Euro 2000 was a dead loss, Wimbledon wasn't much better and now we're waiting for the inevitable shortfall in our Olympic medal tally to complete the set. At least there is one event at which the UK seems to excel; when it comes to racing to the shops to buy the latest gaming platform and mastering every title, Britain is world class.

The success of video games seems to be constrained only by how quickly the industry can reinvent the technology on which to play them. PC-based games have never been stronger, the rewards for game player and supplier are becoming steadily more attractive, several new console platforms are about to be launched and the market is on the verge of broadening from niche to mass audience.

However, some commentators warn that the sector is undergoing a subtle yet significant change, and the channels to market are beginning to shift. James Ball, UK product specialist at Creative Labs, believes PC-based entertainment is evolving into a more broad-brush proposition as the PC loses its technical/business image.

"We want to see the PC moving into the living room; becoming more of a commodity item and more of an entertainment centre that other products will plug into," he said. "Functionality and USB2 is on its way, which will help again. The priority is to try to attract those people who don't mind buying set-top boxes and other gadgets but draw the line at taking the top off the PC."

So there are indications that with PCs gaining console functionality, and the console travelling towards the PC, the market is in flux. This view is echoed by Charles Bows, strategy and communications manager at Fujitsu Siemens. He argues that the lines between PC and console based games playing are beginning to blur, leading to indecision and the emergence of hybrid products.

"While the main question has always been PC or console - regardless of whether it is a Playstation, a Dreamcast, or anything else - the argument is changing," he said. "Traditionally, the PC has been a fully functional device, allowing the user to play games, surf the net and use office applications, and was tucked away in the bedroom or home office. The console, meanwhile, has taken pride of place in the front room but has only a single function."

The next generation of consoles is addressing this by offering internet connection and email, he said. But they will still not cover areas such as word processing, spreadsheets, graphics and so on.

Invading the living room
"We believe we will start to see the emergence, before this Christmas, of a new type of consumer product: the home entertainment centre [HEC]. This will be a multifunctional device including PC, console, home theatre and music capabilities. It will look like a standard DVD player and will reside in the front room connected to the TV in place of the video," said Bows.

These new products could well be lucrative for channel players. But, according to Bows, distribution channels have yet to be defined since HECs will fall into both the PC and console markets, with the added functionality of DVD playback through the TV. It is also unclear which kinds of homes will adopt such devices.

But these hybrids may not provide the best running environments for 'serious' PC applications, while the average player will be unlikely to give up their dedicated console unless they are assured of the same performance, compatibility and access to titles.

This, coupled with a number of key events, is sure to cause confusion among buyers, and consternation in the retail channel in terms of product selection. The first major event on the agenda is the keenly awaited release of Sony's Playstation 2 (PS2). The first version, with more than 75 million units shipped worldwide since 1995, enjoyed massive success.

Anticipating a similarly high level of demand when the product is finally launched in the UK in November, Sony has taken an unusual approach towards distribution. Customers must pre-order consoles - only one per household - through their retailer, with the orders being fulfilled on a first come, first served basis. The product is not expected to be available off-the-shelf until after Christmas.

Kevin Jowett, sales director at Sony Computer Entertainment (CE) UK, said: "Our objective is to get PS2 into homes as quickly as possible. We feel that, with a pre-order driven system, we can achieve this while offering our retail partners a level playing field to reap the rewards of being part of a successful launch. [It will] also give our consumers the fairest solution."

Sony believes that traditional distribution methods mean hardware can sell out in some areas but be over-stocked in others, so that consumers can be penalised depending on where they live. Pre-ordering, it says, solves this problem.

Frederic Diot, a senior analyst at researcher Datamonitor, said of Sony's tactic: "This kind of distribution model is unheard of in this market space, and although the official line is one of avoiding customer disappointment and ensuring that the system is fair, there could be a hidden agenda here."

He is referring to the fact that when a customer orders a PS2, the details will be passed to Sony so the product can be shipped. Given the success of the first model, and the all-but guaranteed prosperity of the second, Sony could easily sell a third version of the console direct using this information.

Ray Maguire, managing director at Sony CE UK, insists that the retail channel will be crucial to the product's success. "The success of PS2 will rely upon strong new relationships with both consumer and retailer. PS2 is as different from Playstation as Playstation was from 16bit consoles. This new type of hardware requires a new type of philosophy, and we believe a bold route to market is the start of this."

