Industry trackers say streaming game service could be "the beginning of the end" for GameStop, is already "stealing the show."
SAN FRANCISCO--The Nintendo keynote announcement of a new Zelda game for the DS this morning may have gamers buzzing, but for industry analysts, the biggest news out of the 2009 Game Developers Conference has been the announcement of the OnLive streaming game service. Analysts walked away from a Tuesday night press conference for the new service pondering the long-term impact it could have on digital distribution, console sales, and game retailers

This morning, Wedbush Morgan Securities' Michael Pachter sent investors a note on GameStop bearing the dire title, "The Beginning of the End." While the actual content of the note was a little more reserved in its prediction, Pachter said OnLive could accelerate the industry's shift to digital distribution.
"In our view, the OnLive model will appeal immensely to publishers, who will likely derive greater revenue per sale than is derived through conventional retail distribution," Pachter said. "Instead of 20 percent of the game's purchase price going to retail and another 20 percent to the console manufacturer, OnLive will likely charge around 30 percent (our estimate) of the proceeds, with the balance going to the publisher."
Pachter said the success of digital distribution could undermine sales of new retail games and used games, thus providing a long-term threat to GameStop, which specializes in both markets.
In his own note, Signal Hill analyst Todd Greenwald told investors that OnLive is "stealing the show" at GDC 2009. Beyond the appeal to publishers and danger to the used-game market, Greenwald noted that OnLive's streaming would eliminate the need for console cycles entirely, since any hardware upgrades would happen beyond the consumer level.
"While there are still many details still unknown (pricing, launch date, retail distribution), this has the potential to be a game-changer," Greenwald said. "In our opinion, OnLive needs to launch with a big marketing campaign, to ensure that this becomes more than a niche product and caters to more than just the hardcore gamers and tech-savvy early adopters."
He added, "While this won't happen overnight, we think that the 'long-term threat' of digital distribution just got accelerated meaningfully."