3DO to Become Internet, Game Software Company.

REDWOOD CITY, Calif.--(BUSINESS WIRE)--Sept. 16, 1996--The 3DO Company today announced that it will restructure the organization to focus on Internet and game entertainment software, including Meridian(TM)59, the company's first Internet-specific product, which will be introduced tomorrow. As part of the reorganization 3DO intends to streamline its software business and enter into a joint venture or sell 3DO Systems, its hardware business.

"The Internet, and Internet entertainment in particular, is a huge opportunity," said Trip Hawkins, chairman and CEO, The 3DO Company. "We are moving toward focusing entirely on the challenge of building a strong entertainment software studio, with the Internet as a catalyst for growth. Meridian 59 is only the beginning of our Internet plans."

In the reorganization, 3DO president Hugh Martin will assume full operating control of the company. Hawkins, who will remain chairman and chief executive officer, will shift his focus to the role of creative director. Software product development will be reorganized into five production units reporting to senior vice president Bob Lindsey, who will report to Martin. The largest of the production units will be the Internet group. Studio 3DO will be reorganized into two units. The other two units are Cyclone Studios and New World Computing, both acquired in the last year.

As part of the reorganization, the company has taken steps to reduce its cash consumption rate by eliminating entertainment projects with outside developers and reassigning internal staff to its most promising software titles.

"The game business climate right now dictates that we make hits and conserve cash," said Martin. "Now we can concentrate on our most compelling entertainment software projects, while spending less capital, making better products, and getting into position for Internet-driven growth."

Internet growth will begin tomorrow with the official introduction of Meridian 59, the first 3-D multi-user dimension (MUD) game on the Internet. With very little marketing expenditures, 3DO surpassed 25,000 player accounts in an early free trial of the game.

"Hardware and software are very different businesses, and 3DO needs to simplify and focus its efforts," said Hawkins. "Our potential hardware technology customers would like broader access to 3DO's proprietary technologies and a closer partnership, and that argues for a potential joint venture."

3DO is currently exploring partnering opportunities with several candidate companies and expects to complete a joint venture or sale of the hardware business by year end. 3DO successfully licensed its 64-bit M2 technology to Matsushita Electric Industrial Co., Ltd. for $100 million recently. The company remains committed to supporting Matushita's efforts to launch consumer products based on its technology and does not expect the decision to pursue a joint venture or sell the hardware business will impact its M2 project with Matsushita, which is largely completed.

"3DO Systems has the management team, the technologies, and the engineering talent," said Martin. "We feel that as a partner we can play a key role in numerous product areas including next-generation video compression, multimedia, video game systems, DVD players, and Internet boxes. Our goal is to eliminate the overhead expense and cash burn while retaining profit upside and strategic relationships."

Upon completion of the joint venture or sale of the hardware business, 3DO expects the resulting software company will have approximately 300 employees, versus the previous total of 450. The timing and amounts of the fiscal effects of the reorganization and the potential joint venture or sale of 3DO Systems cannot be determined at this time.

"We're excited about these changes because we can focus on our strengths and growth opportunities, while conserving cash," said Martin. "Although it's been a tough market climate, we found ways to achieve operating profits in the last two quarters. Moving forward, we feel our management is strong, our balance sheet is strong, and we have a solid core of Internet and game software talent and technology to build upon."

This release contains forward looking statements, including statements relating to future growth offered by the Internet and Internet entertainment, marketability of software titles under development and of Meridian 59, and the company's ability to complete a transaction for the joint venture or sale of the hardware business within calendar 1996. The forward looking statements are subject to risks and uncertainties. The recent growth in the Internet may not be sustained for a variety of reasons, including limited telecommunications capacity. The software industry has not yet generated significant revenues from Internet entertainment, and particularly multi-player games on the Internet. Early acceptance of beta test Internet software entertainment products may not be indicative of future market demand for fully developed products provided to users for a fee. Transactions such as the joint venture or sale of advanced hardware technology are subject to a range of contingencies, including a limited number of potential partners or acquirers, the price and structure of a transaction, competitive conditions in the industry, and the company's ability to retain its technical personnel pending completion of the transaction. The particular transaction or the absence of a transaction could cause the company to recognize significant write-offs or incur other costs which could produce operating losses. Further information on potential factors which could affect these forward looking statements and the company's financial results are included in the company's filings with the Securities and Exchange Commission, including the company's Report on Form 10-K for the fiscal year ended March 31, 1996, its quarterly reports on Form 10-Q and reports on Form 8-K.

The 3DO Company (NASDAQ: THDO), headquartered in Redwood City, Calif., designs, licenses and distributes advanced interactive technology and software titles for the mass market. With offices in North America and Europe, the company licenses technologies and creates entertainment software for 32-bit and 64-bit video game platforms, the personal computer market, and the Internet.

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Note to Editors: 3DO, the 3DO logos, Meridian, and Meridian 59 are trademarks and/or registered trademarks of The 3DO Company. All other product names are trademarks and/or registered trademarks of their respective owners.

CONTACT: The 3DO Company

Diane Hunt, 415/261-3214

Tuesday Uhland, 415/261-3142