PCs to replace videogame consoles?

WB's OnLive promises on-demand service

The videogame industry has long been controlled by consoles created by Nintendo, Sony and Microsoft.

But the big three’s dominance could diminish once a videogame-on-demand service, backed by Warner Bros. and a slew of major game makers, rolls out later this year.

The OnLive Game Service, which is being shown off at this week’s Game Developers Conference in San Francisco, will essentially turn any computer with a broadband Internet connection into a high-end console and enable users to play games instantly without the need of a download.

Service makes videogames the last form of entertainment to turn to on-demand as a future form of distribution.

If it takes off, OnLive — and potential rival services — could have a major impact on the videogame industry’s $21 billion bottom line, considering consumers will be able to bypass consoles entirely and go straight to the games they want to play.

Last year, sales of hardware such as Nintendo’s Wii and portable DS, Sony’s PlayStation and PSP devices and Microsoft’s Xbox 360 generated $7.8 billion, up 11% over 2007, according to research group NPD. In February alone $533 million in hardware moved, up 9% over the previous year.

While it could hurt hardware sales, OnLive would pump the software side of the biz by creating another distribution platform, and that has publishers lining up to put their games on the service.

“With OnLive we’ve cleared the last remaining hurdle for the videogames industry: effective online distribution,” said Steve Perlman, founder and CEO of OnLive. “By putting the value back into the games themselves and removing the reliance on expensive, short-lived hardware, we are dramatically shifting the economics of the industry.”

That selling point has already enticed Electronic Arts, Ubisoft, Take-Two Interactive, THQ, Epic Games, Eidos, Atari Interactive and Codemasters to put their high-profile titles and franchises on the OnLive system when it bows this winter.

Warner Bros. Interactive Entertainment will also have a major presence on the service, developed by Rearden, a San Francisco-based incubator. Warner Bros. is one of the three primary investors in the service; Autodesk and Maverick Capital are the others.

Kevin Tsujihara, prexy of Warner Bros. Home Entertainment Group, which has recently been investing heavily to up its efforts in the gaming space, called OnLive a “good fit with our strategy of bringing our games to consumers on the format of their choice. Our game titles appeal to a wide variety of audiences, so we are always looking at new ways to bring them to players of any age.”

OnLive should provide a boon for publishers for several reasons:

  • The distribution platform will create an additional way for publishers to earn revenue from their titles ($11 billion worth of software was sold last year, NPD said). When OnLive bows, it will launch with a variety of pricing packages through which consumers can buy or rent games that have yet to be disclosed.

  •  OnLive’s flashy interface can serve as a marketing tool to promote new or existing titles by allowing users to watch games already in play. Service also includes its own social-networking tools, as well as the ability to record video clips.

  •  Publishers will only have to create one version of a game vs. several the way they currently do for the Wii, PlayStation and Xbox 360, saving them millions of dollars in development costs.

  •  And they’ll be able to collect even more coin considering that without a physical product, consumers won’t be able to sell back games to retailers like GameStop or on eBay. The secondhand games biz has greatly reduced profits game makers can collect per title.

OnLive has quietly been in development over the past seven years, shepherded by Perlman, who helped create the QuickTime video player for Apple plus Microsoft’s WebTV. Mike McGarvey, the former CEO of Eidos (behind the “Tomb Raider” game franchise) serves as the company’s chief operating officer.

Perlman was intent on developing a system that didn’t require “high-end hardware, upgrades” or “endless downloads, discs, recalls” or “obsolescence.”

Connecting other people’s computers to a massive server farm that can be updated continuously was one of the ways to do that, but so is a separately sold MicroConsole that connects televisions to the online service. The MicroConsole, which is the size of a deck of cards, includes built-in ports for third-party game controllers.

Just how much the virtual console will affect sales of Sony’s and Microsoft’s consoles is unclear, but Nintendo’s Wii will likely take less of a hit. That’s because Nintendo’s exclusive games are built around controllers offered only by the company, and those won’t be adaptable on OnLive.

That’s just fine for some publishers, considering they’re courting a different demo with games designed specifically for the Xbox 360 and PlayStation 3.

“Our goal is to deliver premium content to gamers however they choose to play,” said Brian Farrell, CEO of THQ. “Through OnLive, we are expanding our reach to consumers who are increasingly enjoying their entertainment on-demand.”

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