New Mobile Technology Set to Redefine Gaming

CES reveals breakthroughs that eliminate the need for a central console.

LAS VEGAS -- At the 2011 Consumer Electronics Show, Jen-Hsun Huang, president and CEO of NVIDIA, said the technology industry will look back at this year's show as the beginning of a new mobile computer revolution. But video game companies like Sony, Microsoft and Nintendo may remember this year's show as the beginning of the end to traditional video game consoles and portables.

The game industry is being hit on multiple fronts by new technology that is eliminating the need for a central console. Cloud computing start-ups OnLive and Gaikai are now streaming PC games straight from a server, or cloud, to an array of devices. This allows game publishers to bypass retail and deliver top games like 2K Games' Mafia II, and Warner Bros. Interactive Entertainment's Batman: Arkham Asylum and LEGO's Harry Potter: Years 1-4 for purchase, rental or subscription. Both companies were in Vegas for business meetings and press demonstrations.

In addition to PCs, Macs and Android devices, OnLive will be available on Vizio VIA Plus HDTVs and Blu-ray players, as well as the VIA tablet and VIA smartphone later this year. The company is expected to expand this offering to other major consumer electronics brands moving forward, opening its current catalog of 50 games to a larger audience. OnLive offers PlayPass game purchases and rentals ranging from $2.99 to $9.99, as well as the recently announced $9.99 per month, all-you-can-play plan called a PlayPack.

"The game industry has seen Zynga's Farmville on Facebook attract over 80 million gamers," said David Perry, CEO, Gaikai. "Our goal is to turn the top PC games into mainstream hits. The key to going from sales of 10 million copies to sales of 100 million copies is by bringing the games to the gamer across multiple devices."

Gaikai has deals with top game publishers like Electronic Arts and is currently in discussions with game makers, retailers and major websites. The company's business model allows players to try games for free online from any connected device and then purchase the game in full if they like it. The games are streamed to their PC, netbook or tablet device digitally.

"I think companies like OnLive will impact console sales for the next generation if they get a sufficiently large installed base and game library to be competitive before the next generation launches," said Michael Cai, video game analyst, Wedbush Morgan Securities. "That will be a close call, but every deal that they make to get embedded into devices will move them toward having a large enough installed base."

On the mobile front, portable gaming devices like Sony's PlayStation Portable (PSP) and the Nintendo DS and upcoming Nintendo 3DS will face stiff competition. Wireless carriers like T-Mobile, Verizon Wireless and Sprint, mobile headset companies like Motorola and Research In Motion, and consumer electronics companies like LG, Vizio, Toshiba, and computer manufacturer Asus all had new tablet device at CES that will offer high-definition video and advanced processing power perfect for video games. Many of the top smart phones and tablets run on the new NVIDIA Tegra 2 technology, which brings the graphics processing power of a PC from a few years ago to the mobile space.

"Both PSP and Nintendo DS are now based on aging technology that is several years old," said Rob Enderle, principal analyst, Enderle Group. "NVIDIA's Tegra chip is cutting edge and represents the substantial advancement that has occurred since the DS and PSP started shipping in their current forms."

Matt Wuebbling, director of product marketing for Tegra at NVIDIA, said the company's experience in the PC and console gaming market, as well as its relationships with game developers, will make gaming a key focal point for these new portable devices.

Of course, Sony, Microsoft and Nintendo aren't going to just concede their gaming market share. Microsoft has had recent success with its Kinect for Xbox 360, selling over 8 million units worldwide last year. And Microsoft announced more interoperability between Xbox, PC and its new Windows Phone 7 at CES, including the ability to stay connected to Xbox Live on the go.

Nintendo has over 36 million Wii consoles and 47 million Nintendo DS portables in the U.S. alone. The company will push autosteroscopic 3D with the launch of Nintendo 3DS on February 26 in Japan. And its innovation in motion-sensor controls has resulted in the entire games industry entering the arena.

Sony's PlayStation Network, the free online service for PlayStation 3, now has over 60 million registered users worldwide. Sony is capitalizing on that audience by offering games, movies (including 3D films) and music to this audience. Sony is also expected to debut a PlayStation Phone very soon.

"As is widely rumored with the Sony/Sony Ericsson PlayStation phone, we believe there are cross-hybrids of smartphones and portable gaming devices that will come to market," said Enderle.

Apple, which is expected to announce its iPad 2 very soon, is responsible for opening up games to mobile consumers through iPhone, iPod Touch and iPad. But Rajeev Chand, managing director and senior equity research analyst for wireless at Rutberg & Company, believes Apple will lose its current leadership position.

"It may take some time, and Apple will retain market leadership for the short-term, but we believe the new tablets from multiple disparate vendors and different price points will be a majority of the market," said Chand.

What makes console games stand out today, may soon become common in the mobile space. Companies like Omek Industries were showcasing controller-free, gesture-based technology similar to Kinect at CES that will be available for smart phones and tablet devices. In addition, autostereo (glasses free) technology was displayed on Tegra devices at the show.

"The studios I've spoken to agree that glasses free 3D is what will likely drive the big 3D wave and it will appear on small devices first," said Enderle.

After CES, the ball's in the console makers' court. And E3 in June should be the first opportunity to fire a returning salvo to CES.