"Nintendo isn't in the video game category, it is the video game category," says Sean McGowan, toy analyst for Gerard, Klauer Matison.

That's not what the folks at Sega and NEC believe, obviously, but it's hard to argue with a company that controls an 80 percent share of the American market and whose systems are in one in five American homes. "They're the 800-pound gorilla," adds Larry Carlat, editor of Toy and Hobby World, "and they're going to have the most muscle in terms of everything -- distribution, marketing and advertising, and in terms of brand credibility. It's the McDonald's of the toy industry."

That probably explains the resentment and naysaying from toymakers whose bottom lines have been hurt for the past four years.

"A lot of people predicted this would be the year video games really declined," says Frank Reysen of Playthings magazine, "but Nintendo has been on our bestseller list all years with several items, old and new."

"Nintendo peaking? They said that last year," adds Carlat. "It's $4 billion in a $5 billion market." Carlat points out that while the basic Nintendo systems were down from last year (to 7.5 million units), the company's hand-held Game Boy will sell 5 million units and 20 million cartridges, accounting for $1 billion and stabilizing its bottom line.

"You're still talking gigantic numbers and they'll be introducing their 16-bit unit {the Super Famicon} sometime next year, with Super Mario Brothers 4. They'll be causing big noise again; they're not going away and unfortunately those numbers do come out of the hide of the {American} toy business."

Last year Nintendo was challenged on two relatively new fronts, 16-bit and hand-held. Competitors have virtually conceded them the 8-bit market, but Sega and NEC beat them to the punch at 16-bit and Atari introduced its color Lynx hand-held unit at the same time as Nintendo did its black-and-white Game Boy. Sega's Genesis will sell 1 million units by year's end; NEC's TurboGrafx-16 anticipates sales of 250,000 units, and Lynx will hit the 250,000 mark.

The 16-bit units are expensive (Genesis goes for $189, TurboGrafx-16 for $159, compared with $79 for the basic NES; there's less difference in the game prices). On the other hand, the 16-bit systems are spectacular, with much better graphics and sound. The payoff is particularly evident in sports games and "Michael Jackson Moonwalker," in which the gloved one dances his enemies into exhaustion (Jackson assisted in the design).

Sega has begun a $10 million ad campaign pointing out that "Genesis Does What Nintendon't" in hopes of leapfrogging into the hearts and wallets of game buffs. Nintendo, which is likely to introduce Super Famicon at the January Consumer Electronics Show (it's already out in Japan), is responding with a $15 million campaign, much of it focused on Game Boy, which at $89 is actually more expensive than the basic NES. Of course, it's easier to travel with, and has proved popular on planes, trains and automobiles.

Carlat traces Game Boy's success to both its name and its price tag. "Once you jump to $150 and higher for the other products, it becomes a different product," he says. "The color screen is nice, but that's not really what makes a good name, plus color eats up batteries much faster, so it becomes more expensive to operate."

Carlat's criticism notwithstanding, the color hand-held category just grew with the introduction of NEC's TurboExpress, which goes for $250 (with a tuner add-on that turns it into a portable TV for another $80 to $100). The TurboExpress has one cost-cutting advantage in that it plays the same cartridges as the TurboGrafx-16, which is not true of Game Boy or Sega's Game Gear (coming early next year); on the other hand, while the color is terrific, the screen information can be hard to follow.

"TurboExpress is spectacular as a piece of technology," says Carlat, "but, man, is it expensive. It's beautiful -- the graphics are great, the sound's great. Is it better than Game Boy technologically? No question. Lynx is too, but they'd both do a lot better if there was a Nintendo name on them, and that's going to be the uphill battle of all time, going against Nintendo."

Hot titles: Nintendo's "Super Mario Brothers 3" ($49.99, and expected to sell 7.5 million by New Year's Day); "Dr. Mario," a strange medical battle between multicolored vitamins and an army of pulsating viruses, with an M.D. degree at stake ($49.99); "NES Play Action Football" ($39.95); Genesis's "Moonwalker" ($49.99) and "Mickey Mouse" ($49.99). Boxing fans can choose between losers via Genesis's "Buster Douglas" and Nintendo's "Punch Out" (formerly called "Mike Tyson's Punchout"). And with a shakeout in software going on, now's a good time to check for heavily discounted games.

Those with Canadian contacts might ask them to pick up Game Genie, which Galoob was to have marketed here until Nintendo stepped in with a restraining order and tied it up in red tape, claiming patent infringement. This Genie is a video game enhancer that alters normal game play; actually this sounds like the perfect tool for adults long frustrated at being quickly dispatched at the lowest levels.