OnLive CEO: “We Want to Be the Netflix of Gaming”

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OnLive’s trying to change the way people play video games. First, they launched a beta of a new streaming service that let computer users play video games that are hosted on remote servers. This means that bleeding-edge, processor-intensive titles like Crysis can still be played on a computer with average technical specifications because all the heavy lifting is happening elsewhere. The beta served PCs and Mac and the new MicroConsole hardware’s bringing the experience to TVs. I reviewed the hardware last week and had a chance to talk to the company’s CEO Steve Perlman. Perlman’s a tech industry veteran, having done groundbreaking work on Apple’s Quicktime video compression as well as patenting the Mova Contour facial mo-cap technology used The Curious Case of Benjamin Button and The Incredible Hulk movies. Perlman discussed the launch of the tiny game-streaming box, the hopes that OnLive as a whole is trying to fulfill and surprising developments in the company’s future.

So, I think it’s safe to say that stage one of the OnLive concept is complete, right? The streaming service is out of beta and the MicroConsole is going out to people who pre-ordered.  Can we just start at the impetus for the idea, and why do you think now is the time for on-demand gaming?

Well, this is an eight-year project. In fact, we’re coming up on nine. But, my team created WebTV. We were acquired by Microsoft and then ended up developing all of Microsoft’s television products, among them the Xbox 360 hardware.

And this is back in 2000-2002 when they’re working on these things. And I’m like, geez, this is going to be a very expensive system when it comes out in 2005, just because the visual computing demands–how real people want images to look–was growing a lot faster than Moore’s law. The chips weren’t keeping up with it. So I was thinking, boy, if game machines in 2005 costs this much, in 2010–because games are on a five year cycle–you are going to end up with a $2000 game machine. It’s just not practical.

So, I decided, “OK, let’s go set out on this journey.” We’ve got to find a way to not have the game machine in the home because we’ve run out of steam in terms of what we can do as far as engineering. All right, well, if they are not going to run in the home, they are going to have to run in a data center. And with that idea came the big challenge of “OK, how do we go and make it so that this game running a thousand miles away, feels like it’s running locally?” It was a very, very long journey. There was a lot of where we’re figuring out the compression algorithms and making it so that perceptually your eye doesn’t see any of the problems and it’s a very fast response.

But you still must’ve dealt with other issues besides the technology?

I’d say, the biggest thing we faced were the practical issues. The kind of stuff that everybody sees on the Internet from time to time, where they see stuttering videos or the quality goes down or it seems to stop all together. You can kind of put up with it when you’re watching a movie. You’re not going to put up with it when you’re playing a game. It took millions of connections across the United States to do the research.

Millions of connections to go and find out all the different kinds of things that can happen on people’s Internet connections or over their WiFi or what have you, until we were able to make it so that OnLive is almost all the time reliable. So that’s it. Then….

What were some things that you could not have anticipated along the way?

I mean, frankly, I wasn’t thinking that we were going to have a big recession. I didn’t think that there would be the rise of this used game market, either, where a third of all game sales are now used games, which of course puts a huge strain on the publishers and on the platform makers.

Because, the used game revenue doesn’t filter back to the game publishers or to Microsoft or Sony. The revenue stays within the retail store because they buy the used game and resell it. Before used games, what happened is, publishers would lower the price of the game as the game got less popular. So, to the end user, it would be a cheaper game regardless. Right?


But with the advent of used games, they’re getting the same thing going, but, none of the money is filtering back to the people who are taking the risk in creating the games. So, with OnLive, of course, you eliminate all that. There’s no need for used games. The publisher can price the games on a dime. In fact, on Black Friday, we had some publishers pricing their games 75% off that very day, and then it goes right up in price the next day. You know what I mean? You don’t have a brick and mortar having to put a new label on all the boxes when you change the price.

(More on Game System of the Future?: First Impressions of the OnLive MicroConsole)

Now, do the publishers have dynamic control of the pricing?

Absolutely, sure. They can change the price in the morning and in the afternoon, if they feel like it. Better than that, they can offer all sorts of bonuses and programs and bundles, et cetera. So we’ve had every imaginable kind of sale, and bundling, and add on, and so forth.

So the people who’ve been on OnLive over the last six months, they’ve had the pleasure of watching all these experiments being done by the publishers. They’re trying all these different pricing packages. You talk to some of the people there; they’ve gotten unbelievable bargains on games.

One of the things that strikes me with the OnLive experience is that you guys are still carrying a huge amount of risk. There were times when I couldn’t connect to the service. And, then, you are just kind of left staring at the box, saying “Now what?” What kind of remedies can you provide to the end user or how can you support them if they are having connectivity issues?

So, a couple of things. We look at the stats across all of the different users. OK? And so we have a nationwide measure. And we’re in the 99 percentile in terms of reliability. So, it is the case there are going to be some people that have reliability issues.

