MORTAL KOMBAT

By PHILIP ELMER-DEWITT DAVID S. JACKSON/LOS ANGELES

The folks at Sony--the company that brought you the Trinitron television and the Walkman, and will soon launch the PlayStation game player--are newcomers to the $5 billion U.S. video-game business. But it didn't take them long to get into the mtv-blaring, schoolyard-taunting, testosterone-burning spirit of the thing. Hanging in front of the big Electronic Entertainment Expo in Los Angeles last week was a Sony banner that boasted EATS NINTENDO FOR LUNCH--THEN THROWS UP.

That pretty much set the tone for the first annual EEE (or E3, as insiders call it), the new spring showcase for the latest and loudest in video-game software and hardware. It was not a pretty sight. Five hardware manufacturers--Nintendo, Sega, Sony, 3DO and Atari--are battling for one of the top spots in a market that most analysts believe has room for no more than two or three.

"It's going to be a bloodbath," says Adam Berns, producer of a new $2 million adventure video game called Fox Hunt. "By next Christmas, we're going to see who's still standing."

The video-game market is in the midst of one of those awkward transitions it endures every five years or so, as the old game-playing systems get banished to the closet and new, more powerful ones take their place on the family TV. What is supposed to happen this year, according to the industry's timetable, is that the so-called 16-bit machines (like Sega's Genesis and Nintendo's Super NES) will be phased out in favor of machines that crunch data 32 or 64 bits at a time.

But things are not going according to plan. The 16-bit market is winding down all right. Sales are expected to drop as much as 40% this year. But 32-bit systems from 3DO and Atari have been sitting on shelves in U.S. stores for nearly two years, and lately they have been doing only that, sitting there. Last Christmas millions of parents passed over all the competing video-game systems in favor of home computers that can play games and do productive work as well.

The video-game makers profess to be unconcerned by the threat from the computer industry. Instead, they spent most of last week blasting one another, rather like characters from one of their games, challenging their competitors' statistics, sneering at the performance of their systems and doing their best to keep one another off balance.

Nintendo started it by executing an elaborate head fake, announcing just before E3 that the hot new Ultra 64 machine it had promised to unveil later this year would be delayed until April 1996--after the critical Christmas buying season. Sega, which apparently was making its plans around Nintendo's original schedule, surprised everyone by announcing that its new 32-bit Saturn would be available immediately instead of in September. Sony, no stranger to the stratagems of consumer-electronics marketing, neatly parried with its own surprise: a pre-emptive price cut on the PlayStation--before the official list price was even set--to $299. That positioned the game system well below the $399 list prices of the Sega and 3DO machines and only slightly higher than the $250 price Nintendo has been promising for the Ultra 64. (The Atari Jaguar player, at $159, would appear to be the best bargain of the lot, but the beleaguered company has had trouble attracting top-flight game developers.)

The companies are also engaged in a fierce fight on the technological front. Sony and Sega are following 3DO's lead, using 32-bit processors and double-speed CD-ROM drives with sufficient capacity to store VHS-quality video images and CD-quality stereo sound. Nintendo, striking out on its own, is opting for a higher-powered, 64-bit chip, and will store its games on high-capacity, plug-in cartridges instead of CD-ROM discs. Nintendo says this will enable it to offer both a lower-cost system and the blistering speed demanded by its target market: adolescent boys who like the fast-paced "twitch and flinch" action games.

But the new power brings more than pace; it makes better theater on the screen. Conventioneers last week were mesmerized by a preview of 3DO's 64-bit chip (still in development) that can bathe surprisingly lifelike characters in a realistic-looking fog. Nintendo wowed viewers with a videotape demonstrating how its new computational horsepower can be used to eliminate the jagged lines in and around objects, wrap them in textures, or even zoom in and out without suffering the usual loss of clarity.

With all this new power, the medium might seem to have a lot of potential, but few game developers last week showed any sign that they were interested in exploring it. The games on display--even on the new systems--were depressingly unoriginal. Most boiled down to a couple of thugs (male or female) slugging and kicking it out, or to various vehicles racing through a maze of one sort or another, avoiding obstacles and obliterating anything that moves. A typical title in this genre: a 3DO game called Hell: A Cyberpunk Thriller.

Even with the price cutting that started last week-and is likely to continue through the holiday season-the systems are still far too expensive to tempt consumers used to paying $100 or less for a game machine with plenty of good software. "We do not believe there is a mass market for any machine that costs over $200," says Dan Lavin, a senior analyst at Dataquest, a market-research firm based in San Jose, California. "None of these machines is going to sell in large volumes in 1995."

If his prediction turns out to be true, the situation could play into the hands of Nintendo, which is gambling that there is still some life left in the underpowered 16-bit systems. With an impressive piece of programming, Nintendo has managed to get games developed for the Ultra 64 to play on the old Super NES. The first of these was Donkey Kong Country, which conquered vidkids last year with its clever play and striking three-dimensional graphics. DKC ended up outgrossing most Hollywood movies (total number of copies sold in the U.S. so far: 3.5 million).

On the other hand, this year could end in what Tom Zito, president of Digital Pictures, calls "a PC Christmas," in which parents opt for CD-ROMS that play not on the new game systems but on their home computers. Already 10% of U.S. households have PCs or Macs equipped with CD-ROMS, and that figure is expected to double this year. (By comparison, 30% of U.S. homes own video-game players.)

But video-game players have another option: they can wait a few years before trading up. "Don't forget, kids could easily go a year doing other activities,'' says Dataquest's Lavin. "They still have the right to go out and play basketball." That scenario is a lot scarier to the industry than its bloodiest games.

-Reported by David S. Jackson/Los Angeles