Video game streaming could still be a ways off

OnLive, which tries to position itself as the Netflix of video games, is on shaky ground.

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The world of cloud gaming took a big hit over the weekend as word broke that OnLive, the California company that is trying to position itself as the Netflix of video games, might be going out of business. The story evolved over the weekend and it now looks like the company was performing some maneuvers to avoid exactly that fate.

According to the San Jose Mercury News, all the employees were let go and all previous stakeholders, including founder Steve Perlman, lost their stakes in the company. A newly formed company then acquired all of OnLive’s assets and will continue to operate under its name and run its services. Half of the employees will be rehired.

This restructuring—an Assignment for the Benefit of Creditors, or ABC—is a complex set of gymnastics to basically avoid going under completely. OnLive now has a new sole investor, venture capital company Lauder Partners, and says it will announce additional investors soon.

As the dust settles, one thing is clear. If OnLive’s new investors are interested in anything beyond its patents—such as seeing the company indeed become the Netflix of video games—they’re nuts. That’s because cloud gaming is still a long ways off, at least in North America. If it wasn’t, OnLive wouldn’t have found itself in such dire straits.

Video streaming providers such as Netflix have already had a tough go of it in both the United States and Canada. Netflix sells a service that competes with the TV shows and movies offered by cable Internet providers, and who can forget the warm welcome it got in Canada, in the form of certain Internet providers instantly lowering customers’ monthly download limits when the company announced its northward expansion.

Cloud gaming, where players don’t get their games on discs but rather stream them live to their TV over broadband, requires Internet connections that are not only much more robust than they currently are in North America, but also much beefier data caps. According to reports, OnLive’s games require at least five megabits a second of dedicated bandwidth for high-definition quality and chew up about three gigabytes of monthly usage per hour.

The recently released game Sleeping Dogs took me about 20 hours to finish, so that’s roughly 60 GB, or close to what most big Canadian ISPs give customers per month. And that’s just one game, with no other usage of the Internet included. The situation is obviously better in the United States, where monthly plans typically run into hundreds of monthly gigabytes, but cloud games there would still eat into those dramatically.

Services such as OnLive don’t just require generous monthly usage limits—they also need fast, high-quality connections, which is why cloud gaming is far more likely to take off first in other parts of the world, like Japan. Sony has indeed made some recent moves to prepare for this eventuality, first by acquiring cloud gaming provider Gaikai—despite its Japanese name, the company is also based in California—and Japanese broadband provider So-Net.

Japan’s broadband infrastructure is much more suitable to bandwidth-intensive services like cloud gaming, as this quick comparison with the United States and Canada on Ookla’s Net Index shows:

  • Average download: Japan 28.8 megabits per second, U.S. 14.75 Mbps, Canada 13.64 Mbps.
  • Average upload: Japan 14.66 Mbps, U.S. 3.84 Mbps, Canada 2.22 Mbps.

How about caps? Yes, Japan has those too, but they’re shocking in comparison. Providers don’t limit downloads at all, but they do cap users at 30 GB of uploading per day. That’s right. Per day. So again, how is cloud gaming going to happen in North America?

Here in the land of disc-gaming, players are going to be stuck with broken game consoles that need to be updated with new patches, fixes and firmware every day while, as usual, the future will arrive first in Japan.

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