What to make of EA's OnLive doubts

EA CFO Eric Brown has doubts about OnLive's cloud-gaming technology and its business model, but is there more between the lines?

Various sites reported yesterday on comments from Electronic Arts' CFO Eric Brown regarding both the technology and the business model behind OnLive, the cloud-gaming service available via PC and a dedicated microconsole that launched earlier this year.

OnLive

As Eurogamer reported, Brown said at the UBS Annual Media and Communications Conference, "As I understand it, OnLive costs you $10 to $15 a month, then you have to buy content on top of that. So if it's $15 a month, you're down $180 at the end of the year."

He also expressed doubts about OnLive's ability to stream games smoothly over home Internet connections: "When it comes to video games, particularly first-person shooter games, anything less than a response time of 30 or 40 milliseconds is unacceptable and by definition anything going through a streaming platform is going to go through a series of switches, etc. So the question I have long term is can that latency be overcome?"

We'll assume that Brown was unaware (rather than purposely misrepresenting) that OnLive has dropped the idea of a required subscription for its service. OnLive considered that option at one point, but eventually decided on both an a-la-carte model, and a recently announced all-you-can eat plan for $9.99 a month . At no point do you pay a membership fee simply to use the service, and the idea that, as Brown suggested, you would pay "$180 a year before any content is procured," is an unnecessary concern.

Brown also had questions about the latency issues inherent to a cloud-gaming service like OnLive. These concerns are more reality-grounded, if not exactly new. The quality of the OnLive experience depends on your connection strength, but in general the service is not as finely tuned as a PC or a game console for fast-paced multiplayer shooters like Call of Duty.

Still, we've played multiple different gaming titles on OnLive, from the thoughtfully paced platform game Trine to the twitchier NBA 2K 2011, and had a satisfactory experience playing from multiple locations. Yes, we've seen degraded image quality, lag, and disconnections because of network strength difficulties, but the experience has been positive on the whole. We've been willing to suffer the occasional setbacks in particular because OnLive has allowed us to enjoy a more or less console-quality gaming experience on a 2-year-old PC with an integrated graphics chip.

All of this is rehashed territory for anyone who's followed OnLive. We're more interested in why EA would cast this FUD about the service to an investment-minded crowd. Could it be that EA wants to discourage interest in OnLive?

It's worth noting that Brown was also sourced to another widely reported news item from the UBS conference. According to GameSpot (and others), Brown reported that EA expects to earn 20 percent of its revenues from digital distribution this fiscal year. Few would question that digital distribution is on the upswing, but that 20 percent figure still leaves 80 percent of EA's revenues coming from retail, where its mainstream Madden NFL and FIFA series, among others, remain huge sellers, particularly on the retail-oriented gaming consoles.

EA's OnLve reticence becomes easier to understand if we interpret it as retail defensiveness. As long as the dominant console platforms remain hard goods-bound, indeed, as long as they remain consoles at all, publishers of games that depend on those consoles will need to fight off any encroachment by digital distribution as a primary source of content delivery. It's fine for accessory downloadable content, make no mistake there. As GameSpot reported, Brown told investors about its current FIFA game, "We see people spending $500, $600, $700 on digital card packs to play Ultimate Team simulation mode." Clearly, EA is more than happy to collect that 20 percent. But with 80 percent still coming from retail, that revenue stream is vitally important.

Even though OnLive has both mainstream and independent game publishers providing it with content, we expect EA's won't be the only open resistance we hear about from a major publisher, particularly those that depend on console game revenue (as opposed to Valve or Blizzard). Expect that resistance to last throughout this hardware-focused console generation. But as OnLive CEO Steve Perlman described to us this past summer , it's not hard to imagine the idea of a hardware console disappearing entirely. "You'll see OnLive built into TVs, and you'll see OnLive built into set-top boxes," Perlman said.

In that scenario, OnLive becomes like the Netflix of video games; a streaming service you can bundle into practically any connected device. Even if we see OnLive-equipped TVs early next year (perhaps at this coming CES?), OnLive would still meet resistance from the stake holders in this current generation of gaming consoles. But if a built-in model works, and as more consumers become familiar with the cloud-gaming concept, OnLive will have demonstrated a viable alternative to console-bound living room gaming. For Sony, Microsoft, Nintendo, or anyone else considering a next-generation gaming platform, we expect the example set by OnLive will weigh heavily on the extent to which they embrace digital distribution.

 

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