A new video game service debuting this week at the Game Developer's Conference in San Francisco promises to make good on a concept long-envisioned (as well as tried and failed): a subscription, on demand game service playable from any low-cost no frills computer. The secret to OnLive's special sauce is its video compression algorithm, which reportedly makes decompression low-cost enough to be handled by a 1 MB plug-in for a standard web browser and achieves round trip packet times much shorter compared to other Internet traffic. A broadband connection of only 1.5 Mbs is required to achieve Nintendo Wii-like video quality levels — most U.S. households have at least 2 Mbs connections — with a 4-5 Mbs pipe required for 720p resolution display either to your Mac or PC or to your TV via a small piece of hardware OnLive is calling its micro console (pictured above). The micro console handles all video decoding duties without even requiring its own GPU, outputs video and audio via HDMI, connects up to 4 controllers or other Bluetooth devices wirelessly, or a keyboard and mouse via two USB ports.

The OnLive service is slated to launch this winter, with pricing available in multiple tiers, at least one of which will be comparable to Xbox Live. The micro console will be priced more cheaply than a Nintendo Wii or even possibly come free with a subscription. If the service delivers a lag-free experience to multiplayer gamers as promised — and that's the big "if" because even with demo and beta users reporting smooth performance playing the current big daddy of graphics performance Crysis, it's just not the same as scaling up to hundreds of thousands or millions of users — OnLive could have huge implications for the games industry. It could help break up a brutal obsolescence cycle for consumers of both PCs and consoles, help solve a nagging piracy problem for PC game publishers, and raise profits for developers and publishers alike by cutting the retail middleman out of the equation. Subscribers could enjoy platform agnostic gaming without the cumbersome download times of current digital distribution methods like Valve's Steam. With a number of big name publishers on board as partners already including EA, THQ, Codemasters, Ubisoft, Atari, Warner Bros., Take-Two, and Epic Games, it seems that the existing industry is sufficiently convinced that OnLive might actually deliver.

More screenshots of the service's user interface are after the break.

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