This company wants to compete with Sony in the video game streaming market

June 2, 2015, 9:50 PM UTC
Courtesy of GameFly

Video game rental company GameFly is following Netflix’s example and entering the cloud-based streaming business. GameFly just acquired cloud gaming company Playcast Media Systems and has started streaming games to Amazon Fire TV, pitting itself against Sony’s PlayStation Now game streaming service.

According to Michael Pachter, analyst at Wedbush Securities, GameFly has maintained about 1 million subscribers for quite some time. The company charges a $23 monthly subscription and allows U.S. gamers to rent two console games at a time for as long as they want by mailing the discs to and from their homes, similar to Netflix.

Playcast also has a pre-existing deal to stream games to Samsung Smart TVs. The deals with Amazon (AMZN) and Samsung (SSNLF) open up a global marketplace for GameFly to stream to, something the company could never accomplish with its original disc-based business model because of the complexities of international mail service.

“Amazon has some deals in Europe with telecom and cable providers and we’ll significantly expand distribution to MSOs, telcos, and streaming media players because we want to make the service available to gamers in every format around the world,” GameFly CEO Dave Hodess says. “We’ve had a good business in the U.S. for a long period of time and cloud gaming has made it much easier to scale globally.”

“Our technology and gameplay experience stacks up well to what Sony has to offer,” Hodess says. “We’re excited to compete against Sony. It’s a big market and we don’t see why both of us can’t be successful.”

Sony (SNE) bought game streaming company Gaikai for $380 million in July 2012, and bought game streaming company OnLive in April 2015. Sony has rolled that technology into its PlayStation Now streaming service, which is available on PlayStation consoles as well as Sony Bravio TVs and Blu-ray players. Hodess says the assortment of GameFly streaming games will be different and will have much lower price points than PlayStation Now.

Hodess believes in order to get good distribution worldwide there needs to be more than one provider out there. He adds that to date, publishers have shown a willingness to work with both Sony and GameFly, which will help grow the streaming games market.

Streaming as a business model is becoming increasingly viable due to widespread connected devices and access to broadband Internet. According to the U.S. Census nearly 80 percent of Americans now have access to high speed broadband. According to eMarketer, 138.8 million U.S. Internet users will access the Internet via connected TV at least once a month this year. By 2017 NPD forecasts there will be more than 200 million total streaming equipped devices in households.

There remain challenges for both Sony and GameFly, according to Pachter. Streaming services are going to have trouble attracting current games. GameFly’s current mail order disc-based model is possible under the first sale doctrine (it buys game discs and rents them). But in order to have a streaming service, the publisher has to be cut in.

“Publishers think all of their games are worth $60 for a year or so, then $40, then $20, and few will agree to unlimited use for only a couple of bucks,” Pachter says. “That’s the problem with PlayStation Now, and I think it will be a similar problem with the GameFly service. Neither is likely to attract a lot of great content without paying up, and neither can succeed if the subscription cost is too high.”


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