Is Nintendo A Street Fighter Now?

It's humble pie time at Nintendo Co. The video game giant is attempting a comeback against archrival Sega Enterprises Ltd. And in a tremendous decline in hubris, it is aggressively seeking help from some U.S. and European startups. Beginning this fall and early next year, Nintendo will begin selling new software and hardware that young, independent outsiders helped develop. The details are still under wraps, but Nintendo of America Chairman Howard Lincoln confirms that the new strategy is under way.

The shift underscores how big a battering Nintendo has been taking from Sega. A couple of years ago, Nintendo worked almost exclusively with Japanese partners on hardware. And it demanded that third-party software developers sign exclusive deals and pay 30% royalties for the privilege of writing games for its systems.

But that was before Sega shouldered in. Aided by technical leaps, low prices, and a huge in-house software team, Sega has zapped Nintendo into second place (chart). And as it has gone for No.1, Sega has been wresting top independent software companies away from Nintendo. Now, such best-sellers as Street Fighter II from Capcom Co. and Mortal Kombat from Acclaim Entertainment Inc. are coming out on both companies' machines.

VIRTUAL HIT. To counter Sega, Nintendo is gambling on a drastic tactical change. Late last year, it linked with computer leader Silicon Graphics Inc. to design a new game system, called Ultra 64. Now, it has even started paying companies to write software exclusively for it. For instance, RARE Ltd. and DMA Design in Britain are helping write programs that will sell under the Nintendo name, and industry sources say the company has signed Dallas-based Paradigm Simulations Inc. for the same deal. And Acclaim Entertainment is creating a game called Turok--initially to be offered only on Ultra 64. Paradigm and DMA won't comment, but sources say Nintendo is paying a development fee plus royalties of 2% to 12%--worth millions of dollars for a hit game.

While it waits for Ultra 64, Nintendo is launching an interim sales booster, code-named 32 VR. Most of the details are still secret, but industry sources say Nintendo and a U.S. startup are co-developing "virtual reality" goggles that have their own three-dimensional display. Nintendo President Hiroshi Yamauchi has confirmed only that the new machine will use a 32-bit microprocessor, twice the power of Nintendo's current 16-bit games, and will sell for under $200. Nintendo will announce the product this fall in Japan, and it is scheduled to hit the market in the U.S. and

in Japan next spring.

Meanwhile, some of Nintendo's new partners in software are already ad-ding to its stock of games. Britain's RARE helped Nintendo create a new game called Donkey Kong Country, which revives the arcade game that introduced Super Mario. It will be launched this fall on the 16-bit Super Nintendo Entertainment System and will carry a marketing budget of $10 million. Sales could hit 2 million units by Christmas.

Sega, of course, isn't giving up the fight. This fall, it will release its own $139 add-on device, dubbed the Genesis 32X, which gives new power to its 16-bit Genesis machine. Sega's software developers are also scrambling to create unique new games. Still, Nintendo is finally grabbing the joystick and blasting Sega head-on. And none too soon.

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