Sega Enterprises had a very difficult month in May. Changes in upper management, slow sales in Japan and another reported year of losses have left the company on shaky ground. Now Sega Enterprises will build its new gaming network, SegaNet, without Microsoft. Sega first joined forces with Microsoft in 1998, making Windows CE and DirectX an integral part of the Sega Dreamcast game console. Then in March Microsoft announced plans for its own home game console, the X-Box. Despite the announcement, negotiations between the two companies continued until late last week. "Our business with Microsoft is finished," Sega chairman Isao Okawa told Nikkei Computer at a news conference last week. "Microsoft no longer has any interest in the network business." Sega of America's director of marketing, Charles Bellfield, wouldn't state the nature of the negotiations but said that the companies "were speaking on a multitude of levels." But now, said Bellfield, "outside of the Dreamcast there is no longer any negotiations." Bellfield also denied persistent rumours that the software giant was looking to buy Sega. "We don't have a for-sale sign above our head," he said. "We're very much at home, and we're putting up the fortress at the moment. I have the troops at the top with their bows and arrows, and we're fighting our fight." Microsoft did not comment despite repeated requests. So while the Dreamcast will continue to support Windows CE and DirectX, Microsoft will be left out of Sega's network gaming plans. And that's the part that is central to Sega's future, as Sega tries to market the Dreamcast as a game machine and Internet appliance in one. Bellfield describes the new focus as a "triple threat" of hardware, software and Internet access. By giving away the hardware, Sega hopes to reduce the barrier to being a customer and make money off of software and access fees for SegaNet. Once they are logged on to SegaNet, gamers will be able to play people from across North America and, eventually, around the world. SegaNet is set to launch in the United States in September and in Canada by the end of the year. "It's all part of expanding what gaming is to you and me," Bellfield said. "It's about gaming against real people wherever they are." In Japan, Dreamcast users are already able to play games against other players on a network they dial into using their Dreamcast, yet sales there haven't been as great as anticipated. Mihu Masuda, a spokeswoman for Sega Enterprises, said that's partly due to a slower rate of Internet acceptance in Japan. "When I was in university two years ago, online communication was not that familiar," she said. "The idea of a network system is not as popular in Japan as in US. Most of the Japanese still think that the Dreamcast is built as only a game machine. We are now trying to secure the group of people that are not familiar to games as well as core gamers." Masuda said that Sega hopes to boost sales there "by promoting the Dreamcast as a communications tool that sends email, views home pages and connects you to other players on the network." Slow Dreamcast sales in Japan are partly to blame for the company's poor financial performance this past year. Then president of Sega Schoichiro Irimajiri took responsibility for the company's third consecutive year on Monday before offering his resignation. The reported group loss for the company totaled $398.1m for the year ending March 31. Okawa took over as Sega's president on Friday. He is also chairman of CSK Corporation and a majority shareholder in the Isao Corporation, which controls network operations for the CSK/Sega Group. The vision of network gaming and communication is also destined for Sega's Joypolis arcades. On June 21 the first tests will be conducted on optic cables connecting gamers in three Joypolis arcades across Tokyo. Which of Sega's seven arcades in Japan will be part of the trial has yet to be decided. "This will be the first stage of this technology's trial and the second stage should be within this year concerning a much wider territory," Masuda said. Ultimately, the technology could be coming to an arcade near you. According to Bellfield, the long-term plan is to connect arcades in Japan with those in the United States. What do you think? Tell the Mailroom. And read what others have said. Go to Gamespot.co.uk/news