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No more stops at the video game store

A new service promises to let players buy or rent games online and play in seconds on their computer or television.

March 25, 2009|Alex Pham

SAN FRANCISCO — Shoppers are buying an increasing amount of their music and movies via Web downloads. But video game sales remain firmly rooted in old-fashioned stores because many games require enormous software files that can take hours to download.

That's now poised to change.

One company, OnLive Inc., showcased one such effort at the Game Developer Conference on Tuesday night. The service promises to let players buy or rent the latest games and start playing within seconds on their television or computers.

The Palo Alto company says it will do for fast games, of the type playable only on discs, what others have done for relatively slow-paced titles such as Tetris or solitaire: Store the games on its computer servers so they can be played over a high-speed Web connection.

OnLive, whose investors include Warner Bros., says it can do so by rapidly compressing and decompressing the files so the game acts as if it's on a player's computer or console.

The service, scheduled to launch next winter, has signed up 10 game publishers, including heavy hitters Ubisoft Entertainment, Take-Two Interactive Software Inc., Electronic Arts Inc. and THQ Inc.

Though the vast majority of games are sold as shrink-wrapped discs, analysts say a big chunk of the $40-billion game software industry will eventually shift online, changing the way players buy games. OnLive, for example, hopes to entice consumers with convenient, instant access to games and the ability to try them before buying.

"Companies that make disc-only games will be the dinosaurs of the future," said Billy Pidgeon, analyst with IDC.

Players in North America spent $1.9 billion downloading games last year, up from $981 million in 2007, IDC said.

Publishers have a few years to adapt, however. And many have already started to cash in on digital sales in various forms.

Take-Two recently used Microsoft Corp.'s online marketplace, Xbox Live, to release a downloadable expansion pack with new characters and other features for Grand Theft Auto IV. Activision Blizzard Inc. has sold 35 million songs for its Guitar Hero games via Xbox Live and Sony Corp.'s PlayStation Network.

THQ distributes some complete games as Web downloads through Wild Tangent Inc. of Seattle.

Publishers are particularly keen on finding ways to improve their profit margins as the high cost of developing games takes away from their bottom lines. Digital sales offer a potential reprieve by eliminating the cost of making and distributing discs. It also solves the problem of used game sales cutting into purchases of new games because there would be no discs to resell.

Console manufacturers also know that the days of disc-based games are numbered. Microsoft has spent billions of dollars building its Xbox Live marketplace, which sells games and TV shows and rents movies to the 17 million players who log in at least once a month. Sony's PlayStation Network, which boasts 20 million user accounts, sells 180 games for download to its PlayStation 3 consoles.

"We've transformed from a disc-based company to a digital media company," said Susan Panico, senior director of PlayStation Network.

Sony, Microsoft and Nintendo Co. make money by charging game publishers a royalty fee of about $7 for every disc sold for their consoles. For digital sales, console companies take a cut of the sale amount, typically 30%.

OnLive takes a different approach. It threatens to obliterate the traditional console business by giving players access to games without having to spend hundreds of dollars on new game boxes every few years. Instead, it would provide a "MicroConsole," a device the size of a small paperback book that would connect to any Internet-connected digital television, and charge players a subscription fee.

Founder Steve Perlman is a technology wunderkind who helped develop the QuickTime software for Apple Inc. and the WebTV service for Microsoft. He said his company had been able to reduce the game-play lag -- the time it takes a signal to travel from the player's controller to OnLive's central server and back to the controller -- to 1 millisecond.

Geoff Keighley, executive in charge of game content at MTV Networks, said it was too early to determine which companies would prevail but that digital distribution would eventually eclipse disc sales.

"I have no doubt that 10 years from now, this is how we will be playing games," he said.


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