OnLive Lives On Under Massive Restructuring Plan

The future of the cloud-based OnLive gaming service is looking cloudyindeed. On Monday the company confirmed that a restructuring plan willkeep the streaming video game service operating. However, all staff memberswere let go in the process — although some may eventually be rehired.

This followed the company’s filing last week of an Assignment forBenefit of Creditors, which is an alternative bankruptcy. It allowed OnLive to relinquish its assets to an assignee.

Those assets have been sold to a new company. Additionally, under thisfiling, all previous OnLive shareholders, including employees andfounder Steve Perlman, lost their respective stake in the company andall employees were laid off.

The newly formed company that acquired OnLive’s assets will operateunder the original name, continue to offer its services, andreportedly offer jobs to nearly half of those former employees.For now OnLive survives, but the question is, for how long?

“This was an interesting restructure, very creative in that theinvestors took the hit [and] the customers were kept whole,” said RobEnderle, principal analyst at the Enderle Group. “As far as risk, theyare now in better financial shape than they were, so if you liked thembefore, you are actually safer now.”

OnLive did not respond to our request for further details.

That’s Life in the Clouds

Just weeks ago it looked as if OnLive could be a threat to thetraditional console-based video game business, with its streamingservice that could deliver games using a broadband connection. Butlife in the clouds wasn’t to be, so what went wrong?

“If we look at it objectively, it comes down to the fact that OnLivehas been ahead of the time,” said Scott Steinberg, principal analystfor TechSavvy Global. “They have a great catalog but lack any bighits.”

While the technology is there to deliver the games, the audiencehasn’t been Steinberg told TechNewsWorld.

“As a consumer service, it is still really a few years off,” he added.”At the end of the day, the company just didn’t make money, and whilethat isn’t unusual, this time it could work to the company’sadvantage. Someone else is going to look to streamline and operate itlean and mean and turn it around.”

OnLive Lives Again

If OnLive is to mount a do-over, it’ll need to do it right. When Mario or Pitfall Harry encounter an obstacle they failed to get past the first time, they typically approach the second attempt by tackling it in a different matter. Will the new OnLive learn from thevideo game characters’ methods?One solution to the problem maybe to look at alternatives to facing it head-on.

“The VC firm is unlikely to let them fail and will undoubtedly belooking for a buyer or taking the firm public again in the future, andthey won’t be able to do either if customers are lost,” said Enderle.”You don’t make this kind of investment, take this kind of risk if youthink it won’t pay off.”

And in other video game analogy, it is back to the beginning, as therearen’t exactly save points in business.

“OnLive has been returned to startup status, trimmed down, and it isnow in turnaround/build mode again,” Enderle added. “The processbeing used is actually a best practice — even more aggressive thanwhat Jobs did to turn Apple around.”

Second Life

That new start could prove to be exactly what the company neededhowever. It couldallow the industry to catch up with OnLive, which could have beentruly ahead of the game.

“The company has been pursuing a business model that will provedirectionally correct, but too early,” said P.J. McNealy, chiefconsultant with Digital World Research. “The business models for videogames in the next three to five years will have elements of whatOnLive has been offering, but will be part of a hybrid serviceoffering.”

But there will still be obstacles along the way to get to the prize,just like those faced in video games. “At the end of the day, thebiggest weakness for OnLive hasn’t changed — the last mile,”emphasized McNealy. “They can’t control the pipe to homes, so they arestill limited for now.”

However, OnLive hadperhaps gotten a little too large and unmanageable as well. Thisrestructuring could cut costs and perhaps make it the lean and meancompany it needs to be.

“In the end, it is left in better shape this week than it was last,substantially better, and that is likely the big take away from thismove,” said Enderle. “This is all assuming that there won’t be anysignificant litigation which can result from moves like this.”

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