Is it game over for the console?

Don't think about upgrading your Xbox or Wii just yet. The trend for downloading and streaming is turning the industry on its head – and could spell the end for expensive kit

It used to be the most exciting event in the gaming calendar – the launch of a new console. Gamers would get ready for marathon, all-night queues to be the first to get their hands on the new hardware; industry commentators would rub their hands with glee at the thought of the opportunities to hold forth about the latest offering and games developers had a new platform with which to showcase their titles.

But something odd is happening in the world of video games systems – nobody wants to release new ones anymore. Sony says the third in its PlayStation family – of which we typically see one every six years - is "future proof". The firm has a 10-year lifespan mapped out for the system.

Xbox 360 – the first device to market in the latest "generation" of consoles, back in November, 2006 – has been available in Europe for more than four years, with its manufacturer Microsoft promising that its finest moments are still to come. Its predecessor managed just three years, eight months before being replaced by its powerful younger brother. While Nintendo is tight-lipped about plans for a new Wii console, it gave its existing machine a shot in the arm last year with a super-sensitive controller.

For the first time in video games history, online system updates and cutting-edge accessories are allowing these companies to refresh their systems in new ways – and extend their lifespan way beyond that of their ancestors.

"It makes business sense," explains Wedbush Securities' games industry analyst Michael Pachter. "It's not appealing to companies to introduce new consoles, because they lose so much money on manufacturing new technology. The longer they can keep old hardware relevant, the longer their opportunity to sell more software – where they really make their money."

Microsoft's Project Natal is a prime example of a platform holder rejuvenating their offering through this sort of approach. The motion-sensing camera peripheral looks set to revolutionise the industry when it launches next winter, and joins a host of recent software updates on 360 – including the additions of Sky TV, Facebook and Twitter to online service Xbox Live.

"I certainly think these innovations change the console that you originally bought into a new console to an extent," says Xbox UK senior director Neil Thompson. "They enable consoles to go on longer and ensure that the Xbox 360 is a vibrant platform for many years to come."

But this long-term approach may prove a risky strategy. A new range of game-playing devices will arrive next year from upstarts who believe they have sussed how to topple the console market's current giants: streaming technology.

If you've used YouTube, Spotify or even Google, you've already taken your first step into streaming or "cloud"-based entertainment. The idea is simple: instead of your game, music or TV programme being hosted on a disc or your console, it is played on huge servers based elsewhere in the world, and transmitted back to your home via your broadband connection.

Not that you'd notice. As with BBC iPlayer – another "cloud" service – consumers are supposed to see no difference between their traditional consumption of entertainment and this brave new world.

The most-fancied of these renegade games streaming companies is the California-based OnLive, which is set to launch its service in January or February 2010. Because of the remote nature of where the game data is handled (in this case giant servers on the West Coast of the US) the company says fans will be able to play even the most technologically-demanding titles via their PC, Mac – or even their mobile phone.

Gamers will also be able to purchase OnLive's own Micro Console to access the service – which has been tentatively backed by major publishers such as EA, Ubisoft and Warner Bros. This cheap device merely acts as a conduit – instantaneously channelling the data sent from the firm's servers into our TVs.

One of OnLive's great advantages over the traditional console is that it never need ask its consumers to buy a new box to keep up with technology – just improve its own servers.

"We very much believe that OnLive marks the beginning of a new era in entertainment," says OnLive founder and CEO Steve Perlman.

"One of the awesome things about a cloud-based technology is it gives us enormous flexibility to continue to tune and refine the system – not just during development, but on an ongoing basis. We think you'll enjoy using a service that gets better without requiring updates or upgrading hardware."

Despite the great success game makers have enjoyed on Xbox and PlayStation, the streaming concept wipes out many of their current bugbears: piracy, packaging and distribution costs and the second-hand boxed games market.

Indeed, Yoichi Wada, the CEO of Final Fantasy publisher Square Enix, told the games business magazine MCV in November: "In the past, the platform was hardware, but it has switched to the network. A time will come when the hardware isn't even needed anymore. Any kind of terminal can become a platform to play a game."

