The buzz at the Game Developers Conference (GDC) this week is focused on the new OnLive service to be launched in “winter 2009”. OnLive has been in development for seven years and is headed by Steve Perlman, who previously founded WebTV, which was sold to Microsoft as the foundation for its IPTV platforms. OnLive’s hallmarks are that it doesn’t require a “console”, or at least in the traditional sense. In fact, there is a small (“pack of cards” size) module (“microconsole”) which plugs into the TV set and connects it to the broadband service. It will also support “almost any” PC or Mac with a simple browser software download – no microconsole required. All games are then delivered from remote servers with very little local storage or processing required. OnLive also owns Mova, which develops facial animation technologies. OnLive claims to have the “support” of top games publishers, including Electronic Arts, Ubisoft, Take-Two Interactive Software, Warner Bros. Interactive Entertainment, THQ Inc., Epic Games, Eidos, Atari Interactive and Codemasters. The list sounds impressive, but “support” is just a little too vague. It would be surprising if games publishers did not “support” a venture that could cut out the middle men (platform owners, retailers) which take a substantial cut of industry revenues. No pricing has been confirmed, but the business model will be monthly subscriptions, and the aim is clearly to squeeze as much cost out of the microconsole as possible. Don’t be surprised to see “free” consoles being offered in return for long-term contract commitments. Online content has already featured in the games industry for some years. In the PC world games content is frequently downloaded, either as standalone applications or in combination with disc-based delivery. And online features strongly in each of the latest generation of TV consoles, including full game downloads. As I reported recently, Strategy Analytics research has found that nearly a third of gamers in the US already claim to buy and download games to a video games console. 21% are doing so on a monthly basis or more frequently. What is different about OnLive is that it claims little or no “downloading” is required. It claims to have advanced compression technologies that allow a 1MB software player to render the content, which is processed in real time on remote servers. This model clearly depends on the availability of a fast and reliable broadband connection to the TV set. The OnLive microconsole will include USB, HDMI and ethernet. I’m surprised if ethernet is the only connectivity option: it’s an impractical option in many homes, so wireless or powerline connectivity also needs to be available. The established console vendors, Nintendo, Microsoft and Sony, will express scepticism that OnLive can really compete, and there are certainly doubts about the viability of “cloud gaming” in the real world of dodgy internet service, wireless LANs and the battle over data prioritisation with broadband service providers. Already the gaming community is arguing over latency rates and whether OnLive’s technology can really meet the demands of hard core multi-player virtual worlds, or how close it can come to delivering the 1080p video offered by Sony and Microsoft (answer: not very). But OnLive’s unveiling has at least put the cat amongst the proverbial pigeons: the 40-year history of video games consoles has been based on the assumption that you need some piece of serious hardware attached to the TV set. It is only a question of time before broadband brings that assumption crashing to the ground, but the end of this year is probably a few years too early for this model to create a significant commercial impact. Twitter: twitter.com/DavidMercer_SA Client Reading: Digital Media Survey: An analysis of US Gamers

One of the main objectives of Blu-ray Disc developers was to set a benchmark in video quality that would provide sufficient encouragement for DVD owners to upgrade, as well as providing a challenge that few if any alternative video distribution platforms could hope to match, at least in the foreseeable future. One benchmark that BD sets is known as “Full HD” or 1080p and it provides the best possible video quality commercially available to consumers today. (Further enhancements are in the works, notably the Japanese Super Hi-Vision 4000 line system, but that’s another story for another day and will not see commercial availability for some years.) As the format was being developed in the early part of this decade, BD proponents were probably hoping that the blue laser disc would have the 1080p market all to itself for much of its life. It had been assumed that both broadcasting and internet delivery platforms would struggle to accommodate the bandwidth and bit rates required to delivery equivalent video quality. Those assumptions are now being questioned by recent announcements from broadcasting service providers on both sides of the Atlantic. French cable operator Numericable announced at the end of June that it would begin offering “Native HD” movies on its VOD service in July. Shortly afterwards, both US DBS providers, DirecTV and Dish Network, made announcements along similar lines. While DirecTV was first with the news, Dish is claiming bragging rights for the first 1080p movie, Warner Bros’ “I Am Legend”, which was available beginning August 1st. Dish claims this was an industry first, which may be correct as far as the US is concerned, but Numericable would appear to have beaten them to the punch in global terms. Apart from business model issues (like the fact that satellite providers can’t offer true VOD), there is the key question of video quality. Both Dish and DirecTV reference Blu-ray Disc in their publicity material. The quotations are as follows: • “Starting August 1, Warner Bros. Pictures' blockbuster "I Am Legend" starring Will Smith will be available in 1080p resolution -- same as Blu-ray(R) Disc quality -- on DISH Network's VOD service, DISH On Demand.” • “DIRECTV will begin offering movies in 1080p, the highest resolution format available for HD video enthusiasts and the same format used by Blu-Ray HD DVDs” These claims have clearly struck a sensitive nerve within the Blu-ray community, which, given their strategy as outlined above, is perhaps not surprising. Today the BDA has given me the following statement: “A number of companies have recently launched advertising campaigns claiming their products deliver high definition picture and sound “equal” to that delivered by Blu-ray Disc. These comparisons are irresponsible and are misleading to consumers. Up conversion and satellite broadcast cannot provide a true Blu-ray high definition experience, as neither is technically capable of producing the quality delivered by Blu-ray players and Blu-ray discs. To that end, the Blu-ray Disc Association is exploring these claims further and will take appropriate action, as necessary, to prevent consumers seeking the ultimate in high-definition home entertainment from being misled.” I look forward to hearing the results of the BDA’s exploration of these claims. It has always been a challenge to get industry consensus on the relative technical merits of one video system over another. Video and broadcast engineers will tie themselves in knots with competing claim and counterclaim about the significance or otherwise of numbers of vertical and horizontal lines, interlaced versus progressive scan, pixel counts, black levels, bandwidth, the merits of film and video cameras, scanning rates and any number of other technical criteria which may affect what the viewer ultimately sees on the TV screen. As far as misleading consumers is concerned, I agree wholeheartedly that while there may be no deliberate misleading going on, consumers are certainly confused in all sorts of ways about HD in general. People (on both sides of the Atlantic) have been buying “HDTVs” or “HD-Ready” TVs for a few years now, and many of those viewers will struggle to say exactly whether or not they are actually watching HDTV content at any given time. I have pointed out previously that programmes on so-called “HD channels” on Sky’s platform are often not true HD content. If viewers pay for HD channels and are watching SD content, how can they be blamed for not understanding? Instinctively I would say that the BDA is right – I don’t believe that DirecTV or Dish will actually be offering programming at the same level of quality of BD. But the technical arguments to prove the claim that they are not "technically capable" of doing so could be very difficult to prove one way or the other. In the end, these new Full HD initiatives are more of a statement of competitiveness against rival service providers than against BD itself. As has often been the case in the past, the satellite providers in the US are battling against cable companies, and now IPTV providers, to set new benchmarks in quality and customer experience. The 1080p story is just another phase in that competitive battle, but it is unlikely to seriously affect Blu-ray’s potential. Visit us at IBC: Web TV and Virtual Worlds Analyst Presentations

