Can Microsoft Build The Netflix Of Gaming?

Microsoft Corporation MSFT is thought to be developing a new streaming service for games and apps.

Code-named "Arcadia," the service would be separate from Xbox Live but would likely work with Microsoft's existing slate of gaming platforms. If it's anything like Sony Corp's SNE streaming game service, PlayStation Now, Microsoft could also stream Arcadia across a wide range of generic devices, such as tablets and TVs.

"It's not a matter of if [Microsoft will do it], it's a matter of when," Patrick Moorhead, president and principal analyst at Moor Insights & Strategy, told Benzinga. "The technology has improved to the point where you're able to take latency out of the strain. At the same time, as the years go on, Internet speeds go up, and latency goes down there."

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Sony's Two-Year Head Start

Game developers typically have an advantage if they develop and launch a new product or service before the competition. This has not been the case with streaming technology.

Several companies (such as OnLive) have tried and failed to stream video games to consumers. Regardless, Sony hoped to defy the odds and launch its own service.

This effort includes at least two years of development and the $380 million acquisition of Gaikai, a company that developed streaming technology that was used for PC demos. Gaikai was expected to stream full games but was acquired before it had the chance.

Sean Udall, CIO of Quantum Trading Strategies and author of The TechStrat Report, called it a "tough business" but noted its economic potential.

"If they can get that to work, it's a very sticky revenue base," Udall told Benzinga. "That would definitely be a better business model if they can get that to work."

Sony continues to upgrade its streaming game project, which is officially known as PlayStation Now. However, the service does not yet offer all-you-can-eat gaming for one monthly fee. Sony has chosen to price each game individually, prompting numerous complaints from bloggers.

Disclosure: At the time of this writing, Louis Bedigian had no position in the equities mentioned in this report.