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SEGA CHANNEL SETS GRADUAL ROLLOUT FIRST TEST RESULTS PROVE OPTIMISTIC, BUT KINKS REMAIN AS LAUNCH NEARS

By Published on .

Test results are proving positive for Sega Channel, the nation's first interactive videogame channel, but the service still faces several obstacles before its launch later this year.

A joint venture of videogame marketer Sega of America and cable TV operators Time Warner and Tele-Communications Inc., Sega Channel will be one of the first broadly available interactive cable services.

But the channel, like most other interactive technologies, has already experienced several delays. It still must decide on an equipment supplier to connect Sega Genesis machines with cable TV boxes, and questions still loom over how the retail market will respond.

Sega Channel is scheduled to start rolling out in time for the holiday season, about six months later than it had originally planned.

Initial results of a consumer test that began this summer in 12 cities show enthusiastic response from kids.

Sega Channel found, for example, that 25% more females are playing the cable TV-delivered videogames than traditional videogames. As a result, the service will attempt to market itself to all members of the family, making it a more broadly appealing offering.

"Whether it's the fact that videogames are coming in through a new source, or whether they're getting exposed to a wider number of games, we don't know. But moms and sisters are definitely participating more in video-game playing on Sega Channel than in general," said Ellen Beth van Buskirk, corporate communications director.

In its final version, the 24-hour service, beamed via satellite to cable TV operators, will offer a menu of about 50 videogames in categories such as sports, adventure and action. Users can select and play games on their TV screens through a cartridge adapter that fits into the Sega Genesis machine.

Sega Channel will use a "rolling launch," extending gradually across the country. It hopes to sign about 1 million subscribers in the first year, with a goal of eventually reaching a 5% to 6% penetration of the 60 million cable TV households, about average for new premium pay TV services.

As early as next year, the service may be available in Europe.

The channel will be offered as a premium pay TV service for about $11.95 a month, plus a yet-to-be-determined fee for the adapter. Sega Channel is charging $11.95 or $14.95 per month in most test markets. Videogames will be provided both by Sega as well as major third-party Sega Genesis videogame software developers such as Acclaim Entertainment, Electronic Arts and Capcom.

Sega Channel will give viewers the option to see "sneak previews" of upcoming videogames. To avoid undermining the all-important retail sales of games, which average about $59 each, the channel will "black out" hot new games for 30 to 60 days after their retail release.

Programming also will include game-playing tips for newly released videogames, a synergy that's expected to protect retail sales.

Videogames cannot be stored on the system or recorded, so subscribers will only have access to games as long as they're carried by Sega Channel.

The concept "is quite risky, but there's every reason to believe it will be successful," said Wes Nehei, executive editor of videogaming magazine GamePro, which has been closely tracking Sega Channel's progress. "What they're doing is creating a whole new medium that hasn't existed before, and the outcome will determine what's next for interactive entertainment."

In response to concerns that Sega Channel would cannibalize retail sales in the $6 billion videogame category, Ms. van Buskirk said the channel is more likely to have the opposite effect.

"People are much more likely to buy a videogame after sampling it, even for a game that's not red-hot on the market. Sega Channel gives viewers a chance to test-drive the games they want to own."

Sega Channel is using subscriber feedback to fine-tune its format before the launch and is committed to keeping communication lines open as the channel goes national.

"Kids are very candid, and while they're giving us ideas of how to improve the service, the overwhelming vote is that they love Sega Channel and they are running out of adjectives to describe it," Ms. van Buskirk said.

It's likely Sega Channel will promote the service on local cable TV systems with 30-second TV spots. During the test, descriptive 10-, 30- and 60-second spots themed "Stop just watching TV" ran in each market as the service was introduced. Griffin Bacal, New York, created the spots, but no final decision has been made on an agency of record for Sega Channel.

The channel plans to run a number of contest and sweepstakes promotions, sponsored by major marketers, when new games are released. There will be no direct advertising on the Sega Channel, although promotional messages and Sega news will be offered during the 60 seconds it will take to download games.

Yet to be determined is whether the video-game cartridge adapters will be manufactured by Scientific Atlanta or General Instrument; both made adapters for the test.

And while Nintendo of America so far has no plans to copy Sega Channel, Ms. van Buskirk said her company isn't against including Nintendo or its products in its operation.

"We are a joint venture, a separate entity from Sega of America, and we're open to many different things. There's no reason our door would be closed to Sega's rivals-even the `Big N,"' she said.

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