NEW YORK (CNNfn) - While they're easy to write off as "kid stuff," video games are big business -- and they're about to get a lot bigger.
Sega fires the first shot Thursday in the battle of the next-generation console systems, as its 128-bit Dreamcast machines go on sale in the United States. The company anticipates generating nearly $45 million in sales in the first 24 hours, which it says will be the biggest moneymaker in the history of the entertainment industry, surpassing the first-day figures set by the summer's biggest blockbuster movie: "Star Wars Episode I: The Phantom Menace."
That's just a drop in the industry's bucket, though. Computer and video games racked up $5.5 billion in sales in 1998, with $3.7 billion of that coming from the console market, a 37 percent increase over the 1997 numbers. The industry has been growing steadily, too. Sales have increased 72 percent since 1995.
As new gaming systems enter the market, though, experts anticipate another spike. The last console to hit the market was the Nintendo 64, three years ago. That's an eternity in this fast-paced field.
Sega mascot Sonic the hedgehog has
received a facelift
First up for the new consoles is the Dreamcast. And if pre-sales are any indication, there's a considerable amount of pent-up consumer demand for new gaming systems. Sega had expected pre-orders to reach 200,000. Instead, those numbers topped 300,000 by the end of August. According to the company, some retailers were logging an average of 2,000 pre-orders per day for the system. And analysts expect the demand to remain steady.
"They will not be able to fill total demand that appears to be building for this holiday season," said David Leibowitz of Burnham Securities.
That's not unusual with new consoles, though, since they typically launch immediately prior to the holiday shopping season. Leibowitz says he doesn't expect those shortages to negatively impact the company.
"The product will have legs and there will be demand next year, which can be filled with the product that is presently being assembled," he said. "If the (Dreamcast) doesn't succeed, it will not be because of lack of product."
The key to success
Software is the key to success for any new console, and industry support for the Dreamcast has been encouraging. The machine will launch concurrently with 18 games, the most of any new console system. And critical reaction to the majority of those games has been quite positive.
With its relatively low launch price of $199 and positive buzz, the Dreamcast has become a subject of interest for both casual and hard-core gaming fans. It's also the first of the next-generation systems, which gives it at least a slight advantage over its competitors.
Next-generation machines boast more sophisticated hardware, which results in crisper, smoother graphics. With the Dreamcast, which is twice as fast as the Nintendo 64 and four times as fast as the Sony PlayStation, gamers are able to enjoy arcade-quality games at home.
To stem customer losses, Sony recently cut the retail price of its PlayStation to $99. Nintendo quickly followed suit with its N64 machine.
The price cuts were just the first volley in what is about to become a fierce fight for consumer dollars. Both Sony and Nintendo have their own next-generation machines in the works, which they say will hit store shelves late next year.
Midway's Ready 2 Rumble is one of the Dreamcast's most anticipated games
Both are hotly anticipated and expected to set record sales numbers themselves. That's why analysts say the Dreamcast is so important to Sega. After failing to win consumers with its last console release -- the Saturn -- Sega is a distant third in the industry.
"Dreamcast is critical to Sega as long as Sega wants to be a hardware vendor," said John Taylor of Arcadia Investment Corp.
The company is not bowing to its larger competitors, either. In fact, over the course of the past year, it has tweaked them at every opportunity -- culminating last month at a Sony golf tournament, where it flew a plane over the course with a banner advertising the Dreamcast and had its mascot, Sonic the Hedgehog, zipping around the course in a cart.
While consoles are basking in the spotlight right now, PC gaming companies don't intend to be left out of the fight.
Graphics company nVidia unveiled a new chip last week, which had industry insiders gaping. And 3dfx , nVidia's arch rival in the computer graphics industry, plans to launch its next generation chip by the end of the year.
In the end, though, analysts agree that the ultimate winners in this battle won't necessarily be the company that offers the best hardware, but the one that offers the best software for its system.
"The thing that drives hardware sales is a cool game you can't get anywhere else," said Taylor.