It will have to be bold. Microsoft, in typical predatory style, announced its intention to bring a PC-based console - the much-vaunted Xbox - to market in autumn 2001. It could not have been timed better to upstage Sony. Richard Teversham, games and Xbox marketing manager at Microsoft, says it will be aimed squarely at the very heart of the console market, boasting a specification "at least three times more powerful than Sony's PS2".

Explaining Microsoft's interest in the console arena, Teversham said: "Where games playing is concerned, with the need for better and more powerful function cards, the PC is already being pushed to the outer limits of its functionality. Because the future of games playing could lie in console formats, we decided that we wanted to port the best in PC architecture to a self-contained, console-based platform. The result is the Xbox."

Teversham claims the Xbox is so compelling that its marketing should take care of itself. Although pricing and delivery strategies have yet to be finalised, the distribution mechanism will be similar to that of existing consoles. "We see the channel as the natural conduit for the Xbox, and we see the Xbox as a natural opportunity for the channel," he said. Also, with other vendors selling consoles as loss leaders to drive software sales, he hints that Microsoft will be "doing something similar".

While it is no secret that Microsoft covets the home entertainment dollar, gaming appears to be a sideways step for the software giant. But when you hear the company's reasoning, it's easy to see the familiar Microsoft agenda at work.

"We have 18 years' experience of making games. What we want to do now is take that experience and leverage it onto a whole new plain; to shape a whole generation of gamers," said Teversham. In other words, the company would like to take a niche market audience and use its product and brand strength to convert it into a mass-market opportunity.

Hard drive gaming
Perhaps the most significant feature of the Xbox, and its biggest departure from the traditional console, is that it will carry an onboard hard disk drive. Although the size and specification are yet to be confirmed, its inclusion is sure to set the machine apart.

"Imagine a console in which the fantasy world with which the games player is interacting can evolve with him each time he plays," said Teversham. "You could be playing a football game, for example, where each player is represented by an individual, networked gamer. During the game a player leaves a divot in the grass. With the Xbox's hard disk capability, that divot could remain in the pitch until you decide to 'repair' it. In this way the Xbox will allow an 'ever-evolving' universe to unfold, growing on the hard disk each time you play."

Many observers, including Creative Labs' Ball, think the Xbox will change the entire long-term future of the market, and the implications of the onboard hard drive have already sent ripples across the gaming pond. Sony responded by announcing that it is launching a stand-alone, add-on hard drive for the PS2. Teversham claims this is a huge compliment to both Microsoft and the Xbox, particularly because the Xbox is not due out for another 15 months.

But despite Sony's huge customer base, strong brand and good depth of software titles, the PS2 will not be without its problems. "Although developers are already beginning to create games especially for the new console, rumours suggest that while it is undoubtedly powerful, it is a very complex platform for which to write. This could easily turn into a sticking point for Sony," said Diot.

This complexity could become more of a problem when the Xbox and its multiple titles are released, he added. "Many people have been talking up the PS2 and it will obviously be a very strong product. But it should also be pointed out that, particularly in terms of authoring, the Xbox will use the already hugely popular DirectX technology. The Microsoft machine will provide a sizeable threat to Sony's dominance."

Diot believes the next few years could prove critical when it comes to the other players in the market. "You have to feel slightly sorry for the likes of Sega, with its Dreamcast offering," he said. "In a period dominated by Sony, Sega brought the Dreamcast to market, pushed extremely hard to make it work, and has, for a while, succeeded. In terms of timing, however, the tide was against it. With Playstation in such a commanding lead and PS2 on its way, many gamers are still holding fire before replacing their consoles."

Nintendo's imminent offering, known as Dolphin, is much harder to comment on, said Diot. The company has kept most information about it under wraps, and details are at best sketchy.

"Nintendo has been, to say the least, coy about Dolphin," he said. "It also seems that few authors have been given access to software development kits for the product, which doesn't augur well for Dolphin's success. As the company's experience with the Nintendo 64 proved, software developers need time to get titles out there if a console is to succeed. Nintendo's error cost it a significant lead against Playstation last time around. It may be able to win business if it can get some titles onto the market, but it looks like there will be only a handful, so they had better be very good."