Commentary by Rich Jaroslovsky
Jan. 7 (Bloomberg) -- Imagine playing video games on an Xbox 360 or PlayStation 3 console attached to your flat-screen TV, with a stack of game disks next to it.
Now take away the console, and the disks, and you’ll begin to get the idea behind OnLive, a new online service that does with high-end video games what Netflix Inc. is doing with movies:
stream them over the Internet straight to your screen, in this case via a palm-sized adapter that plugs into the TV and your home network.
When OnLive’s technology was first demonstrated in public, it was greeted with a wave of skepticism. “Can’t possibly work,” one gaming website concluded in 2009. I’ve been using it for several weeks now, and it’s clear that the skeptics were wrong. It does work, and -- with a few important limitations and caveats -- it works well.
This is disruptive, maybe even revolutionary, technology that has the potential to upend the multibillion-dollar game industry. Consoles like Microsoft Corp.’s Xbox 360 and Sony Corp.’s PlayStation 3 take years to develop, require a lot of computing horsepower and cost hundreds of dollars. The OnLive Game System has none of that overhead. It costs $99, and includes the adapter, a wireless handheld controller and one game.
OnLive games tend to cost less than Xbox and PlayStation versions. You can rent them for shorter periods at less cost, or try out new titles for free. Of course, you’re not actually buying or renting the physical game; you’re paying for the rights to play it in the cloud, on OnLive’s remote servers. This month, the service will also introduce a Netflix-like all-you- can-play plan for $9.99 a month for a selection of its titles.

A Few Wrinkles

Setting up the system isn’t complicated, but it does have a few wrinkles. The microconsole, as OnLive calls the adapter, plugs into an electrical outlet, and into one of the high- definition HDMI ports on your television. (A cable is available at extra cost for your TV if it doesn’t have HDMI.)
Then comes one of those wrinkles: The adapter doesn’t work over Wi-Fi, requiring instead a hard-wired Internet connection.
This isn’t a problem if your TV is located near your router, or your home has built-in Ethernet. If not, you’ll have to come up with some other solution, such as using a set of powerline adapters for transmitting a signal over electrical wiring, or a wireless bridge that provides a Wi-Fi-to-wired connection.
Either way, it’s additional expense and hassle that will make you long for a Wi-Fi version of the adapter.

‘Arkham Asylum’

While OnLive’s library is growing, it’s still limited to about 50 titles. You won’t find newly released games like Activision Blizzard Inc.’s “Call of Duty: Black Ops” here; indeed, Activision so far hasn’t made any of its titles available for OnLive, nor are there currently games from Electronic Arts Inc. But you’ll find plenty of other recent hits from major publishers: “NBA 2K11” from Take-Two Interactive Software Inc., for example, and Time Warner Inc.’s “Batman:
Arkham Asylum.”
The critical question for users, of course, is how well OnLive works. Games, with their visual richness and need for rapid responsiveness, demand a lot of computing power, and OnLive by and large delivers. Gameplay was swift and stutter- free over my speedy cable Internet connection, and if the graphics aren’t always quite up to Xbox or PlayStation standards, the differences are all but invisible unless you’re paying close attention.
And because OnLive is a service and not just a gadget, it offers some features that console-based gaming can’t -- for instance, the ability to start a game on your TV, then log in from a PC or Mac and, using a Web browser, pick up where you left off. If your computer’s Internet connection is fast enough, you’re able to play even sophisticated games on not-very- powerful hardware.

Cheers and Jeers

OnLive also offers the ability to create “brag clips” of, for example, a particularly ruthless hit in Ubisoft Entertainment SA’s “Assassin’s Creed II,” and share them with other OnLive users. And there’s even a mode called “Arena”
that lets you watch someone else’s game session in real time, registering digital cheers or jeers at their performance. An available app lets you view others’ sessions on Apple Inc.’s iPad, though you currently can’t play yourself.
Like Netflix, OnLive may eventually be built into other gadgets; the company, whose investors include Autodesk Inc., AT&T Inc., BT Group Plc, Time Warner and Maverick Capital, this week announced its first deal to put the service onto TVs and mobile devices from Vizio Inc. sometime later this year. And it says its technology may be used in the future to deliver other sorts of services -- movies, for example, and the ability to run high-end software on low-end computers.
OnLive has answered the biggest question: It’s for real.
But the Palo Alto, California-based company still needs to build out the service, get more publishers on board and get that Wi-Fi issue taken care of before it’s really cloud nine for gamers.

(Rich Jaroslovsky is a Bloomberg News columnist. The opinions expressed are his own.)