Cloud Gaming Still a Wisp

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A boy plays the EA Sports game 'Madden NFL 18' during a gaming event last year at the Hollywood Palladium. Cloud-based game services that avoid consoles altogether will be discussed at this year’s E3 videogame expo.

A boy plays the EA Sports game ‘Madden NFL 18’ during a gaming event last year at the Hollywood Palladium. Cloud-based game services that avoid consoles altogether will be discussed at this year’s E3 videogame expo.


Photo:

Christian Petersen/Getty Images

Cloud-based videogame services are no longer pie-in-the-sky, but most developers’ plans remain nebulous for now.

Such efforts are a big topic at the E3 videogame conference this week. Game publisher Electronic Arts demonstrated a service that streams games directly to TVs, computers and smartphones.

Microsoft

said it is working on its own game-streaming service, but it provided few other details.

Sony


SNE -1.29%

already offers some of its older games for streaming over a service called PlayStation Now, but the company has been quiet about its future plans in this segment.

Cloud-based game services are designed to stream games over a network without requiring gamers to purchase or download the title. Ultimately, such services could lead to more simplified game consoles that simply act as a receiver for the signal. They also could eliminate the need for a console altogether, depending on the capabilities of the TV or computer receiving the signal.

Such services have been attempted before. A company called OnLive launched a high-profile game streaming service in 2010 that was backed by several major corporate investors. But the company was overtaken by the costs of building and running a network capable of such a service and ended up in a bankruptcy-like reorganization two years later. OnLive’s assets eventually were picked up by Sony.

Today’s cloud gaming aspirants have a much more stable financial foundation. They also have a strong business case to make such offerings work. Subscription-based services are a major driver of growth for both EA and Microsoft. For EA in particular, a streaming service might boost profits significantly if it could avoid consoles altogether. Console makers get about 30% of the sale of each game made for their devices, according to

Brian Nowak

of

Morgan Stanley
.

But such services still face technical hurdles since streaming a fast-paced, high-definition game to millions of demanding gamers leaves no margin for error. Furthermore, new forms of media distribution don’t completely eliminate old ones. Netflix is still mailing DVDs, and the music industry last year generated $1.1 billion selling compact discs. That means game makers who embrace streaming will still likely have to keep serving older formats for some time.

Streaming will most certainly add an attractive new level to the videogame business. But investors should expect only trickle for now.

Write to Dan Gallagher at dan.gallagher@wsj.com