Did CES Just Kill the Old Video Game Console?

PORTLAND, Ore. (TheStreet) -- The gaming console as we know it just went on deathwatch.

During the 2013 Consumer Electronics Expo, we predicted that physical games would be in serious trouble thanks largely to devices such as the NVIDIA Shield, which gave users a way to play full-bodied console games from cloud-based services such as Valve's Steam without using a PC or a big console that had to read discs. By the time the Electronic Entertainment Expo rolled around last summer, Microsoft and Sony placed streaming and downloaded games at the center of their Xbox One and Playstation 4 consoles while giving disc-based games enough lip service to briefly postpone their demise.

On Monday, Valve just kind of giggled at that response. After consumers around the world spent this holiday season buying up more than 4 million PS4 consoles at $399 a pop, 3 million Xbox One systems for $499 and enough Nintendo Wii U decks at $250 to $330 apiece to bring total sales to more than 5 million, Valve just announced partnerships with third-party developers that could either send console prices plummeting or, just as frightening, eliminate the need for new consoles altogether.

Sony responded by introducing its Playstation Now streaming service through recently acquired streaming company Gaikai. Gamers will still need a PS4 to play that console's games, but Kotaku says they can now stream games for the Playstation 1, 2 or 3 onto Bravia televisions, Playstation Vita handhelds and on tablets and smartphones. It just made casual gamers aware of something PC gamers from Steam users to Nintendo Entertainment System ROM players have known for quite some time: The console isn't a necessity. 

Valve's all too aware of that. After spending a year doing a trial run of its so-called Steam Machines program with 300 beta testers on first-party consoles, Valve let it slip to Engadget just before CES 2014 that a whopping 14 companies would be producing machines designed primarily to play games through its Steam streaming service. Those names include iBuyPower, Digital Storm, Alienware, Falcon Northwest, iBuyPower, CyberPowerPC, Origin PC, Gigabyte, Materiel.net, Webhallen, Alternate, Next, Zotac and Scan Computers.

That is by no means a small deal. For any non-gamers out there or for folks who've just never heard of Valve or Steam before, Valve's Steam basically is PC cloud gaming. It has more than 3,000 games in its online library, cloud storage for all of them and a whole lot of multiplayer functions that not only put them on par with Playstation Network and Xbox Live, but popular enough to account for more than three-quarters of all PC game downloads.

It also has huge third-party support from developers. Looking for Activision's Call of Duty: Ghosts? It's there. If you're looking for any installment of Rockstar Games' Grand Theft Auto series -- except Grand Theft Auto 5, which doesn't hit Steam until later this year -- they're included too. Want a remastered version of Capcom's Duck Tales game for the Nintendo Entertainment System? You've got it.

It's a playground for folks who've spent hours playing the Portal, Half Life or BioShock series, but also for the developers and would-be game-makers who use the modeling and design software Steam offers to make worlds of their own. Steam's potential was already great when it was largely the domain of dedicated, multi-day, multi-screen, multiplayer gamers using multi-thousand-dollar equipment to access it. Now that it's coming to tiny living room boxes courtesy of more than a dozen hardware developers -- and perhaps even more, as Valve has suggested -- all that spending and Frankenstein building won't be necessary if a gamer wants access to high-powered PC games.

In some ways, this presents a huge problem for Sony, Microsoft and Nintendo. With big, tentpole franchises including the Call of Duty and Grand Theft Auto series and their downloadable extra content available readily through Steam on machines that are just as plug-and-play as standard consoles, casual gamers could be swayed. Also, if Steam consoles are built with enough power and capacity, they won't have to be updated with another console offering the way the various iterations of the Playstation, Xbox and Wii were. Sony took the first step toward mitigating the damage with Playstation Now, but Steam boxes can still change the home video game value proposition.

We've already seen examples of the low and high ends of the Steam Machine spectrum. CyberPowerPC's version starts at $499 for a base model -- which puts it on par with the Xbox One -- and would handle the current generation of games just fine. There's a small question of functional obsolescence, which the company addresses by offering a $699 version and other customizable features that can extend its life for years to come.

DigitalStorm, ever the high-end gamer's PC, misses the mark entirely with a starting price of $1,899 for what is basically a high-powered tower with Steam's operating system and a controller. Granted, you can trick it out with enough brawn to make the Playstation 4 look like an original Roku box, but this doesn't exactly have the casual gamer in its sights.

Just moving the high-powered gaming computer into a living room setting is a feat within itself. For it to be anything beyond a simple convenience for hard-core gamers, however, it's going to have to convince U.S. buyers it's worth the price despite costing roughly the same, at best, as existing consoles. They're also going to have to overcome the allure of exclusive content, such as Microsoft's Halo, Playstation's Gran Turismo, Electronic Arts' Madden NFL (which isn't available through Steam) and every Nintendo title featuring Mario, Link or Samus.

Price could do that, and it remains to be seen if one of these partners will offer a low-priced, underpowered Steam console that could undercut the Xbox One, PS4 and Wii U. A $150 to $200 device that simply plays the majority of Steam's current titles through the next generation and offers a few other basic applications to offset other consoles' apps and offerings could find success.

That would likely make Steam fan furious, since it basically undercuts the core purpose of PC gaming: to continue building an evolving ecosystem that's continually getting faster and smarter. Customization and construction are key and base cost just isn't. That's the antithesis of console gaming, which allows hardware and operating systems to linger for the better part of the decade and doesn't demand that the user do anything about it besides buy a new console when the old one's time is up.

The beauty of this existential crisis for Valve is that it doesn't have to do a thing about it. With everyone else in charge of the hardware and Valve already doing all it can to make Steam work on bigger screens, it's up to hardware makers to decide which route they're going to take. If they're able to present significant value to the casual consumer within the next year -- and if Valve is able to avoid having the Big Three console makers shut it out through exclusivity deals -- they can alter the gaming landscape irreparably.

It might chafe PC gamers, who'll suddenly be overrun by the unvetted rabble, but it will give all gamers more choices for playing and fewer reasons to hook themselves to any one company's controller. 

-- Written by Jason Notte in Portland, Ore.

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Jason Notte is a reporter for TheStreet. His writing has appeared in The New York Times, The Huffington Post, Esquire.com, Time Out New York, the Boston Herald, the Boston Phoenix, the Metro newspaper and the Colorado Springs Independent. He previously served as the political and global affairs editor for Metro U.S., layout editor for Boston Now, assistant news editor for the Herald News of West Paterson, N.J., editor of Go Out! Magazine in Hoboken, N.J., and copy editor and lifestyle editor at the Jersey Journal in Jersey City, N.J.

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