Published in Editorials

What Is Happening To the Gaming Market

by on20 August 2012 2266 times
GLaDOS

Over the last week (and over the weekend) there were two significant rumors in the gaming industry that may be cause for concern. OnLive, a cloud gaming company, first showed indications that it was having financial trouble when reports surfaced that they had laid off all of their employees in a single movement. This move was enough for the tech world to speculate that OnLive was going under. However, it was later revealed that all of their employees were let go in order to pave the way for a buyout by an unnamed company

What makes the whole deal here exceptionally fishy is that after the purchase about half of the original staff will be “hired” back. This has led some analysts to feel that the original staff were let go to reduce financial liability and employee equity. There is a general agreement that this purchase needs to be investigated to make sure that this was not a dirty deal and that people who should benefit from the OnLive will still get what they deserve.

However, there is more to this than just the possibility that the buyout was underhanded. The new company that owns OnLive has not been named yet and although they are referenced as an affiliate of Lauder Partners, one of the original investors in OnLive.  We still do not know who this investor is, and there are many possibilities. Right now some of the leading suspects are Microsoft, Valve, Facebook, and even Apple. We are confident that the name of the new investor will come to light in the coming weeks, but for now we are all left making guesses at who it is.

As of this writing, the OnLive service will continue uninterrupted so OnLive subscribers will be able to game as before. Whether this will continue once the transfer of IP and assets is complete is another story.  There are far too many issues that are uncertain about OnLive and the purchase, even with their original investors. Right now HTC is claiming their original $40 Million investment in OnLive as a loss simply because they do not know what is going on. We would not be surprised to find out that AT&T, Autodesk, Warner Brothers and Maverick Capital will do the same for their investments in OnLive.

On top of the OnLive issue, we hear that EA could be preparing themselves to be bought out. EA has been buying back some of their own stock from investors recently which is usually a sign that they are either going to receive a big investment from an outside source or that they are trying to bring as much of the company back “in-house” as possible. This move was something of a shock after all of the talk by EA’s COO Peter Moore (a former Microsoft Employee) about how EA was looking to Microsoft and Windows 8 as the future of gaming. After this PR campaign many felt EA was looking to push back into the gaming space after a disappointing year, which saw them lose some of their monopoly on sports games and included heavy criticism for their Origin service and its requirement with Battle Field 3. However, there appears to be more to this than was previously thought by some analysts.

As we mentioned, EA will be forced to give up their exclusive agreements on some of their sports franchise, so they are going to lose some of the revenue stream from future games. Although they were able to maintain their agreements with the NBA and NFL, they lost out on the college options (along with a fine). This is further complicated by the fact that some of the development companies that usually publish through EA are moving to a free-to-play system including Crytek, who might start pushing the Crysis franchise out as free-to-play in the near future. If these rumors are true, then EA is losing even more of their revenue stream. It certainly puts them in a bad position. The question about who would buy EA remains, although again there are some leading candidates including our friends at Microsoft.

Although the EA buyout is all speculation at this point, there is certainly something going on in the gaming world that needs to be watched. If both EA and OnLive ended up in Microsoft’s hands it could have some very interesting ramifications on the market. Still, we have to wonder what would happen if Facebook was the money behind the OnLive buyout. Imagine if Facebook was able to offer tier one games through the Facebook web interface or through their mobile app (complete with ads). It could certainly bolster their falling stock. Unfortunately, we don’t have enough information to properly evaluate what the state of the gaming market will be in the next 6-12 months. However if both of these companies are destined for Microsoft things could become very limited. To quote Dr. Egon Spengler from Ghost Busters; “It would be bad.”

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Last modified on 20 August 2012
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