Games are to be delivered via a "pay-per-play" format, which will no doubt give the companies involved new revenue opportunities. The product, which was not named, will incorporate a hard disk drive (HDD), which Pace said will create "opportunities for broadcasters and others to develop a host of additional applications for the home, all accessed through a single device." The new Pace product will be marketed jointly by the two companies.

Sega of America would not comment on the announcement, but is setting up press demonstrations for Friday, Feb. 2.

"Our announcement with Sega is a world first," said Andrew Wallace, marketing director, Pace Micro Technology, in a prepared release. "Together, Pace and Sega will offer digital broadcasters a valuable new service for their subscribers, as well as an important source of additional revenues. Pace's vision is to change the way in which consumers interact with digital TV technologies. We have created a development path that is leading the industry from the set-top box to the home gateway and beyond to the fully integrated networked home, based upon the digital set-top box as the central control and communications device. For Sega, integrating games into set-top boxes expands its market potential beyond conventional games consoles. Existing users now have a new way to access games, and new users will be attracted since anyone with the HDD enabled home gateway box will have access to Sega's own extensive and licensed games portfolio."

The HDD also acts as a jukebox of sorts, allowing games to be transmitted wirelessly to and played on portable, handheld devices (although which ones specifically hasn't been revealed). Gamers will likely be able to insert customized characters into games and interact with other players using chat functions.

While Pace's announcement was expected, it raised more questions than it actually answered. Release dates and pricing details were not announced. It is uncertain as how the box incorporates Dreamcast technology – and even if the device will be able to play Dreamcast discs. The rather vague text says games are "to be delivered via a ‘pay-per-play’ format" which might mean that existing Dreamcast games will be useless on the new systems.

While Pace said that the collaboration "will be available for all major digital TV platforms including cable, satellite, xDSL and digital terrestrial," it's unclear as to what sort of audience Sega and Pace hope to capture. It is also currently unclear whether people will be able to download existing Sega fare, like Shenmue.

Also unconfirmed is the fate of the Dreamcast console, which Japan news source Nikkei had reported Sega would no longer be manufacturing.

In any event, we'll bring you a full report on the Dreamcast-enabled set-top box following Friday's demonstration.

The text of the press release has been included below:

Sega Integrates Dreamcast Technology into Set Top Box as a part of its Architecture Licensing Strategy

Sega to join hands with PACE Micro Technology, PLC. to enable Dreamcast gameplay using set-top-boxes

Sega Corporation (Head office: Tokyo; President: Isao Okawa) announced today that Sega and Britain’s set-top-box developer, PACE Micro Technology,

PLC, the leading company in the industry, have agreed to license-out Dreamcast technology and to jointly develop a set-top-box home gateway with built-in Dreamcast architecture. The product will be introduced to the public by PACE at roadshows, which are scheduled to take place in Britain and United States at the end of this month.

Sega will incorporate the main feature of Dreamcast, network connectivity, to diverse markets outside the gaming industry in order to expand its architecture licensing business. Set-top-boxes with built-in Dreamcast architecture, which will be Sega’s first product in this field, will have all the features of a set-top box such as broadband connection and a large capacity hard disc drive. Consumers will be able to play network games as well as view TV shows and other entertainment content using this single product, with perfect ease and freedom. This development will also allow Sega to go beyond the conventional console-dependent business and promote a new network business by providing network compatible content.

The new technologies incorporated in this product will:

1.greatly improve user-friendliness by enabling users to download games through a set-top-box with a broadband (xDSL, CATV, satellite, etc.) connection and large capacity hard disc drive, using a TV monitor in the home living room.

2) enable new services such as EPG Service for TV programs using powerful 3D graphics of a gaming console.

3) enable gamers to insert their customized characters into different games, interact with other players using chat and VoIP, and playback missed episodes by high-speed downloading.

These features will become available in the future, as broadband technology progresses and the integration of gaming and TV broadcasting is realized.

The most notable advantage for Sega in providing Dreamcast architecture to digital devices other than game consoles is that these devices will enjoy complete compatibility with Dreamcast. Because these set-top-boxes with built-in Dreamcast architecture will be compatible with original Dreamcast titles, of which hundreds are already available worldwide, the tedious procedure of porting software to other platforms is no longer necessary for software developers. As a result, Sega will gain the opportunity to expand its software business by providing Dreamcast software to completely new platforms such as digital devices other than the conventional game console.

With the advancement of semiconductor and network technologies, set-top-boxes and digital home appliances such as TVs, new-concept digital appliances in the living room that will allow consumers to access diverse information and services all-in-one, will become increasingly popular in the 21st century. Network compatible digital appliances will also go beyond conventional stand-alone PCs, game consoles, set-top-boxes, audio visual appliances, PDAs, and cellular phones. At the same time, borderlines between different forms of interactive media will become more and more subtle as satellite and CATV broadcasting becomes digitized. Now that broadband networks are about to penetrate homes around the world, entertainment content, most of all games, are becoming the most attractive and sought-after element in the expansion of network society.

In this great global tide of network evolution, Sega aims to become "the world’s leading network gaming service provider" by focusing on these four core businesses: 1) Licensing of Dreamcast architecture; 2) interactive network video game content; 3) Narrow and Broadband electronic services to the online community and 4) Location-based amusement centers, featuring Sega’s unique content development abilities and vast content asset.