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Video Game Technology Accord Forged : Electronics: Nintendo and Sony say they have agreed to work together on a system that could dominate the next generation of products.


SAN FRANCISCO — After two years of haggling, Nintendo Ltd. and Sony Corp. said Tuesday that they have agreed to work together to develop common technology that could dominate the next generation of video games.

But the two companies differed sharply on the meaning of the agreement. Nintendo portrayed the accord as a landmark deal that would result in Nintendo and Sony working together to create an international standard for new compact-disc video games. But Sony officials said the company has not committed to building machines that would be compatible with Nintendo systems and might eventually support a different standard.

The agreement comes amid jockeying by electronics firms gearing up for a new generation of game machines that use compact discs to provide video and high-quality animation superior to current video games.

But the different CD machines will not be compatible with one another, meaning consumers and game software developers will be forced to make expensive bets on which of them will succeed.

Under the deal, Sony retains the rights to build a machine that can play both Nintendo cartridges and CDs, but agrees to support Nintendo's CD format rather than develop its own. Nintendo abandoned plans to introduce a compact disc system in January and now plans to introduce a machine based on the new CD format next fall.

Sega of America, which during the last year has ended Nintendo's near-total dominance of the $4-billion video game business, plans to introduce its compact disc system Thursday. In addition, a start-up company backed by game software leader Electronic Arts and Japan's Matsushita is reportedly set to introduce a highly advanced CD system in the spring.

The Nintendo/Sony agreement has its roots in a 1990 deal between the two companies under which Sony had planned to build a machine that would play both Nintendo game cartridges and compact discs based on a Sony format. But sources say Nintendo considered the agreement unfair because it gave Sony total control over the CD game software, and thus Nintendo sought to renegotiate.

Howard Lincoln, a Nintendo senior vice president, said the deal with Sony meant that Sony would soon go to market with a game system based on the Nintendo formats.

"Sony Japan is going to be proceeding full speed ahead," Lincoln said. "I can't imagine why they would head into this agreement and not manufacture a product."

But Sony officials disputed that interpretation.

"No decision has been made at this time as to what Sony will supply hardware for," said Rick Clancy, a spokesman for Sony USA. "We're studying various possibilities for getting into the video game market, and the deal with Nintendo is one possibility."

Lee Isgur, an analyst with Volpe Welte & Co. in San Francisco, said Sony is waiting to see which CD game format emerges as the front runner, and the Nintendo deal was an insurance policy for Sony.

"Sony is committed to being in the interactive entertainment business; they're very certain it will be a big business, but very uncertain about who will win," Isgur said. "They're continuing to keep their options open, and once there is a standard, they'll be in there."

Further complicating the picture is the fact that Sony's own software division, Sony Electronic Publishing, already develops games for both Nintendo and Sega, and is one of the key developers for the new Sega CD system.

Senior Sony executives will be standing alongside Sega officials when the Sega CD is rolled out this week.

Olaf Olafsson, president of Sony Electronic Publishing, said his company will pursue software products for successful game systems regardless of whether Sony manufactures them.

Analysts acknowledge that Sega has established an early lead in the CD field. But they say that the arrival of improved systems next year could radically alter the balance, and that the real war will not begin until the Christmas, 1993, selling season.

The biggest wild card in the picture might be a completely new game machine under development at San Mateo-based 3DO Co., headed by Electronic Arts founder Trip Hawkins and reportedly funded by Matsushita, Time-Warner, Motorola and others.

Although the company has been mum about its plans, it is widely believed to be working on a highly advanced CD game machine for introduction next year.

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