Ouya, OnLive Shaking Up Video Game World

Ouya, the recently unveiled video game system, on Friday announced a content deal that will make OnLive’s cloud gaming service available on the console when it launches next year.

Ouya has certainly gotten its kickstart. In fact, the company, which has been looking to Kickstarter to raise funding for the development of its open source-based console, has seen investments surpass the US$5.5 million mark. But the new content partnership may be just as important.OnLive, which is already available as an app for the Android operating system via Google Play, also recently announced that its service would be available via the Vizio Co-Star Google TV box.

This could very much be a game changing moment for the traditional video game market.

“The game business has been an example of the razor blade economy,” said Billy Pidgeon, principal analyst with M2 Research. “The systems are typically sold with little profit and the money is made from selling expensive games. Freemium content works very differently, and it could still be a very big challenge in getting the install base to support it.”

However, Ouya as the box and OnLive as the content do seem like a perfect marriage — but many marriages see the couple fighting over money.

“While on paper the combination sounds good, there is still lots of money to be spent marketing new brands to gain some consumer traction,” said P.J. McNealy, consultant with Digital World Research. “At the end of the day, they’ll be competing against likely future offerings from the likes of Microsoft, Sony and Nintendo — all established brands.”

Ouya and OnLive did not respond to our requests to comment for this story.

Changing the Game Industry

While the partnership with OnLive will give Ouya a huge library of titles, this new model still faces issues over whether it can keep the revenue stream flowing.

“They are rejecting the current console model of making money by having a closed system and taking advantage of the closed system to skim money off software sales,” said video game industry analyst Mark Lewis Baldwin of Baldwin Consulting. “Without that revenue stream, I’m not positive how their financial model is supposed to work, and it therefore has me questioning it a little.”

This could make partnerships with content, and the subscription revenue that could come with it, all the more important.

“Assuming there is a potential successful financial model, I think the OnLive partnership is probably critical,” Baldwin told TechNewsWorld. “There is a revenue stream there, and it also puts Ouya at the forefront of where the game industry is probably going.”

This could be a path that the current industry giants such as Microsoft, Nintendo and Sony are likely not happy to follow.

“This puts Ouya in a high-risk and high-reward situation,” added Baldwin.

Thinking Outside the Set-Top Box

Ouya is also not alone in thinking outside the box as it looks to transform the game’s market. Microsoft, Sony and even Nintendo have looked to content providers such as Hulu and Netflix to add value to their respective video game consoles.

Likewise, Apple and Google are looking at disrupting the traditional living room cable and satellite TV delivery methods with their set-top boxes.

Ouya is just looking to come into the market at the low end in a possible attempt to race to the top.

“Set-top boxes have started to heat up — largely because the numbers of old Apple TV are pretty good and Apple’s rumored to be entering a better product,” said Rob Enderle, principal analyst at the Enderle Group. “Even the Google TV box from Vizio appears to be doing well, as people continue to shift from traditional cable to on-demand downloads.”

OnLive, which provides a very rich set of gaming experiences, is being added to a number of these properties as a fast way to meaningful content, added Enderle.

“It looks like there is demand out there, and we are just waiting for an iPod-like product to emerge and better define this space,” he suggested. “It looks like one is possible, though, and now it is a race to see who gets there first — and Apple is clearly in this hunt.”

Many Will Enter

At this point, it looks as if many players will attempt to enter the market, but only few are likely to succeed. But those who have so far plunked down money via Kickstarter certainly believe in Ouya.

“The Kickstarter campaign is a lot of money, but not enough for a huge launch,” said Pidgeon. “However, it does suggest there could be a significant launch, as everyone who contributed to the Kickstarter campaign will get one.”

That should provide a significant install base for a new system — something that could cause worry to the established hardware makers, at least as long as the system lives up to its potential.

“Ouya can’t be very powerful at $99, and the specs show that it is not,” added Pidgeon. “It also suggests that there could be many Chrome-based boxes that could provide streaming of games and other media on the Chrome platform.”

Now that could be enough to cause worry, as it could truly disrupt the business, and it could paint the way to a shiny future for streamed content.

“Longer term, this technology and business model combination of hardware in the living room with a streaming service, will likely be one of the winners,” predicted McNealy.

“I am doubtful that this combination may be the be-all, come-all solution,” he said, “but there is always a first-mover advantage. Further, any big media or content company that has no hardware or service solution may find this combination interesting.”

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