BT Doubt Over Uncertain Future for UK OnLive Broadband Video Game Service

ISP BT Retail fears that it might have to “write off our investment” in OnLive’s UK cloud based video gaming service, which allows customers to play the latest PC, XBox 360 and PS3 video games, without owning them directly, by using a live and remotely controlled internet video stream over your broadband connection.

Unfortunately OnLive USA ran into serious financial problems last week and narrowly avoided bankruptcy by spinning (selling) itself off to venture capitalist group Lauder Partners LLC and effectively becoming a new company. As it stands now the OnLive service will continue to operate with the same name, albeit with half the staff it had before.

OnLive currently has around 1.5 million “active” subscribers but most are free accounts and only a small portion of those are understood to have taken their commercial / paid membership service, hence the problems.

OnLive USA Statement

OnLive, Inc.’s board of directors, faced with difficult financial decisions for OnLive, Inc., determined that the best course of action was a restructuring under an “Assignment for the Benefit of Creditors.” The assignee of the company’s assets then sold all of OnLive, Inc.’s assets (including its technology, intellectual property, etc.) to the new company.

Unfortunately neither OnLive, Inc. shares nor OnLive staff could transfer under this type of transaction, but almost half of OnLive’s staff were given employment offers by the new company at their current salaries immediately upon the transfer, and the non-hired staff will be given offers to do consulting in return for options in the new company. Upon closing additional funding, the company plans to hire more staff, both former OnLive employees as well as new employees.

The OnLive Service has been in operation 24/7 without interruption since its launch over two years ago, and is expected to continue to operate smoothly under the new company. All videogames, products and services remain available, and the company has new product and partnership announcements on the way.

The change has already had a huge impact and most recently resulted in HTC losing a massive £25 million investment ($40m – 3.8% stake) in the company. BT has had a similar commercial partnership with OnLive since May 2010, which includes exclusive rights to bundle the service with its broadband packages and a 2.6% shareholding in the business.

Indeed after much delay BT finally launched its OnLive and broadband bundle in September last year (here), although the ISP chose not to make a long-term exception in their network traffic (usage allowance) for customers who adopted the service. This is a crucial point since OnLive consumed a lot of expensive bandwidth; the HD feed required a stable connection speed of 5Mbps (3Mbps for SD quality).

BT now faces a similar problem to HTC and a spokesperson for the ISP told TechRadar, “We cannot comment on speculation about the future of OnLive, but we are keeping a close eye on developments … In any event, the 2.6% shareholding in OnLive does not represent a significant investment for BT as a whole. We consider it highly likely that we’ll have to write off our investment.”

Meanwhile OnLive’s USA and UK divisions continue to function. The service will now need to find a way of making money out of what was once considered to be the future of video gaming, which could prove to be considerably more difficult given the mass of burned bridges being left in their wake.