Nintendo pioneered the new market with the Nintendo Entertainment System in 1983 and a range of software game programmes to use with it: the Mario Brothers and Street Fighter II took the world by storm. By last year Nintendo's sales had risen to Y539bn ( pounds 3.17bn).
Sega came up with the unlikely 'Sonic the Hedgehog', which also took off, and last year Sega's sales reached Y400bn ( pounds 2.34bn).
So dominant have the two firms become that they are being investigated by the Monopolies and Mergers Commission in Britain - where they control 99 per cent of the market for video games - on suspicion of setting artificially high prices.
But their monopoly, in effect, is under threat from other electronics companies determined to break into the lucrative market. Sony and Matsushita of Japan and Atari of the US have all announced plans for new video game products to be released in the next year, using more sophisticated computing technology than is on offer from the two video game giants. Nintendo and Sega use 16-bit machines, but the newcomers are working on 32-bit or even 64-bit systems able to produce better and more detailed graphics and sound.
Sega has turned to Microsoft to develop an operating system for its own 32-bit machine. It will also get Oracle of northern California to write software for an interactive video games package. But the deal cuts both ways: it also gives Microsoft an entry to the home video market, and they may end up gaining more than Sega.
'Microsoft will come out on top,' said David Benda, head of research for BZW in Tokyo. 'Sega is taking a big risk. There is nothing to stop Microsoft from providing their operating system to everyone else. I don't think Sega can control Microsoft. It will milk Sega.'
Nintendo, more cautious, has linked up with Silicon Graphics of the US to produce a 64-bit machine by next year. But Nintendo will produce its own operating system, with Silicon Graphics providing the custom-built chips so that it can retain control of the new generation game. Although Nintendo's game is not due until the autumn of 1995, well behind its competitors, in the long run it may find itself in a better position to control its own business.