Gaming Goes to the Cloud

A new video game company is aiming to challenge the big three console makers by providing a “cloud-based” gaming system promising on-demand access to games and no lag time.

The fledging company, called OnLive, said its service will allow users to play games on any TV and nearly any personal computer — even stripped-down netbooks and PCs without graphics processors.

A console slightly larger than an iPhone connects TVs and broadband connections to the OnLive service, and is operated via a wireless controller. OnLive delivers games run on servers in the “cloud,” rather than locally on a PC or a console.

OnLive, which has been in development for seven years, has deals in place with 10 publishers to provide new game titles when they hit the shelves. Heavyweights such as Electronic Arts, Ubisoft, Take Two, and THQ have signed on.

“When you want to play a game, you just click a button and it plays instantly,” said Steve Perlman, OnLive’s founder and chief executive. “It’s that simple.”

Perlman is a well-known Silicon Valley entrepreneur who helped launch WebTV, which Microsoft (NASDAQ: MSFT) bought in 1997.

He said OnLive allows complex and graphically rich games to play with outstanding performance on even low-end PCs or Macs.

The company expects to launch its service in winter. Although OnLive did not release details on pricing, it will follow a subscription model and Perlman said it will be “significantly” cheaper than consoles.

Nintendo’s Wii, Microsoft’s Xbox 360 and Sony’s (NYSE: SNE) PlayStation 3 consoles can cost anywhere from $200 to $400.

OnLive was formally launched Tuesday at the Game Developers Conference in San Francisco. Its innovation rests in its video compression technology, which instantly streams video down through the Internet so that it appears “effectively instantaneously,” Perlman said.

“Perceptually, it appears the game is playing locally.”

OnLive, which was spun out of technology incubator Rearden, is headquartered in Palo Alto, Calif. Its investors include Time Warner’s Warner Bros., Autodesk and Maverick Capital.