APRIL 3, 2015 • OnLive Inc., the ailing cloud-based subscription game streaming service that turned heads back in 2009, is going out with a whimper. The service is ceasing operations on April 30, with Sony Computer Ent. acquiring the company’s portfolio of 140 U.S. and international patents. How much Sony paid for the patents was not disclosed. In 2011, many estimates put the valuation of OnLive at above $1 billion, yet when the firm slid into insolvency with $18.7 million in debts a year later, it was sold for only $4.8 million to venture capitalist Gary Lauder. Some OnLive employees may be subject to recruitment for open positions with SCEA. OnLive informed its customers that after April 30, all of its servers will be shut down, all consumer accounts will be closed, and all user data will be deleted.
Impact: A year ago DFC was positive about OnLive’s change of model away from hardware to cloud-based delivery of game content. This was accompanied by a significant capital investment in new data centers. We cautioned, however, that these model changes and capital investments must lead to a substantial inflow of new customers. That outcome, obviously, did not come to fruition. While cloud streaming has improved significantly over the years from a technology standpoint, we still do not find that a critical mass of consumers are interested in playing their games in this fashion, which calls into question any business model intended to pay for the technology costs. Therefore, Sony’s acquisition of OnLive’s patents is a marking of contested territory. While PlayStation Now remains a disappointing performer, SCEA is positioning itself to be the primary provider in delivery scope and content. The company now also has a patent portfolio it may use to intimidate smaller firms attempting to enter the market as Nvidia is doing with its GRID service. Despite the recent success of the PlayStation 4, Sony is still beset with financial hardships that have led to the shedding of hardware segments such as selling off its VAIO PC business and the spinning off its TV business. The firm is steadily exiting the consumer electronics segment where devices have become inexpensive commodities that Sony has difficulty making money on, to concentrating on delivering entertainment content and financial services that are profitable. Streaming games may have a ways to go before mainstream consumers jump on, but Sony has the resources to wait on them while doubling down on a future where it has outlasted the competition.