DKC

 SAN FRANCISCO -- With some new adventures, a gorilla named Donkey Kong helped wrest some joy from a mostly dismal Christmas season for video-game software makers.

Nintendo Co.'s new video game, Donkey Kong Country, was one of a few blockbusters that retailers and analysts say moderated a sharp drop in video-game sales this holiday season. "It could have been a disaster if it hadn't been for Donkey Kong," says James MacKenzie, senior buyer for Kay-Bee Toy Stores, a retail chain based in Pittsfield, Massachusetts.

Kay-Bee and other big retailers report their pre-Christmas video-game sales fell as much as 20% from the previous Christmas. But some had been expecting an even steeper drop. Because the market is beginning a shift from older "16-bit" game computers to more powerful "32-bit" and "64-bit" machines, retailers figured, consumers were likely to hold off on software purchases.

Indeed, Nintendo and its archrival Sega Enterprises Ltd., which together control about 90% of the $5 billion U.S. video-game market, say Christmas sales of 16-bit game machines, which use software in cartridge form, are down from the year-ago period. The falloff has created opportunity for makers of powerful new game players that use faster chips and software in the form of CD-ROM disks. 3DO Co., for instance, says Christmas sales of its Interactive Multiplayer rebounded so strongly that its manufacturers couldn't keep stores fully stocked. A big draw: well-received software titles such as a racing game called Road Rash by Electronic Arts Inc.

"Clearly, this Christmas we got the business firing on all cylinders," says Trip Hawkins, 3DO's chief executive officer.

But Donkey Kong and other hits of the season run on the older players, demonstrating that the market for software for 16-bit machines may have some life yet. Nintendo expects Donkey Kong and a sequel due this fall to help fuel its 16-bit Super Nintendo Entertainment System sales for several more years. In Donkey Kong, the player maneuvers a gorilla through obstacles, collecting bananas along the way. Sega says it expects its 16-bit Genesis player, which got a boost from a new game called Sonic and Knuckles, to be around for several more years.

Sales of cartridge games still overwhelm those on compact disk because they run much faster than slower CD-ROM drives and because the customer base is huge. Nintendo and Sega machines are in some 40 million American homes, compared with an estimated 10 million homes with multimedia PCs.

In the first four weeks after its mid-November release, about six million copies of Donkey Kong were sold world-wide. By comparison, GT Interactive in New York sold 300,000 copies of its popular CD-ROM game Doom II in October, the game's first month on the market, reports PC Data Inc., a Reston, Virginia, research firm. And Broderbund Software Inc. has sold an estimated 750,000 copies of Myst, the industry's biggest-selling CD-ROM game, since its release early last year.

The 16-bit cartridge market isn't what it used to be, though. To get a big hit, video-game makers now have to spend many millions of dollars to promote a title in advance. Nintendo, for instance, spent an estimated $17 million promoting Donkey Kong Country, a title developed by Britain's Rare Ltd. that features an advanced computer modeling technology for better graphics.

With 16-bit sales expected to plunge more than 40% this year, according to a report by Gerard Klauer Mattison & Co. researchers, Nintendo and Sega are working to offset the losses. Sega wants to move its customers gradually to the more expensive Saturn machine by getting them to buy interim products such as an adapter called 32X, which runs 32-bit games on a Genesis machine.

But Nintendo is staking its future on a 64-bit player called Ultra 64 that it plans to release in the U.S. this fall for under $250. Unlike the other new players, Ultra 64 will initially run only cartridge games, reflecting Nintendo's belief that cartridges will remain strong longer than competitors believe. Nintendo has already regained much market share it lost to Sega, pulling roughly even in 16-bit sales, on the strength of Donkey Kong Country.

"We have done our sparring, and now we are ready for the heavyweight rounds," Peter Main, Nintendo of America's marketing vice president, told Nintendo distributors at the Consumer Electronics Show in Las Vegas last week.