Tuesday, March 24, 2009


Seemingly, this could be a big deal.

Dean Takahashi (and everyone else) is writing today about OnLive, and Takahashi's headline is instructive: New online service could turn the video game world upside down. Here's an excerpt that explains the technology:
...a data compression technology and an accompanying online game service that allows game computation to be done in distant servers, rather than on game consoles or high-end computers. So rather than buying games at stores, gamers could play them across the network — without downloading them.

Consumers would buy a "micro-console" that would send images to their display device, but all of the computing would be done at a central location. So the player would be interacting not with a PC at his desk or a video game console in the same room, but servers at remote locations.

That means no more hardware upgrades for PC users. Buy the micro-console, pay a monthly subscription fee, and (with a fast broadband connection) play games in HD.

Yeah, I know. Lag. Allegedly, OnLive uses proprietary compression algorithms that alleviate lag.
Yeah, I know (#2). This sounds vaguely like the Phantom. Nominally, perhaps, but the guys involved with Phantom had extremely sketchy backgrounds (some might say "scamriffic"), and zero industry experience. Steve Perlman, though, does have an industry background, and major publishers have already signed up--Electronic Arts, THQ, Take-Two Interactive, Codemasters, Eidos, Atari, Warner Bros., Epic Games and Ubisoft (according to the article) are on board. It's fair to say, though, that this may primarily be nothing more than an acknowledgement of the effect this could have on piracy (there's nothing to copy, since all the consumer has acces to is the video stream, not the game data itself).

It's the Gamestop killer.

Plus, and I like this, Perlman hasn't been calling press conferences every time he sneezed on a napkin. This technology has been in development for years, and they were actually working on the product instead of spending most of their time pimping themselves. I think that's a good sign.

Takahashi sees OnLive as a threat to gaming consoles, but that's where we disagree. I don't see that at all, because consoles offer unique content and all kinds of things (like community elements) that this service won't be offering. Where I do believe it could be huge, though, is with the PC community. I am so tired of dicking around with drivers and settings to play PC games, and if I could play PC games this way, and it worked, I'd be all over it.

Of course, that phrase "and it worked" is quite the devil.

I don't doubt that eventually, someone is going to succeed with this approach, but I'm not sure that this is the time. Even if the compression technology does work (unproven), can you imagine the scaling needed to support a high-profile game on launch day? Unused capacity is expensive, and demand would seem to be highly spike-oriented.

Let's say tens of thousands of people sign up for the launch of Run, Shoot, Kill, Repeat 10. That's the sole reason they've signed up for the service, and it's their first impression. They, like a ton of other people, want to play the game the first second it's available. Good luck managing that demand spike without having crap performance and pissing everyone off.

Plus, and I think this is something the publishers are forgetting entirely, the ability to resell a game affects how much we're willing to pay for a game. Takahashi notes that for a $60 game, the publisher typically keeps only $27, with $15 going to the retailer. Fine, but when we can't resell a game, are we still going to be willing to pay $60?

Not for as many games, certainly. So sure, they may keep more of the pie, but the pie just got smaller. It may be a wash, or they might do even worse, because it's easy to forget the role of retailer promotion in creating sales. Floor space, signage, midnight launches, special promotions--kill that and it's going to affect demand.

This obsession by publishers over the used market is analagous to salary caps in professional sports leagues. Player's unions freaked out about salary caps initially, but if they had been thinking more clearly, they would have realized that using a guaranteed percentage of revenue to determine the salary cap was way, way more important.

If you believe a league will grow over time, even if your initial percentage of revenue isn't quite what you're wanted, you will win HUGE in the long term, because you're guaranteed the same percentage of the pie as the pie grows.

Owners thought they were getting away with murder when they initially negotiated salary caps, because it initially cut their costs, and player's unions ruined entire seasons trying to avoid them. Now, though, as leagues have grown, player salaries have grown astronomically precisely because that revenue percentage is guaranteed, and it's the owners who may wind up locking players out (particularly in the NFL) when labor agreements expire.

Actually, that may not be analagous at all, now that I think of it. I still like it, though, as an example of focusing strategically on the size of the pie, not the size of the slice. And publishers seem obsessed with the slice instead of the pie.

Plus, I think there's going to be a showdown at the Oh Shit Corral between content providers and ISP's, and probably sooner than later. With Xbox Live, on-demand video, Steam, Impulse, and (now) on-demand gaming, what happens if ISP's start implementing hard download caps? Well, that has to be negotiated, and that's a new expense for publishers.

So I'm skeptical (actually, the more I think about this, the more skeptical I get) that this will succeed, but I don't think there's any question that it's going to actually launch as a product. The current estimate is for a 2009 launch, so we may see it soon.

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