Will Pay Providers Turn the Tables on Game Consoles?

A growing number of consumers have turned to video game consoles for more than games. Streaming video services such as Netflix and Amazon Prime form an increasingly important component of a game console’s value proposition (which is why Nintendo made a big splash for their new TVii feature on the forthcoming Wii U).

Even cable companies have gotten into the act, creating apps that enable an Xbox to serve as a set-top box for secondary screens in a subscriber’s home. It’s a marriage that would seem to redound to everyone’s benefit – console makers get added functionality and cement their toe-hold in the living room as the device of choice tethered to the TV; pay TV firms get the cost savings from not having to service additional cable boxes.

Yet with pay TV subscription rates at saturation levels in the U.S., there’s a huge hunger for additional growth opportunities. Some providers, such as Verizon and AT&T, have been dabbling in home security and home automation as a way to mine additional dollars from their subscriber base. But more – apparently many more – are looking to gaming as well.

According to a recent report in Bloomberg, most of the major cable and IPTV providers have been actively exploring a cloud gaming option to serve up to subscribers:

In addition to AT&T, Verizon and Time Warner Cable, Comcast and Cox Communications Inc. are also in talks to offer video-gaming services, the people said. They’re all looking to go beyond social games from Zynga Inc. 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 Inc.

Cloud gaming – like anything with “cloud” preceding it – is a hot topic and pay TV providers will find that they’re not alone in pursuing the lucrative gaming dollar. Samsung has announced plans to integrate cloud-based gaming into several of its HDTVs, while Sony earlier this year scooped up cloud gaming service Gaikai to bolster its own gaming portfolio.

Moreover, the addition of gaming services, while certainly attractive from a revenue perspective, adds a new layer of capital costs. With many networks instituting data usage caps to contain the growth of over-the-top video, online gaming would represent another bandwidth-intensive service vying for space in the pipeline.

Nonetheless, it’s clear that interest in, and the infrastructure for, cloud gaming is growing. Chip-maker NVIDIA has already indicated that its GPU chips are finding a home in more and more data center servers. All that’s missing, as of today, is a proven business model (perhaps the biggest name in cloud gaming, OnLive, has skirted – rather ignominiously – with financial ruin).