3DO Multiplayer: Is a star born?


NEW YORK -- Wall Street's newest darling, the 3DO Co., hit town yesterday to woo analysts just weeks before what's been billed as one of the year's hottest initial public offerings.

Investors have been buzzing about 3DO ever since it filed with the Securities and Exchange Commission in March to sell 2.2 million shares. The California-based company is developing what touted as a new standard in home entertainment: an interactive multimedia CD-ROM player that delivers computer games with unrivaled graphics and sound quality.

Called the 3DO Interactive Multiplayer, it is designed to run entertainment, education and information applications. It will also able to play audio compact discs and display photo CDs. 3DO's strategy is to create a new interactive multimedia standard by licensing its technology rather than manufacturing, marketing and distributing its own products.

Speaking at a communications and media seminar sponsored by Baltimore's Alex. Brown and Sons Inc., 3DO founder W. M. "Trip" Hawkins III countered concerns that the $700 system would be )) too expensive, produced too late for Christmas and not have enough custom-made games to be interesting for buyers.

"If you have high-performance graphics, about half a million [people] will go out and buy it regardless of the price," Mr. Hawkins said.

Due out in stores by Christmas and backed by such high-tech giants as Matsushita Electric Industrial Co. Ltd., American Telephone & Telegraph Co. and Time Warner Entertainment Co., 3DO is aiming to snag 500,000 customers this year and up to 45 million in the coming years.

"They're in a really hot area and their people are first rate," said Kathy Smith, head of Greenwich, Conn.-based Renaissance Capital Inc.

But many analysts believe that 3DO also has several weaknesses.

Besides the product's high price and tight production schedule to make the Christmas buying season, 3DO needs enough deep-pocketed investors to back its costly research. Since its founding in 1991, 3DO has lost $13 million -- three-quarters spent research and development -- and is looking for at least $22 million from its offering, which is being underwritten by Alex. Brown and Morgan Stanley & Co. Inc.

In its SEC filing, the development-stage company said it would sell 2.2

million shares at $10 to $12 each, but some analysts believe it will be priced higher. The offering is expected to be priced sometime next week, Alex. Brown said yesterday.

Mr. Hawkins countered these worries by announcing that prototypes have already been sent out to software manufacturers so they can begin developing games. In addition, he said that Matsushita is due to start mass producing the players at a rate of 1,000 a day by July.

As for the price, Mr. Hawkins said marketing research shows that at least 500,000 consumers stand ready to part with $700 to buy state-of-the-art home computer and television game systems. That number, in turn, guarantees that software manufacturers will feel it worthwhile to make a wide enough variety of games to hook another 4 million consumers.

By then, the price will be low enough -- production costs should be down to $100 a machine -- to give the product a shot at winning an additional 45 million consumers down the road.

The linchpin, Mr. Hawkins said, is that 3DO's technology is so sophisticated that it can attract those initial 500,000 pioneer consumers.

During a display, Mr. Hawkins seemed to make a strong case: The 3DO CD-ROM player showed amazingly realistic scenes from an animated golf video game, an interactive science lesson on the planets and a flight simulator.

The realism comes from the 3DO machine's speed: It is 88 times faster than current interactive video games, Mr. Hawkins said, meaning the number of frames per second is equal to television quality.

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