We certainly have no problem getting caught up in the fun of playing games, but the people who create them have their pocketbooks to worry about, too. In this column, finance expert and GameSpy contributor Chris Morris guides you through the tricky corridors the gaming industry's financial side, touching on big-time business decisions and how they matter to the common gamer.
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OnLive's initial announcement of its self-titled, gaming-on-demand service prompted a lot of skepticism. With vaporware services like Phantom still fresh on the brain, gamers didn't trust the company's claims of immediate streaming and strong publisher support.
Even the inclusion of CEO Steve Perlman -- who previously led development on the technology behind QuickTime and founded WebTV -- didn't do much to lower eyebrows about the project. Infinium Labs' Phantom, you'll recall, had Xbox co-founder Kevin Bachus running the show.
But a funny thing happened while people were snarking. The OnLive service launched... and it worked. Since then, the company's actually managed to carve a small niche for itself. It's even starting to expand -- launching a set-top box console that will put the service on TVs in the living room, launching an iPad app that could spark interest from fence-sitters, and even planning an expansion into other fields. Is it the console-killer the marketing materials make it out to be? Not yet -- and maybe not ever. But OnLive has turned out to be a surprising success story that may prove bigger than most gamers expected.
The initial steps on the PC were a proving ground -- showing the world that the technology worked. The release of the set-top box is the beginning of an expansion. But let's be honest: It really doesn't put the traditional gaming space in any sort of peril. However, much like Netflix (which took initial baby steps with Roku when it began its streaming service), OnLive has much bigger targets in mind.
"OnLive will be built into TVs; it will be in Blu-ray players," says Perlman. "Much as you see a service like Pandora on many devices, you'll see us. ... If you take the chip inside of every digital TV, we can adapt our algorithm to work with almost all of them, so there's no added cost to a TV to perform like the highest-end game systems."
The plan, you see, is to avoid being tied to a single outlet. As more and more consumer electronics become Internet-capable, consumers are less likely to buy additional set-top boxes. Integrating the service into those devices can dramatically increase the installed base of potential OnLive customers (though, admittedly, getting people to test the service is another challenge entirely).
Beyond that, the company is eyeing an alliance with what could eventually become the biggest threat to consoles: Cable companies.
OnLive has several high profile investors, including AT&T Media Holdings and Warner Bros. Those are noteworthy backers, as both are tied directly to cable providers (AT&T owns U-verse and Warner's parent company owns Time Warner Cable). And OnLive is reaching out to them.
"We've spoken with several cable companies," says Perlman. "We have no agenda, as long as there's a way to deliver this service."
The threat from cable companies has long been on the industry's radar. With a collectively enormous install base, and tight control of many an Internet connection, the cable business is a sleeping giant. A good game-streaming service could let people bypass paying $300-$500 for consoles in the future.
"If OnLive can establish a presence in set-top boxes -- which effectively act as Trojan horses into millions of homes -- and is able to cost effectively offer consumers top-tier new releases at a speed that resembles retail releases, then it represents a tremendous threat to established console manufactures," says Scott Steinberg, CEO and lead analyst at TechSavvy Global.
That is, in part, why publishers are getting on board early with OnLive; supporting the company now costs them nothing. And while their revenues from the service won't move the needle, they're positioned well, should it begin to take off.
Perlman's not putting all of his eggs in the gaming basket, of course. Recent news that OnLive would be launching a film-streaming service in 2011 to compete with Netflix turned a few heads. With Perlman's background -- and the company's Time Warner backing -- the service could become a legitimate player in that part of the entertainment world, as it continues to grow its gaming business.
"There really isn't a core competitor," says Perlman.
Well, that's not entirely true. OnLive may be the only game streaming service of its sort right now, but it won't have the space to itself for long. Gaming industry veteran Dave Perry is working on a similar platform, called Gaikai. And privately held Otoy is developing a software solution that would accomplish the same goal.
The battle for streaming game services is about to get more crowded. OnLive has an advantage as the first-to-market, but that's hardly a guarantee of success. It's anything but vaporware, though. And that's a lot more than anyone would have expected in 2002, when Infinium Labs first started talking about the idea of a console powered exclusively by digital delivery.
Chris Morris has covered the video game industry since 1996, offering analysis of news and trends, and breaking several major stories, including the existence of the Game Boy Advance and the first details on Half-Life 2.