Rumour: OnLive may be in trouble as well, Layoffs expected

OnLive is one of the few game streaming companies that can be labeled as competitors to Gakai, the service which Sony bought out recently. OnLive is based in the US and delivers streaming services for all the latest games from just about every publisher you can think of and delivers that content through your web browser.

Recently an e-mail leaked that hinted the company might be shutting down and laying off its staff. It was picked up by game developer Brian Fargo and he put it on his twitter account. As usual, one tweet was enough to set the entire internet ablaze and wetting itself with rumours that the company was indeed closing its doors. Interestingly, the e-mail also suggested that the company would shut down almost overnight, very similar to Kingdoms of Amalur developers 38 Studios, who dissolved in almost a week.

UPDATE: The e-mail leak is real and the company underwent a bit of restructuring. More info after the jump.

The original e-mail sent to Fargo read as follows:

“I wanted to send a note that by the end of the day today, OnLive as an entity will no longer exist. Unfortunately, my job and everyone else’s was included. A new company will be formed and the management of the company will be in contact with you about the current initiatives in place, including the titles that will remain on the service.

It has been an absolute pleasure working with you and I’m sure our path with cross again.”

Clearly, the Engrish is strong with this one. Aside from the spelling errors (this is copied verbatim) it does seem to be real. In the days since then, OnLive has said little to back up or deny the claim in its entirety, with the company’s Director of Corporate Communications, Brian Jaquet, stating to Tom’s Hardware that the company wasn’t shutting down.

“I have no comment on the news other than to say the OnLive service is not shutting down. I’m sorry I cannot be more specific.”

Kotaku, on the other hand, cites a source that says the company is actually filing for bankruptcy and doesn’t want the rest of the world to know just yet. Apparently, CEO Steve Perlman told staff that OnLive would be filing for ABC bankruptcy in the state of California, which would afford them a level of protection from creditors.

While Perlamn said no one would be employed by OnLive and the company as it stands would cease to exist, a small number of employes would go on to work at a newly formed company. This raises questions if the whole thing is accurate (I seriously doubt that it is) – who will run the OnLive service? Will customers still get the same level of service they’ve been receiving thus far? What about their subscriptions, will the company only stay online to allow these to run out? Will new subscribers be turned away? Questions, questions.

In the end though, if the rumors are true then it means that thousands and thousands of OnLive customers will be left without games to play. That means they might turn to other services – hey, maybe Gakai will step up to the plate?

UPDATE: It seems that the rumours were true after all. OnLive underwent a restructuring phase and the company was sold to another newly-created company, along with all the assets, attached IP and user license subscriptions. All OnLive employees have been retrenched but some have been given positions within the new company, with the rest of the staff not hired being asked to do consulting for the new company. OnLive will still trade under its usual name and no changes in the service should be apparent to the consumer.

The interesting part of this deal is that the previous OnLive exectutives don’t get a cent from this sale. In fact, any stock they previously owned is now worthless, since the assets applicable to OnLive were transferred to an assignee, who then sold it off to a newly-formed company that has yet to be named. Verbatim from OnLive’s Q&A on the subject:

Q. Is there any cash or stock in the new company provided for any OnLive, Inc. shares?

A. Unfortunately not. The nature of the transaction is such that only assets, not shares, were purchased. This is true for all shares of OnLive, Inc., whether held by investors, employees or executives.

Q. Did Steve Perlman receive stock or compensation in this transaction?

A. Like all shareholders, neither Steve nor any of his companies received any stock in the new company or compensation in this transaction at all. Steve is receiving no compensation whatsoever and most execs are receiving reduced compensation to allow the company to hire as many employees as possible within the current budget.

That means that if you owned a million Dollars in stock, you just lost it and the company has kept all the results of the work employees put into the service in the process of the changeover. In the US, legislation states that if a company closes doors, it’s liable to pay out any remaining compensations and bonuses to employees and stakeholders. OnLive worked around this by transferring only its assets  to the third-party who then sold it off, a legal loophole open to companies who want to avoid filing for bankruptcy at all costs. If any of the remaining employees from the original company tries to sue, there’d be nothing to gain from it – the original OnLive is now worthless.

It also means that the company avoids the debt repayments to investors normally required when a company closes shop, because the ownership of assets has changed. Its a neat workaround for those who benefit, but it gives the shorter end of the stick to the employees who now have to look for permanent work elsewhere. [Tom’s Hardware]

Source: Tom’s Hardware, Kotaku

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