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Hurtling toward an information economy

By now you’ve probably heard about OnLive, the on-demand game service that will do for video games what Netflix’s Watch Instantly service did for films — except that more publishers will sign up than won’t.

This talk is to a technical audience (an engineering class), so if you get lost just pretend he’s saying “magic.” The quick takeaway: his company has developed a more efficient way to stream HD video, which allows them to run games on big honking servers in a data center somewhere, while you just need a tiny (maybe free) device in your living room that never, ever needs upgrading. Instead of you upgrading to a new console every 5 years, they upgrade to the latest and greatest hardware behind the scenes every six months. In the video game industry, this is the biggest paradigm shift since the NES proved that home consoles could be profitable in the USA.

As with any new technology, there will be winners and losers. A brief list of each:


  • Hardware manufacturers. Intel and nVidia are going to clean up as high-end compute and graphics hardware turns into a co-op business.  Instead of relying on bleeding-edge early adopters to buy their newest cards and chips, they’ll be able to count on millions of rank-and-file consumers paying for access to a timeshare of the same.  Even better, a consumer PC gets upgraded once every 3 years, but servers in the data centers will get new hardware on a continual, rolling basis.
  • Developers and publishers. No license fee to the creator of the platform (Microsoft, Sony, Nintendo).  No need to port games to multiple platforms.  No piracy cutting into the bottom line.  Instant, globally applied patches.  No up-front investment when printing and shipping discs.  Indie developers in particular stand to make a killing compared to older distribution methods.
  • OnLive and shareholders. They’ve got proprietary technology that is going to make it very difficult for another upstart to attempt anything similar. That’s on top of their 3-year lead time. Expect for them to own this market for the next decade.


  • Retailers.  Retail stores are going to be cut out of the market completely.  Online stores like Amazon are going to fare no better than brick-and-mortar shops — the business of selling physical disks is simply going to evaporate.  Used stores, needless to say, are likewise out of luck.  If you haven’t started shorting GameStop stock, start now.
  • Game pirates.  Unlike with DRM for movies and music, which is laughably easy to circumvent, there is simply no way to steal games from OnLive short of stealing someone else’s account information.
  • Innovative controllers. Nintendo has largely succeeded in the hardware wars because of its innovative control schemes for the Wii and the DS.  Before that, it invented the analog stick.  Before that, it invented the directional pad.  With the advent of on-demand gaming, controls will be standardized and more or less frozen, possibly with the exception of special-purpose controllers for blockbuster games like Guitar Hero.

Gaming has already surpassed Hollywood as America’s most profitable form of entertainment, and as movie executives finally pull their heads out of their asses and realize that preventing piracy is impossible we’ll start to see those massive resources shifted to where they can get the best return. This doesn’t mean the death of big-budget blockbusters in the near term — but it does mean that games will routinely get the level of financial commitment thrown at Avatar and other mega-blockbusters. Game execs currently wring their hands over a budget of $15 million. That’s going to change.

Posted in Games, Technology.

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