But, if you go surf the Web or just look at some of the OnLive fan sites and things like that, it’s not something that people report on very often. So, what we would do in a situation like yours, is people would call customer service, and we’d talk with you about it. Sometimes, for example, it’s as simple as resetting your cable modem or your DSL modem. I would say, that more than 75% of the time, that fixes it. Sometimes if there is an ISP that’s having problems, we basically, we go, you might say, you hook up your laptop to it and you go and check. Sometimes the service is down. You wouldn’t be able to connect to Steam. You wouldn’t be able to connect to Xbox Live either.

Right. Every other Internet-enabled device would be screwed as well.

That’s right. So what we usually do is say, “Is it just us?” And then if it is, then we go and we resolve it. So, I think it’s true for us, for Apple TV, if you have a Roku box. That’s just the reality of it. In the rare case when we have somebody who really just has a provider that’s just not holding it up. And frankly, we have all those logs. And we don’t want to publish them to get in trouble…

Yeah. You don’t want to alienate your partners on that end. The reason I asked the question is because your audience is gamers with other game machines. Who, even if Xbox Live is down, they can still play a game off line, and get the core experience that they came for. Whereas for you guys, network reliability is a huge vulnerability for you. And if I understand what your saying correctly, you are at the mercy of forces other than just your own infrastructure.

For under one percent of our connections, the answer to that is yes. Here’s the thing about Xbox, PS3, Wii, and Steam. That statement you made before that you can play offline was a very accurate statement three years ago. I think today, when you get a disc, typically, when you put it in, what is the first thing it does? It says it needs to do some sort of an update, right?


And Steam, won’t even let you play the games unless it can make a connection. It uses that for DRM, and because they’re trying to combat piracy, all these systems need to connect.

So, I think that the days when you can have a completely disconnected experience for a high performance game–I mean, there’s always going to be little indie ones that sure will run perfectly fine locally.

But as far as the AAA games that we are providing and the high-value games on Xbox, PS3 and Wii, pretty much those are connected experiences. And those connected experience are only going to grow. They are trying to do something with EA Games with their Online Pass system. You can’t play them unless you’re online. So, we’re not the only ones.

Nevertheless, going forward, publishers see that we’re the fourth platform, and they are actually designing games with us in mind from the get-go. So instead of us getting a version of the game that is, “OK, here’s the PC version, make it work for OnLive, now we’re getting versions of the game that are the OnLive version.” The path is a lot quicker. In fact, next year, you’ll see some games on OnLive that are only being released on our MicroConsole that are not being released on PC at all.

(More on Top 10 Failed Gaming Consoles)

It seems like you guys are going to be facing the same kind of multiplatform proposition that happens with titles do like Call of Duty: Black Ops. A consumer with two consoles can get one for the PS3, or get one for the Xbox 360, but most of my social gameplay happens on the 360. That’s because Xbox Live and its bigger user base. So, how would you guys entice players to either import their same friendships and relationships from another platform onto OnLive?

I think social networks, in general, I think they come with time. And one of the ways we are doing it is we’re doing something that’s never been done before with other console platforms, is rather than saying we’re a direct competitor to Xbox or Playstation, what we’re doing is encouraging people to use OnLive as an adjunct to those platforms.

We get compensated a little bit by the publisher when someone runs a demo, so that’s all fine from a business model point of view. I think over time, people are going to say, let’s see, I’m using OnLive more and more, and I’m building my friendships on OnLive. Because people friend you while you’re playing a demo and they can spectate you and you can spectate them, et cetera. And we’ll be adding other features like leader boards and contests and things. So, I view it as something that’s more or less organic. We want to encourage people to not feel like it’s either/or.

But rather see it as something you do was well. In time, we’ll see. If we build a big enough base that people see as the next Xbox Live social point of view, that’s great. If we don’t, then we end up being an adjunct, that’s an OK place to be too. We are a start-up. We don’t have a multi-billion dollar overhead.

There’s no mega-corporation behind you…

For Xbox and Playstation, those are huge, huge, huge engagements to get those things off the ground. Not to say that OnLive, as start-ups go, is bit of a jumbo start-up, I guess. But, still, I mean, geez, all the money we’ve used is a fraction of what Microsoft spent on just its marketing campaign. We just announced this flat-rate plan and people are beginning to see us as the NetFlix of gaming. We want to be that. That’s not a bad place to be. It really isn’t.

I wanted to talk about that pricing announcement in particular, because that’s a huge game changer. Your pricing’s changed in two or three different ways. First, was the monthly subscription fee. And then, on top of that was going to be the à la carte play-pass for each game. Then you guys got rid of those subscription fees all together and went strictly a la carte. Now, there’s another option, where you basically have an all-you-can-eat monthly pass.

So, how did those conversations go with the publishers? And can you give me a sense of how enthusiastic or reluctant they were? Was something like this always part of your strategic planning?

So it was always something we had asked, and the publishers were worried that this wouldn’t work before they saw the economics of it. So, the beginning part of your question where you were talking about the evolution of pricing. What you’re seeing is the invention of a new paradigm. If we were a large company, then we could go and take a gamble and say, “OK, it’s going to be this price before we have any real data as to what usage patterns are.” But you can’t do that as a start-up. You’ve got to make sure that the money that comes in is at least a little bit more than the money that goes out.