Perlman adds: "The current quandary the video game industry faces was foreshadowed by the movie business: skyrocketing production costs, a narrow distribution pipeline and static retail prices. Movies got bigger and more expensive, but ticket prices and the methods of delivery did not evolve along with the costs. Game publishers now find themselves in a similar situation."

Another rising games streaming business, Gaikai, takes a different approach, asking gamers to enjoy its cloud system via their PC's internet browser. This is good news for gamers sick of having to upgrade their 3D card and processor every time a state-of-the-art title is released.

"Everywhere an online casual Flash game could exist today, for the same click we can deliver any professional 3D title," says Gaikai founder Dave Perry. "We provide the publisher with a lever they can pull to instantly place their game on websites all over the internet. Compared to today's retail business, in the time it takes to open the shrink wrap, you are already playing the game on Gaikai. Maybe I'm just impatient, but with this kind of service I'm going to check out a lot more games."

It's not quite time to sound the death knell for the traditional console though. There is still a question mark hanging over these box-free services – latency.

If you were wondering, the reason it's taken video games this long to catch up with the likes of BBC iPlayer is because they are much larger and more complex than TV shows or movies. This makes them more difficult to broadcast to millions of homes at once without some delay. Both OnLive and Gaikai say that they are certain they have conquered this, but others in the industry aren't convinced – not least the newcomers' traditional console rivals.

"There's limited technology to allow certain game types to be streamed," says Xbox's Neil Thompson. "There are lots of 'snacking' games online on our own Xbox Live Arcade today – and I think that area will grow in time. But there's a way to go for a full capacity game to be streamed and for that experience to be as rich [as it is on disc] today. It will probably happen. But it's not as close as lot of people would have you believe."

Pachter agrees that streaming doesn't spell extinction for traditional consoles – and says a different kind of technological advance could prove more important. "I think there will be another generation of consoles, and I expect they will include some type of holographic or true three-dimensional display capability," he predicts.

"Those cannot arrive until we see 3-D television displays as the norm, and likely not for at least five years. And the next generation of consoles are likely to still be fitted with disc drives. It is risky to presume that consumers will embrace a technology that only requires digital downloads or streaming."

He cites Sony's disc-less hand-held console, PSP Go, as an example of a risky bet. The system, which launched in October, has failed to win over a public not willing to discard physical games collections for the latest gadget.

Although publicly ignorant of the threat of streaming games, however, the current champs of the hardware market certainly seem aware they are going to have to get involved sooner rather than later. Sony secured the trademark for "PS Cloud" in March – and Thompson hints the next Xbox could feature the technology. "Whatever happens in the future, we'll be in the mix and active participants," he claims.

The bad news? When these firms do get "in the mix" of streaming games, it will mean players the world over are likely to be stuck with a graveyard of old consoles left behind by expensive innovations.

Blue sky thinking: New players in games

OnLive

Founded by ex-Quicktime exec Steve Perlman, OnLive promises that its subscribers will be able to play all the latest titles when it launches this year. Games start up instantly on PCs, Macs and mobile phones – as well as TVs – via the firm's Micro Console. OnLive promises that its consumers never again need struggle with downloads, patches, software updates or high-end hardware.

Gaikai

Unlike OnLive, Gaikai doesn't ask PC users to download an application to reach its games, but rather offers them the chance to play through their internet browser. The company has nicknamed its service "Streaming Worlds" and says the games it offers will feature "full resolution, full speed, stereo sound, low lag and no compromise". It is aiming for launch in the first three months of 2010.

Playcast

This service from an Israel-based company allows games to be played live via the set-top boxes of on-demand TV providers such as BT and Virgin Media. The streaming service is due to launch in the UK in the second half of 2010.

Zeebo

The first digital-only console to be announced, back in March. Although not based on cloud technology, the system (which is about the size of a Nintendo Wii) does not accept discs, as all content is distributed digitally or wirelessly. It was designed by creator Qualcomm to help defeat piracy in emerging markets such as Brazil, Mexico and India. There are currently no plans to launch the device in the UK.