As for home consoles, the over-$500 range is on the high side. The 120GB PlayStation 3 is currently retailing for under $300, and the 250GB model under $400. Sure, the PS3 cost more when it debuted, but then again, Sony wasn't attempting to create a new paradigm for game publishing either.
Changing the paradigm for game publishing is exactly what OnLive is striving to do. Streaming a lag-free experience is the technical challenge, which OnLive's creators claim they've solved. I believe them. It was only a matter of time before some company figured out how to do this, even with the current state of Internet broadband penetration.
I'm willing to accept that the streamed game experience will match a home-console playing experience in terms of lag well enough. But truly changing the paradigm will require providing a clear financial benefit to the consumer. This is because consumers have to give things up to buy into the OnLive concept:
- Consumers no longer own the physical media for games they've purchased. For the consumer, buying streamed game experiences isn't the same as buying and having the games. If their game library stays with the platform company, what happens if the company goes out of business? If Nintendo or Sony were to go out of business right now, at least Wii and Playstation owners could continue playing the games they've bought on their home consoles.
- Consumers no longer control the game delivery. There's going to be that one day you want to play, and your access to the network is out for whatever reason. With a home console, the only thing that stops you is a power outage.
- Consumers no longer can purchase games second-hand. I appreciate that for game publishers the existence of GameStop peels profits away, and that problem only gets bigger with ever-increasing costs of game development. However, we're talking about the consumer here, and buying an older (or newer!) game second-hand for cheap is a clear consumer benefit and something given up in an OnLive world.
For that matter, what about giving a game to your friend once you're done playing it? This goes back to there being power for the consumer in owning the physical media - power that they must willingly give up to buy into the new paradigm.
So OnLive sells the platform/service for $540 over the course of three years. That seems high, but if the games were then sold for say $30 instead of $60, then suddently there is a significant incentive for the consumer to adopt the platform. Or, say that $540 platform came with a number of free games? Or better yet, for that flat monthly rate, you can play any game in the library?
OnLive is testing these waters too. It didn't take long after the original service cost announcement for OnLive to announce a secondary "Game Portal" option - for consumers who would be "looking for direct access to OnLive games without being required to subscribe to the features of the full OnLive Game Service". It seems this is their answer - to provide the platform for free, but without a number of features. I suppose it just depends what features are no longer available.
I think enough consumers are willing to move to a new streaming paradigm to make it viable. Given the control and consumer power they are being asked to give up in the shift, the consumer cost needs to be better-than-competitive.