So, when we were doing the beta, we had our data from the beta, but we also had analysts data showing usage patterns and monthly expenditures and so on, and we worked from that. Then, we had to come up with a very conservative price, under which we could continue to run the business. That turned out to be would be $14.95 a month. But we also announced that we were going to make it available for free initially. The free trial gave us enough runway to go and find out what the actual data was going to be. How many hours people were putting in? When are they putting it in? What class of servers do they need depending on the mix of games? And how much are they spending every month on games? So, with that data, we were able to then go and say, “OK, now that we can be confident that these are the patterns and usage patterns,” and this is why we don’t have to charge a base monthly fee for this for OnLive anymore.

And take a look at the games in our back catalog. They are great games. Don’t get me wrong. But as far as the publishers are concerned, they can’t monetize them in anyway anymore. It used to be they would have those games at bargain bin prices. But there are no bargain bins anymore.

(More on OnLive Cloud Gaming Service Kills Monthly Fees Permanently)

They’re just used games. And the used games, as we’ve discussed, just re-circulate and re-circulate and none of that money goes to publishers. So, for the publishers, it’s not too hard for them to give us the games that are currently in the used market. Right?

Yes. That segues actually into my next question. So, clearly it’s an enticing pipeline for publishers for back catalog stuff. But you guys have done some day-and-date, simultaneous releases. How did that come about? You did it for Mafia II. You did it for NBA 2K11. You’d figure that if a publisher wanted to test out this market, it might be with some stuff that’s second-tier or more experimental. But these are two high-profile releases for 2K. Can you talk a little bit about how that stuff came about?

We’ve had seven day-and-date releases so far. And, you’re quite right. We ended up with these high powered, high-profile games. The publisher would much rather have someone buy the game on OnLive than on one of the other platforms, for all sorts of reasons. I mean, the margin is higher. They don’t have the physical box to make or the disc to print. And they don’t have the whole retailer margin part of it. But, the bigger thing is a third of US software purchases now are used games. So, when they throw it on to OnLive, they know it’s not going to end up in the used game rack. Right?


So they are moving like the wind to get us as many games as they can. The reason we haven’t had every single game released that’s come out day-and-date, has not been for lack of trying on the part of the publishers. It’s just that, they didn’t anticipate that OnLive would take off as quickly as it did. But this is the birth of something new. Long story short, you’ll be seeing more and more day-and-date releases, and it’s not because we’re twisting their arm. We’re a little start-up. We couldn’t twist their arm if we wanted to. It’s because they want us to succeed. They’d like to see OnLive succeed.

That said, what’s the next frontier?

I like to call OnLive again one of those “why not” technologies, as in why not. We’ve just launched an iPad app. We call it the OnLive Viewer App. And it’s not that games don’t run on the iPad. They actually run just fine. It’s just that none of the high-end games are touch-aware yet or motion-aware. Believe me, when they were designing Just Cause 2, they never imagined it would be running on an iPad. So, you’ll be able to do all of the spectating, brag clips and chatting. You’ll be able to check profiles. You’ll be able to friend people. All of that stuff will work just fine on the iPad wherever you are. But that’s just the beginning. So, we’re also going to be showing on Tuesday, and this is a surprise to everyone, we’re going to be showing Android running in Beta. Same way. The Samsung Galaxy Tab came out two weeks ago. It’s still not an iPad, but it’s the first Android tablet that’s getting a little bit bigger and a little bit closer to the iPad.

And, next year, you’ll see OnLive built into television sets. So you can turn on the TV and boom, you can play any game you want.

Is that actually a done deal?

Oh, sure. I mean, when you begin to see the inside of the MicroConsole, you begin to see the direction we’re going. We’re actually already very far along. And unlike adding apps to a TV that play one thing or another, when you add OnLive to a TV, the TV never gets obsolete. If you built in all the capability of an Xbox 360, there will come a point where you’re going to want to play a game that outperforms what the TV can do. Now, with OnLive, it’s fantastic. It works very beautifully. You’re going to see actually a lower latency experience with OnLive built into a TV than you currently get with an Xbox or Playstation 3 running locally going through a TV. Also, we don’t add any cost to a TV. So it’s not a hard decision for them. The only thing we change in the TV is the software.

That’s really cool. I remember when I first saw the service, the gambit seemed to be getting acquired by a Comcast or somebody like that. Then we’d see OnLive in cable boxes as another premium service that companies can charge for. But going direct to the TVs is even more enticing because I feel like you’re not beholden to the service provider and how they want to cap your bandwidth or whatever scheme they may have at a given time.

That’s correct. You will see OnLive built into cable boxes and IPTV boxes and so on. But the wrinkle there though is that their product cycle is pretty long. So it will take time before they rollout to their full user base. But that’s OK. I mean, again, I have a very Netflix agenda. We just want to be everywhere. We don’t want to piss anyone off. We just want to be everywhere.

(More on Top 10 Failed Gaming Consoles)

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