OnLive Fires Employees, Sells off Assets to Form New OnLive 2.0 - The UpStream

For a while now we've been covering OnLive, the cloud gaming service. From their laggy beginnings to more recent mobile successes, things seemed to be heading on a steady upward path for the company. However, this week, it appears things have plummeted faster than anyone could have predicted. Rumors were circling early in the week that OnLive had actually fired somewhere between 150-200 of their employees out of the blue. Staff were sending in emails to reporters and posting all over the social media outlets about what was happening inside the company. Brian Jaquet, a company spokesperson, even released a few statements saying that the company "is not going out of business" and we shouldn't have anything to worry about. Perhaps the mass firing was a mistake by some crazy computer bug that was mad about the ending in Mass Effect 3 and just had to take it out on gaming developers.

What happened later in the week? Well, OnLive has gone on record to say that not only did they fire 200 employees, but the company has filed bankruptcy protection and been acquired by a newly-formed company, but told us to be assured that all systems are still go. Usually, all of those things lead to signs of disaster and people should be running for the exits. OnLive seems to think all of this could be a good thing. They said,

We can now confirm that the assets of OnLive, Inc. have been acquired into a newly-formed company and is backed by substantial funding, and which will continue to operate the OnLive Game and Desktop services, as well as support all of OnLive's apps and devices, as well as game, productivity and enterprise partnerships. The new company is hiring a large percentage of OnLive, Inc.'s staff across all departments and plans to continue to hire substantially more people, including additional OnLive employees. All previously announced products and services, including those in the works, will continue and there is no expected interruption of any OnLive services.

We apologize that we were unable to comment on this transaction until it completed, and were limited to reporting on news related to OnLive's businesses. Now that the transaction is complete, we are able to make this statement.

So what's going on now? Where does this actually leave OnLive? We've been keeping tabs on the happenings and things have been developing all week long. Fortunately for you, our loyal reader, we have the completely updated story, all in one place, after the break.

OnLive has officially filed an Assignment for the Benefit of Creditors (ABC, as it were), which is an alternative to filing for bankruptcy. For those who may not know, an ABC is a way for a company who is performing poorly to transfer all of their assets to a completely different company. That new company is then responsible for reaching out to the affected investors, in this case HTC, AT&T and Autodesk to name a few, to work out the best outcome for the money they've invested. Things can be done from simply eliminating unnecessary job positions (as we've already seen) to even dissolving the company completely and selling off all valuable assets. For OnLive, it appears the resolution was to create a new company and try again. At this time, we have been told that OnLive will remain in full service under the OnLive brand. All services like the OnLive Game and Desktop Services, Devices and Apps and all OnLive partnerships will continue to be completely operational. OnLive has not disclosed the price that this "newly-formed" company has put up for their acquired property and we do not know if CEO Steve Perlman will remain with OnLive.

What we do know, however, is that sources have reported this is all coming off the heels of low offers to buy the company from players like Sony and HP, even though we know Sony has already spent $380 million on Gaikai. Former employees have also said via social media that at recent peaks, no more than 1,800 people were using OnLive services and money was very tight as of late. It should be noted that not too long ago the company was valued at $1.8 billion.

We also know that an affiliate of Lauder Partners, an investment firm, has put some skin in the new OnLive company, after previously investing in the project in 2009. Through the ABC and the third party, OnLive was able to reach out to the former investor and convinced them to give it one more go. Under the terms of the filing, shares in the company and actual staff positions were unable to be transferred. However, OnLive has confirmed that nearly half of the employees were offered new jobs with the new company at the same pay scale. Employees who have not been offered to return to OnLive 2.0 will be asked to come back for "consulting jobs" and will be given stock options. After obtaining more capital, the new OnLive will look to bring on even more talent, both brand new and former staff.

Many think this was part of Perlman's motive to screw over all of OnLive's employees because of the lack of performance in the company. It was believed that the executive staff would be able to get back their equity in OnLive, but in the announcement of the ABC filing, we were told otherwise.

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.

Are you as confused as we were when we first got hold of all of this too? We understand. OnLive has issued a FAQ to go along with all of this madness. Read it below and if you wish, leave your comments and questions in our comments section at the bottom. Can OnLive 2.0 survive? Maybe, but drastic changes are going to have to happen to get more than 1.5 million subscribers paying to play on the platform. I don't think they can just pick up where they left off under new management.

Q. Will users see any change in the OnLive Game or Desktop Services? What about their purchases?

A. Users should see no change in the OnLive Game or Desktop Services. All of their purchases remain intact and available. OnLive has been up 24/7 since launch over two years ago and expects to remain so. OnLive has over 2.5 million subscribers, with an active base of over 1.5 million subscribers, connecting from a vast range of devices and networks, with many sessions running for hours. The user base is growing rapidly with OnLive's addition into recently announced devices and TVs from major manufacturers. We expect this growth to continue under the new company.

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.

Q. Did all OnLive, Inc. assets transfer into the new company? Are any assets held by any other party?

A. All of OnLive, Inc.'s assets (e.g. technology, patents, trademarks, etc.) were transferred to an assignee, which then sold the assets to the new company. There was no transfer to any other party.

Q. Have OnLive, Inc. employees been offered positions in the new company?

A. Almost half of OnLive's staff were offered employment at their current salaries in the new company immediately upon the transfer, and the non-hired staff will be given offers to do consulting in return for options in the new company. Upon closing additional funding, the company plans to hire more staff, both former OnLive employees as well as new employees.