Let the games begin

National | Will Gates conquer Nintendo, Sony, and Sega? Will digital conquer film? Will Buffett conquer high-tech?

Issue: "The new slave trade," March 25, 2000

The X-Games
Get ready for a whole new game. Microsoft is preparing a new gaming machine, code named the "X-Box," for Christmas 2001. It's more powerful than many of today's desktop PCs and boasts "movie-quality" graphics and high-speed Internet capability. Will this be the first American machine to dominate the industry since Atari's bubble burst in the 1980s? Will Nintendo, Sony, and Sega be conquered like Netscape, Lotus, and Borland? Nobody knows, but video games are an $11 billion market and Bill Gates wants in. The X-Box is expected to resemble a decent home computer as much as a gaming console. It will run Windows and will have a 600 MHz processor, a hard drive, a DVD-ROM drive, and at least 64 megabytes of RAM. By the time this machine comes out, low-end PCs in stores will be this powerful. Microsoft won't put a traditional modem in the X-Box. Instead, it'll have something that connects to DSL, a modified phone line that allows high-speed Internet access. Perhaps this is a sign that the company expects more and more people to be using such services down the road. Microsoft has a powerful games department that produces titles like "Age of Empires II," "Flight Simulator," and "Monster Truck Madness," but this is a new ballgame. The big three console makers are well entrenched and will put up a good fight against the competition. What the X-Box means for the company is a way to grow beyond its consumer PC stranglehold. In addition, new video machines are becoming more and more Internet-savvy, which means they are encroaching on the world of desktop machines. The X-Box is also another sign of the great convergence: Our TVs, Internet, and phone connections are coming together in strange new ways. Someday all these services could come from one jack in the wall. "Roll 'em" an obsolete phrase?
Within several years, when you go to the movies, you may not see film. You'll see a digital projection that gets rid of the pops, scratches, breaks, and other problems of traditional celluloid. It'll be really cool to watch. One problem: Who's going to pay for it? While traditional film projectors typically cost $25,000 to $30,000, their digital replacements carry price tags of $100,000 or more. That means about $4 billion in the United States alone for upgrades. That means theaters will have big bills, while studios will save a fortune on the cost of making prints. Two or three thousand stacks of reels must be created for every major release. They're heavy, bulky, fragile, and usually worn out and destroyed at the end of a movie's run. "Right now, you've got these massive wheels of film being spun off, put on trucks, and shipped around the world," said Michael Mooney, director of digital cinema for projector manufacturer Christie Inc. "It's not cheap." Today, digital projection is about as good as traditional film. Some colors look better and others aren't as good. Yet the new way is more versatile. Pictures can be beamed off satellite, tape, or disk and shot through a projector that beams light through nearly 4 million microscopic mirrors to produce a picture. As a test, George Lucas's Star Wars: Episode I-The Phantom Menace was show on digital projectors at two screens last year. Disney has tested Tarzan, Toy Story 2, and Bicentennial Man in the new format in a few theaters as well. Yet the big switchover is a few years away. Hollywood's consensus is that digital projection will eventually take, though it could co-exist with celluloid for years or decades. Expect to see more and more digital projectors around in two or three years. Buffett buffeted by tech boom
Warren Buffett is sorry. His stocks are down, way down. And you can thank the raging bulls in technology for it. As inventing greenhorns turned thousands into millions buying hot properties, Mr. Buffett stayed out-and paid the price. The earnings of Berkshire Hathaway, Mr. Buffett's Omaha-based holding company, dropped 42 percent in 1999, while the stock fell 20 percent. Last year, it earned $1.6 billion compared with $2.8 billion in 1998. Berkshire stock is even down 26 percent since January. Ouch! "We had the worst absolute performance of my tenure and, compared to the S&P, the worst relative performance as well," Mr. Buffett wrote in this year's annual report. "Even Inspector Clouseau could find last year's guilty party: your chairman." Mr. Buffett is no slouch. He's a billionaire, a $31 billion billionaire listed by Forbes as the third richest American alive. His investing is famous for high returns, and many investors watch his every move. Why doesn't Mr. Buffett invest in tech? It isn't his core competency. He buys things like furniture, publishing, and insurance, and he isn't about to change, even in this lousy year. Depending on whom you talk to, this is either a symptom of a huge high-tech bubble that will soon burst or a harbinger of the new economy. Either way, investors are buying little pieces of the future: microchips, Internet networks, fiber-optic lines, and the like. More and more money is going to tech companies that could give explosive, expansive growth in the near-term. The tech boom took off like an oncoming train, raising the standard of living for many. Those who didn't hop aboard are being left behind.

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