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Will OnLive squash game retailers with $9.99-a-month online games?

December 2, 2010 7:19 AM
Dean Takahashi
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Online gaming service firm OnLive is announcing today that it will offer an all-you-can eat $9.99-a-month subscription plan for gamers to access a library of video games. The move is as potentially disruptive as what happened to sales of DVDs when Netflix offered monthly subscriptions for access to a library of movies.

OnLive offers instant gratification with its games-on-demand service that debuted in June. Users log into OnLive and immediately play games that are computed and stored on OnLive’s data centers. Users don’t have to download anything and don’t need a high-end computer to play high-end games. So far, OnLive has been offering a la carte game sales and game rentals. Since OnLive focuses on digital distribution of games, it can disrupt retailers such as GameStop and put more profits in the hands of game publishers.

The company will keep offering those options. But on January 14, OnLive will start its $9.99 a month Play Pack subscription. Users won’t be able to get the newest premium games in the Play Pack. But they will get high-quality recent games that are perhaps six months old or so, and they will be able to play new indie games as well as classic games. The exact number is a moving target. Steve Perlman, chief executive of Onlive in Palo Alto, Calif., said in an interview he believes there will be about 40 games in the Play Pack by the time of the launch in January.

Perlman said that the strategy is aimed at vastly broadening the company’s potential market of game customers. With a flat-rate subscription, OnLive will pursue the same path that Netflix has successfully followed, attracting users who don’t necessarily want to dish out a lot of money for one title but don’t mind paying a monthly fee to sample a bunch of games. For premium new games, OnLive offers a la carte pricing, much like Apple’s iTunes store does.

“In this economy, you want to offer the users a lot of options for paying,” Perlman said. “You won’t find a lot of new releases on Netflix. But you will find classic films and new release indie films. With the flat rate, consumers have more ways to buy. This is all about reducing friction that stops a consumer from picking up a game and playing it.”

Michael Pachter, analyst at Wedbush Securities, said that OnLive’s payment options give users “maximum flexibility” in trying or buying video games. He agreed that the combo of Play Pass (a la carte purchases) and Play Pack (flat rate) is just like the distinction between Netflix and iTunes. The Play Pack option will be free for the next six weeks in beta mode. After that, OnLive will start charging subscription fees. As an example, Take-Two Interactive’s basketball game, NBA 2K10, will be available in the flat-rate subscription as one title in the library. But the newer version, NBA 2K11, will sell as an a la carte title. Users can cancel their monthly subscription at any time.

Current Play Pack titles include Prince of Persia, NBA 2K10, Tomb Raider: Underworld, Fear 2, Tom Clancy’s H.A.W.X., Unreal Tournament 3, Vin Diesel Wheelman, LEGO Batman, Defense Grid Gold, Saw, and World of Goo. As the title list gets bigger, Perlman believes the Play Pack will compete very favorably with used games, which are a major profit center for retail chains such as GameStop.

Perlman also said that OnLive is now shipping its MicroConsole game system (pictured right) to people who placed the first preorders in mid-November. The $99 MicroConsole is a small adapter that plugs into your TV and allows you to play high-definition games on your flat-panel TV. The OnLive hardware could disrupt the more expensive consoles, especially as more high-end games become available. If you want to play on a PC or a Mac with a computer monitor, you don’t need the MicroConsole.

Perlman said the first manufacturing batch of MicroConsoles sold, the company is taking orders for a second batch now. OnLive investors include Warner Bros., Autodesk, Maverick Capital, AT&T, British Telecommunications and The Belgacom Group. The company was founded nine years ago and has 200 employees. Because its technology is potentially disruptive to traditional game retailers, investors recently valued the company at $1.1 billion.

  • http://www.twitter.com/christaran Chris Taran

    I'm so glad I can answer this for you!No.

  • Icesnake

    This would a significant danger if (1) the OnLive game experience for the most popular games was even a close approach to playing on a local console, and (2) every American home could get good broadband at a reasonable price. However, since neither of those is true, OnLive is currently no threat to retailers. Perhaps in another half-century, when South Korea has 5 gigabit fibre-to-the-home in every home and 10 megabit DSL is ubiquitous in the USA, OnLive might start cutting into retail sales of some of the older games.But not before then.

  • http://twitter.com/NathanLands Nathan Lands

    I'm rooting for Gaikai over OnLive, seems like more reasonable and realistic business.

  • http://pulse.yahoo.com/_VHOCD5GN3UDPCH24ZSKLINGUWY Moe

    While I'm rooting for OnLive (and Gaikai), I'm with Icesnake—the video quality just isn't there. Too much latency as well. I signed up for the service a few months ago to try it out, but still haven't bought any games. Every month or so, I sign in and play a demo of a PC game I already own for the sake of comparison—in the hope that the quality of the experience has improved. While I'd say it's slightly better that it was, it still doesn't hold a candle to a locally-installed game. They have a long way to go in this regard. I do think that $10 per month for unlimited play is a pretty good deal, and I'd be really interested in that if the quality ever improves.

  • CHEWYchewTHE2nd

    Playstation does have this, it costs $50 a year, but you only get 1 new game a month, and if you don't automatically renew your subscription you lose access to all the games you have received.

  • http://pulse.yahoo.com/_6UGBHML4A4PAED7E4MX7AFVODA Sybergato

    With quality improvement, and a monthly based subscription, good library, they sold to me! Lets hope the added money to them really shows an improvement to their graphics!

  • http://venturebeat.com deantak

    OnLive can do their own sales pitch here as well. But I think you miss the point if you think that OnLive's level of quality is static. As they improve their compression, bring on more data centers, and learn how to improve efficiency, the quality level can go up. You'll note that OnLive started with 720p and they have now moved to 1080p. That's a big leap. For people with Comcast or FiOS broadband, the broadband bandwidth is there. For those with DSL, it's iffy if you want to try to play on a big screen.

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