Sega writes off pounds 160m in video games stock

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The Independent Online

Science Correspondent

Video games companies yesterday hotly denied that games consoles might go the way of 8-track cassettes, CB radio and Betamax videotapes, despite a huge slump in sales both of hardware and software in the past two years.

Sega, one of the biggest companies in the market, has announced that it will write off pounds 160 million in old stock based on 16-bit consoles - now superseded by faster 32-bit models, launched last year. It will cut its European staff from 300 employees to 125 and close offices in Austria, Belgium and the Netherlands.

The console market has plummeted since 1993, when a total of 2.2 million were sold in the UK. Sales have fallen steadily to 1.2 million in 1994 and an estimated 0.7 million last year. At the same time, sales of software - which in 1993 overtook those of other toys, at pounds 500m - last year fell to pounds 350m. While Sony's Playstation console was hailed as the games hit of last year, industry estimates reckon that only 100,000 were sold in the UK.

Meanwhile, sales of personal computers have shot up, with many people apparently attracted by the lure of extra facilities such as the Internet and the educational possibilities of CD-ROMs - compact discs which can carry text, sound and video.

Consoles were first launched in the UK in the late 1980s, and effectively killed off a number of smaller computer companies such as Atari and Sinclair. They plug directly into TV sets, but cannot be used with PCs nor can they run any software except games. But computers have been fighting back: figures obtained by the Independent show that sales of games for PCs now take 40 per cent of the market, compared to 27 per cent in 1994.

"It's more profitable to sell a game on a CD-ROM than to put it on a cartridge for a console," admitted a Sega UK spokesman yesterday. The Japanese company is now studying whether to move entirely into software publishing and other activities, and cut down its hardware manufacturing business.

"The sales figures have gone down before, but historically the next peak will be higher than the one that preceded it," said Steve Cheese, an executive at the European Leisure Software Publishers' Association (ELSPA), an industry body. "But don't write off the console. It only costs one-sixth of what a PC does."

Sega's main competitor, Nintendo, went through a similar restructuring operation last year, and now sells its machines through a UK distributor, THE Games in Eastleigh, Hampshire. "The fad appeal of the market has gone," said Rob Borland, the company's marketing director. "It's more of a product that sits alongside all the other consumer products ... now. It's not the death of the console, but it's certainly going through a difficult phase."

Nintendo yesterday announced the delay of the European launch of its new 64-bit machine, codenamed the N64, from spring until late autumn.