says. "If the customers don't buy 3DO this year, they probably never will."

The next few weeks are critical for Hawkins -- and indeed the entire $5 billion video-game industry. Traditionally, the month of December is make-or- break time in the business -- when millions of parents decide what to buy their game-playing vidkids, and when manufacturers rake in 35% to 40% of their annual revenue. But the situation is particularly dicey this year. The industry is in the middle of a delicate transition -- from the so-called 16- bit technology at the heart of today's Sega and Nintendo machines to the next-generation game systems that can process data 32 or 64 bits at a time. It was during a similar transition that Atari collapsed in the early 1980s and, a ^ few years later, Nintendo was eclipsed by Sega, in both cases by having miscalculated the cost of keeping up. Whether the industry continues along the path set by the Japanese giants, veers off in the direction pioneered by Hawkins or is displaced by something entirely new could be determined by what happens this month.

The news, so far, is mixed. In the U.S. most video-game makers are having a miserable year. Specialty stores such as Babbages, Software ETC. and the Electronics Boutique report that sales of video-game software and hardware are down 15% to 30% from last year. At K-Mart and Toys "R" Us, games like Gauntlet and SolarStriker that used to sell for $30 or $40 are marked down to $9.99. The good news for Hawkins, however, is that America is no longer the center of the video-game business. The real action this year is in Japan, where parents are gearing up for Golden Days, the gift-giving holiday season. There it's a three-way race between Sega's Saturn, which hit the market in mid-November, Sony's PlayStation, which appeared 10 days later, and 3DO. That's why Hawkins is not ready to give up.

When he announced two years ago that he was going build a game machine that was 50 times as powerful as Sega's or Nintendo's, Hawkins was greeted with the kind of fawning attention usually reserved for rock stars and conservative talk-show hosts. He was backed by some of the biggest names in entertainment -- including Matsushita (Panasonic), AT&T, MCA and Time Warner. His initial public stock offering raised $26 million even before the first machine was built. The hoopla subsided soon after the machine hit the market. The initial price tag -- $799 -- was too high. The software was late. The games were derivative. Wall Street turned sour on the new machine, and last Christmas the video-game-playing public simply ignored it.

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