A battle as cutthroat as any

World Wrestling Federation

wresting match will be fought in the video game industry this year.

Microsoft

(MSFT) - Get Microsoft Corporation (MSFT) Report

and

Nintendo

are debuting two major video game consoles that will scrap with incumbents from

Sony

(SNE) - Get SONY GROUP CORPORATION SPONSORED ADR Report

and

Sega

for the lead spot in the lucrative home entertainment market.

The booty is large. Video consoles are no longer just playthings for glazed-eyed youngsters. They're quickly becoming the locus for games, the Internet, DVDs, personal video recording and more -- all in the name of convergence. Steve Koenig, an analyst at market research firm

PC Data

, says this market will bring in "tens of billions of dollars a year in the next few years."

In this competitive market, the top two players leave little room for others because once a console (and its games and accessories) grabs one of the top spots, it may be years before a new one comes along to unseat it. It takes companies about five years to develop new features compelling enough to launch a new console, according to Felicia Kantor, an analyst at

Lehman Brothers

.

Microsoft's

Xbox

console, the company's first major foray into hardware, will be particularly important to the Redmond, Wash.-based company as it tries to move beyond its dependence on PCs. The console could pull in hundreds of millions of dollars in revenue this year if it does indeed launch in the fall -- but that's a relative pimple to a company as massive as Microsoft. Its real importance is strategic. If the video game console does become another portal to the Internet, Microsoft wants to dominate it.

Tough Task

But it has a tough task in front of it. "Microsoft won't likely unseat Sony," says James Lin, an analyst at

Sutro

. "To do so would be a monumental task given Sony's market share." (His firm hasn't done recent underwriting for either company.)

TheStreet Recommends

Sony led the market last year, followed by Nintendo and then Sega. According to research firm

NPD Data

, Sony's

PlayStation

had a 41% unit market share, followed by Nintendo's

N64

console, with 26%. Sega's

Dreamcast

had 18% and

PlayStation 2

captured 14% in the year's last three months after its launch.

But the video game industry had a lackluster year, with consoles, video game software and accessories pulling in $6.5 billion in revenue, up from $6.2 billion in 1999. But in spite of the tightening economy, this figure is expected to reach $10 billion in 2001, a 35% jump, according to PC Data's Koenig. A key reason for the expected growth is the launch of the Xbox and Nintendo's new

Gamecube

in the year's second half. In addition, the PlayStation 2 is expected to help. The console boasts DVD capabilities, Internet connectivity and sophisticated graphics. And it runs original PlayStation games.

Microsoft's black X-shaped console will arrive armed with a $500 million marketing budget and the endorsement of WWF superstar The Rock. "The key WWF demographic exactly overlays the typical console gamer: males ages 18 to 34," Lehman's Kantor wrote in a recent report. "Given the fanaticism and loyalty of WWF fans, we view Microsoft's relationship with The Rock as a coup. He could pull prospective PlayStation 2 gamers over to the Microsoft side." (Lehman hasn't done recent underwriting for Microsoft.)

Debut

On Jan. 8, Microsoft Chairman Bill Gates gave the public a taste of the Xbox's advanced technology, when he demonstrated the console at the

Consumer Electronics Show

in Las Vegas. According to Kantor, "The Xbox graphics are far superior to anything currently in the market." It also has DVD options, broadband access and more memory than any other console. And since its technology is similar to that of traditional PCs, it's easier for developers to make games for the Xbox than for its rivals. The primary challenge, according to Kantor, is for Microsoft to launch the product on time, something Microsoft rarely does with its software offerings.

Nintendo also says it will launch its Gamecube in the fall. The company has one distinct advantage over the rest -- it dominates the under 12-year-old market with games like

Pokemon

. The company already has a captive audience that uses its N64 console and its games will be compatible with the Gamecube, according to Koenig.

Sega's console is expected to be thrown into the turnbuckle this year. Sales of its Dreamcast are already slowing, according to Kantor. Observers say the company likely will bow out of the console market altogether, according to an article in

The Wall Street Journal

. Sega has lost money for four years, and the company has given no indication that it will produce any consoles after Dreamcast. Sega declined to comment.

So the main event this year remains Microsoft vs. Sony. And even analysts disagree who will win. Lehman's Kantor says, "We believe that Microsoft could be at an advantage over Sony, at least in the holiday 2001, when both go head to head for market share (assuming that MSFT gets the console to market on time and that Sony will not see a significant ramp up in production until then)."

Let the battle begin.