Analyst: How OnLive Can Impact Consoles, Retail

If modeled successfully, the just-announced cloud-based gaming service OnLive could impact both console sales and the used games business, says Wedbush Morgan analyst Michael Pachter. OnLive actively aims to eliminate the need to continually upgrade PC hardware or buy new gaming consoles every generation. It uses cloud computing -- doing all of the game's video and audio processing on remote servers, then streaming the resultant images and sound back to the user quickly enough to play games in real time. "In our view, the success or failure of the service will ride on whether it is priced low enough to induce a large number of consumers to 'subscribe,' If it is, however, a greater number of games will become available from publishers, who stand to benefit greatly from the service. "The OnLive model will appeal immensely to publishers, who will likely derive greater revenue per sale than is derived through conventional retail distribution," says Pachter. "Instead of 20 percent of the game’s purchase price going to retail and another 20 percent to the console manufacturer, OnLive will likely charge around 30 percent (our estimate) of the proceeds, with the balance going to the publisher." And with no disc to purchase, there's no secondary market for OnLive games. But Pachter doesn't expect an immediate impact -- the service doesn't launch until 2010, for one. Starting off, says the analyst, "OnLive could favorably compete for 1 – 2 percent of the overall games market."