Did Cloud Gaming Service OnLive Really Just Fire Its Entire Staff? [Updated]

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It’s definitely not the sort of news you want to run across on an otherwise lovely Friday afternoon: Brian Fargo, a game developer with inXile Entertainment, posted something he claims is an email received from an OnLive employee this morning. It’s unclear whom the alleged OnLive email is from, but the way it’s worded suggests someone pretty high up the chain.

I wanted to send a note that by the end of the day today, OnLive as an entity will no longer exist. Unfortunately, my job and everyone else’s was included. A new company will be formed and the management of the company will be in contact with you about the current initiatives in place, including the titles that will remain on the service … It has been an absolute pleasure working with you and I’m sure our path with [sic] cross again.

(MORE: OnLive Desktop Plus: Windows at Its Speedy Best — on Your iPad)

Mashable was first to notice Fargo’s tweet and write about it. Since then, Forbes managed to get in touch with OnLive’s communications director, Brian Jacquet, who — after being pressed — categorically denied that OnLive was on the ropes. Forbes says Jacquet initially had “no comment” on the story, but when asked to deny the rumor that OnLive was closing shop, Jacquet replied: “No, let me be clear. We are not going out of business.”

And the rumors seem to be spreading around the Twitter-verse as others claim to have seen or received the email. Mel Kirk of Zen Studios notes that the whole thing could be a stunt to grab eyeballs: “My email regarding OnLive stated that they will emerge ‘as a new company’ I think they were acquired and this is an attention getter.”

My OnLive contact was reticent about the rumor when I reached out to her, but upbeat about OnLive, writing, “We can’t comment on rumors, but OnLive is just fine.” I’ve asked for more information, including whether Steve Perlman — OnLive’s founder and CEO — is still in that role.

One reason I’m wondering if Kirk isn’t on to something, is that in the same email, my OnLive contact reminded me that the company’s “exciting news” is that “VIZIO Co-Stars (Google TV stream players) with the OnLive app built-in have just arrived in customer homes.” And just last month, OnLive announced it had partnered with Kickstarter darling Ouya, the Android-powered little gaming box that could, to bring its cloud-gaming service to the forthcoming console.

When I’ve spoken with OnLive in the past, they’ve proudly touted their independence and first-to-market position. But rival Gaikai, another cloud gaming service that emerged well after OnLive, was recently acquired by Sony for $380 million. I’d be surprised if this turned out to be an acquisition maneuver given my prior conversations with the company, but keep your eyes peeled anyway, and if that’s what this all turns out to be about, you’re welcome for the freebie, OnLive.

Update: GamePolitics has an unconfirmed report from someone claiming to be an OnLive employee, who describes a meeting today during which OnLive CEO Steve Perlman called the entire staff together to lay them off, and IDG reporter Martyn Williams, who was apparently in eyeshot of OnLive HQ, earlier tweeted “Confirmed: employees leaving #OnLive headquarters with moving boxes.”

OnLive has since released the following statement:

We can now confirm that the assets of OnLive, Inc. have been acquired into a newly-formed company and is backed by substantial funding, and which will continue to operate the OnLive Game and Desktop services, as well as support all of OnLive’s apps and devices, as well as game, productivity and enterprise partnerships. The new company is hiring a large percentage of OnLive, Inc.’s staff across all departments and plans to continue to hire substantially more people, including additional OnLive employees. All previously announced products and services, including those in the works, will continue and there is no expected interruption of any OnLive services.

We apologize that we were unable to comment on this transaction until it completed, and were limited to reporting on news related to OnLive’s businesses. Now that the transaction is complete, we are able to make this statement.

MORE: Sony Bets On Cloud Gaming with Gaikai Purchase, but Don’t Expect Drastic Changes