One more game device (but this one's tiny)

With Microsoft's Xbox 360, Nintendo's Wii and Sony's PlayStation 3 duking it out for dominance of the video game console market, can there possibly be any room for yet another machine?

Steve Perlman, a well-known Silicon Valley inventor and entrepreneur, thinks there is. His strategy is to make a game system without game discs.

His OnLive game service works by keeping all of its games in the cloud. Consumers can stream the games to their PCs after installing a browser plug-in. Starting in December, users will be able to stream games to their televisions using a $99 box not much bigger than a cigarette package that taps a high-speed Internet connection, the company said two weeks ago.

OnLive faces considerable obstacles. Working against it are an initially limited inventory of games, a well-established console business run by corporations with deep pockets and a resistance among consumers to add one more box to their home entertainment systems.

"Being tied to physical media is gradually dying away," Mr. Perlman said. "With OnLive, you can't copy a game. This is piracy-free delivery for publishers."

But Mr. Perlman, who was the head of the group that created Apple's QuickTime video compression software and the developer of what would become Microsoft's WebTV product, says he has some advantages.

A proprietary compression technology developed by OnLive shrinks the size of the game programs during transmission, which allows the games to stream quickly and still play in full high-definition resolution, Mr. Perlman said. The technology eliminates the stuttering, stalling or lowered resolution all too typical of users' experiences when they try to stream a movie to a TV or PC.

"The low latency of the video compression scheme makes a game look like it's appearing instantaneously," Mr. Perlman said.

The box costs so little to make that "we could give it away," Mr. Perlman said in a talk last year at Columbia. Indeed, he envisions TV makers incorporating his software right into their sets. As all games are held at the company's data centers the service can be upgraded without the need for the consumer to buy new hardware.

Mr. Perlman, who was also behind the fabled Silicon Valley start-ups General Magic, Moxi and Rearden Steel, has attracted investments from an unusual set of powerful companies, including AT&T, British Telecom, Time Warner and Autodesk.

But his company still needs to prove itself with consumers. Since the service began in earnest in June, about two million gaming sessions have been logged, but Mr. Perlman would not say how many users the service has. OnLive hopes to attract gamers with titles like Borderlands, Mafia II and Shaun White Skateboarding. Coming titles include Assassin's Creed: Brotherhood, Red Faction: Armageddon, and Duke Nukem Forever. The company hopes to expand its offerings from 35 titles today to 50 by Christmas, with some available on the same day the disc is first sold for other consoles.

Consumers can preview a game free -- "the publishers compensate us for that," Mr. Perlman said -- rent it for a few days or buy the right to use it for at least three years. Beginning next month, OnLive will offer a flat-rate plan similar to that used by Netflix.

Because games are streamed, the prices for owning them will be typically $10 less than the cost of a physical disc of the same game, Mr. Perlman said.

The $99 TV interface box comes with a game controller. Players can also use a standard U.S.B. keyboard or mouse to control games.

The company's video game offerings may only be a stalking horse in an effort to offer other revenue-generating cloud-based services. "I think that there is a huge potential for many other value-added services, such as videoconferencing, secure computing and Internet TV," said Michael Pachter, an analyst with Wedbush Morgan, which may explain the interest of its equity partners.

While OnLive will initially attract those who do not own a console game system, Mr. Pachter said that it was important for the service to begin now, before the next round of console upgrades from Microsoft, Nintendo and Sony.

"These guys have a first mover advantage, much like Netflix has," Mr. Pachter said. "We'll see if they can sustain the advantage."