Xbox Challenged as Cable Plots to Make Consoles Obsolete
AT&T, Verizon and Time Warner Cable are gearing up for a push to deliver video games directly to TVs, said people with knowledge of the matter, a strategy shift that poses a threat to traditional consoles such as the PlayStation, Wii and Xbox.
Trials of cloud-gaming services are likely to start later this year so carriers can test and tweak the technology before wider deployments that may begin as early as 2013, said the people, who asked not to be named because the discussions are private. Other carriers are aiming for 2014, the people said.
If successful, web-based games could accelerate a shift away from consoles, the industry's main money maker for the past three decades. Sony, Microsoft and Nintendo have helped to build a market worth $24.1 billion in the U.S. in 2011, according to NPD Group Inc. Consumers are already dumping consoles in favor of games on smartphones and tablets, leading to a 39% decline in video-game hardware sales last month from a year earlier.
Consoles have been busily adding streaming video and download services that could ultimately undermine cable companies' business. Now cable companies may be able to strike back. "Everybody has a TV," said Atul Bagga, a video-games analyst at Lazard Capital Markets in San Francisco. Cable and phone companies are "looking for new ways to monetize their users and gaming can be pretty compelling," he said.
By adding popular games to their TV, internet and phone packages, carriers can offer another service to their almost 50 million digital TV subscribers.
In addition to AT&T, Verizon and Time Warner Cable, Comcast and Cox are also in talks to offer video-gaming services, the people said. They're all looking to go beyond social games from Zynga and casual games such as "Tetris" and "Solitaire," with technology that can deliver the most advanced action games from top publishers such as Electronic Arts.
Alex Dudley, a spokesman for Time Warner Cable, which had 12.3 million subscribers as of mid-2012, and Jennifer Khoury, a spokeswoman for Comcast, which had 22 .1 million subscribers, declined to comment.
Jan Rasmussen, a spokeswoman for AT&T, said in a statement the company is "exploring unique ways to offer cloud gaming services to our TV and broadband customers." AT&T had 4.15 million subscribers for its U-verse TV services as of June.
Deidre Hart, a spokeswoman for Verizon, said that while the company has the capability, it doesn't currently "offer anything regarding HD cloud gaming." Shana Keith, a spokeswoman for Cox, said the company is exploring a number of cloud-based broadband services, declining to provide specifics. Verizon had 4.47 million TV subscribers, while Cox had 4.66 million, according to the National Cable & Telecommunications Association.
With cloud gaming, consumers will be able to avoid buying Sony's PlayStation 3, Microsoft's Xbox 360 or Nintendo's Wii, and play using generic controllers connected to their set-top box or TV. Some carriers are looking at software that turns smartphones into controllers, the people said.
Carriers still have to get the technology in place. To stream games from remote servers to multiple devices simultaneously, they need to license virtualization technology. And to make the experience comparable to that of a console, they also must incorporate powerful graphics processors into their data centers, replacing chips used in consoles.
Putting all those pieces together proved too difficult for OnLive, a startup backed by units of AT&T and Time Warner , which went through a restructuring last month after failing to attract enough $9.99-a-month subscribers to its cloud-gaming system. Gaikai, a competitor in the market, agreed to be bought earlier this year by Sony for $380 million.
Large service providers have an advantage because they have deeper pockets, big data centers and an existing subscriber base. Still, delivering a cloud service with the same quality as game consoles and creating a profitable business will be a challenge, said Mitch Lasky, a partner at venture firm Benchmark Capital in Menlo Park, Calif., and an early investor in Gaikai.
"It makes perfect sense why they would want to go after this market," said Mr. Lasky, who was previously an executive at Electronic Arts. "Streaming games use a ton of bandwidth and really benefit from good networks. But it's a gnarly execution problem they're trying to solve."