It's early days in the era of high def discs, but already it seems as though the post-DVD transition is having the desired effect for the studios. According to Home Media Magazine's research, total consumer spending on DVDs and BDs in Q108 rose by 1% compared to the same period in 2007 ($5.51bn v. $5.46bn). Within this total, rental spending declined 1.6% to $2.04bn, while sell-through increased 2.3% to $3.47bn. And within sell-through, DVD sales fell 1.2% but BD was up by 351%. In other words, BD was the only factor that stopped the market declining. The maturation of the US home video market has been a reality for a few years, as both DVD sales and rental have flattened and even declined slowly. This is less the impact of online, as some would have us believe, than the simple fact that the DVD platform has matured naturally after explosive growth in early part of the decade. The latest data are remarkable in a couple of ways. First, that we are in the middle of the worst economic downturn the US has seen for many years. Second, that there is any growth at all in an industry that many had suggested is now in permanent decline because of digital streaming, downloads and, of course, piracy. And third, that Blu-ray is already having the positive impact the studios hoped for at such an early stage in the platform's history. All those scare stories about slow BD player sales and the weak impact of PS3 on movie sales seem to be wide of the mark. As our research showed recently, there will be nearly 30 million homes worldwide with a BD player of some type by the end of this year, and that will already be enough to make a significant impact on the home video market. As BD begins to have a similar impact in Europe it will be interesting to watch the studios' approach to digital distribution. While they continue to explore new revenue models, such as the deals with Xbox Live, it seems likely that Blu-ray will dominate their attention for some years to come, just as DVD was beginning to do 10 years ago. Client Reading: Xbox Live Boosts Addressable HD Market as Warner Bros Continues Rollout of Day-and-Date Strategy for New Movies Blu-ray Devices: Forecasting Sales and Ownership

(This is an updated entry to correct a previous error and incorporate response from HD DVD Group) The hi-def disc battle gets nastier by the day. Europe's HD DVD Promotional Group has perfectly demonstrated why press releases should be read for what is not said, rather than what is, by releasing data suggesting that attach rates (ie discs bought per player) are vastly higher for HD-DVD player owners than those of BD players. I won't repeat the data: you can read some of it here. The press release does specify that the HD DVD group is including consoles in this analysis, which is ironic, or cynical, depending on which side of bed you fell out of this morning, because HD DVD supporters have made great play of the fact that standalone players are the most important drivers of disc demand and that consoles should be discounted. To quote Steve Nickerson, Senior Vice President, High Definition Media at Warner Bros: "... the standalone player market is by far the biggest driver of movie sales in the long-term". So why include PS3s now? Presumably because PS3 sales are surging ahead at such a rate as to make sales of HD-DVD players look tiny in comparison, and therefore inflate attach rates for the minority player. Even if attach rates are vastly different, BD disc sales could still be higher than HD-DVD. Sales of laserdisc used to be much higher than VHS, when measured on this basis, because the few people brave enough to have bought a player also purchased loads of discs, while most VCR owners were less interested in buying pre-recorded cassettes. But the HD-DVD Group does not release actual disc sales numbers. It says this is because it is "early days for both formats" and they want to publish findings based on independent "facts". But the important "facts" remain a secret, ie how many discs have actually been sold.