July 10, 2003

'Phantom' game console is really a copyright protection device

- By Robin 'Roblimo' Miller -
Over the last few months computer and gaming-related publications) have gotten stacks of press releases from a company called Infinium Labs touting its upcoming Phantom game console. Some game industry insiders have derided the Phantom as vaporware, while others have laughed it off as "just another set-top box." The truth is, it is neither vaporware nor purely a set-top box, but part of an online PC game retailing system designed to protect game publishers' intellectual property while increasing profits for broadband ISPs. The promise for consumers is the availability of more games, for less money, than ever before. Will Infinium be able to pull this off? At least $25 million worth of venture capital is betting "yes."

Let's start by saying the console is real, not vaporware. I've seen a working prototype in action. Inside the spacy-looking case it's just a PC running Windows XP that has no CD or floppy drive, and uses a proprietary encryption scheme for data stored on its hard drive.

The specs for the final, finished version that will be shipped to end users are still in flux, but at the $400 price point mentioned by Infinium CEO Tim Roberts while he and I were looking at a mockup hidden away at respected (but low-profile) Robrady Design in Sarasota, Florida, it ought to be no big deal to deliver a 2GHz Mini-ATX PC with a wireless keyboard, mouse, and cool-looking game controller.

In fact, Roberts said during our chat, one of the reasons now is a better time than the height of the dot-boom to launch Infinium Labs is that "component prices have dropped" enough to make this computer feasible at $400 per unit, a`price even lower than the $600 to $700 he spoke of as recently as February.

Really, the only thing that differentiates this 'game console' from a standard, Windows-running PC is that it has no way to get data on or off of it except through a dedicated connection to Infinium Labs' own servers via your broadband ISP, plus the fact that if you try to open it up or modify it or grab data from the hard drive, bad things will happen, starting with violation of the terms under which you will lease or purchase the Phantom.

The console is only the tip of the netberg

Roberts' big previous venture was SAVVIS, a company he helped start that provided (and still provides) secure VPNs and other networking services. The company's motto, right below its name in the top left corner of its Web site's main page, is, "The Network That Powers Wall Street(tm)."

Roberts "retired" (at age 28) after SAVVIS's IPO in 2000. His one major post-SAVVIS business, an application hosting service called Intira, was acquired in October, 2001 by a company called divine (that filed for a Chapter 11 reorganization in February, 2003.)

Note that both of these companies delivered information and services via the Internet. Now think of Tim Roberts not only as a dot-com IPO guy but also as an ardent gamer and as a family man with small children who wants to be able to let his kids play lots and lots of computer games without worrying about whether they're getting exposed to excess gore or other adult-level themes, and think about the fact that, Roberts says, the average computer or consumer electronics store only carries around 200 games even though there are tens of thousands of titles available. And even though the majority of gamers may not be obsessed, anti-social pimple-facers who love shoot-em-ups above all else, most of those top 200 games are likely to be aimed at the hard-cores, not at small children or Roberts or his wife or other families like theirs.

Now imagine Roberts the family man and Roberts the expert on secure Internet information delivery occupying one single body, postulate a growing number of U.S. households with broadband Internet connections, with broadband ISPs hungry to deliver more services so they can grab more customers, especially services for which they can charge a premium over and above their basic monthly access fees -- services like downloadable games -- and suddenly you are looking at a potentially huge business opportunity.

Except for piracy.

Sure, the publishers of the tens of thousands of games that aren't sold at stores like Circuit City, Fry's or Best Buy would like to find a nice online way to distribute their products that wouldn't cost as much as traditional retail channels, but they worry about all the game-copiers and software sharers out there who would post any kind of 'unlock' keys needed to play downloadable versions of their offerings on the Internet, in effect making those games free to use for anyone who doesn't respect game developers' intellectual property rights.

So if you're Tim Roberts, you offer all those game publishers the same 99.999% security you offered Wall Streeters shipping critical financial data across the Net, and you claim you've gotten huge mega-interest from at least 500 game publishers, even though (for confidentiality reasons) Roberts says he can't tell us quite yet who any of these game publishers are, except to hint with one word: "Unreal!"

All game keys are held on Infinium Labs' servers, so even if the kind of people who do Xbox mods do their thing on a Phantom, they won't be able to play games for free, unless they're some of the many "play before you buy" trials Roberts plans to offer or some of the games that might be included with the $9.95 per month (or whatever; this is still being worked out) extra fee you pay your broadband ISP for access to Infinium Labs' game library, which Roberts confidently predicts will be one of the largest in the world, not only because the Phantom will play any game that will run on Windows XP, but because Infinium plans to offer developers help in porting games originally written for dedicated consoles to the Phantom (really Windows XP) platform.

There's no reason Infinium Labs shouldn't get hundreds or thousands of game developers to sign up; if the developers offer their games through this service and no one buys, they lose nothing, while, Roberts says, each paid download will net them more than they would get from a traditional in-a-box retail sale, assuming they could get their products on store shelves in the first place. In fact, there is no reason for Infinium Labs not to offer games from new, unknown developers much the way MP3.com and other online music services offer less-known musicians a distribution channel they didn't have before it became possible to download music over the Internet.

Except, of course, Infinium Labs hopes to eliminate the online file sharing that has spooked the music industry so badly.

I asked Roberts, more than once, how long he really expected it to take, in days or weeks, for his system's security to be broken. He responded by saying that Bunny Huang and other well-known security gurus are advising Infinium Labs, and pointed to his own experience providing secure Internet-based communications to the financial services industry.

And besides, Roberts believes, even if a few fringe people manage to grab a few games somehow, they aren't going to affect the vast majority of users, who will happily pay for their subscriptions.

The income stream(s)

The obvious, first one is subscriptions. Roberts told me it will probably take somewhere between 750,000 and one million subscribers to start turning a profit, based on $9.95 per month. Then there's advertising. Infinium Labs has a study in hand that claims ads connected to interactive game-type media are seven times as effective as ads displayed through passive media like TV and most Web sites. Then there's percentage fees (sales commissions, really) for "premium" games customers purchase through the system.

Roberts expects broadband ISPs to jump on this opportunity, especially since competition in this area is heating up and because his figures show that 50% of U.S. Internet-using households will have broadband connections by 2005. He also claims that the base cost of a broadband connection, to the supplier, is going to drop to about $7 per month, which is why this business area is so fiercely competitive.

Imagine Infinium Labs promotional brochures inserted in millions of cable and DSL Internet service bills. Roberts does. Surely enough subscribers will be willing to pony up another few bucks every month for a wide selection of games to float this venture, right? Even when the pie is split with game developers and broadband ISPs, there ought to be plenty for Infinium Labs, right?

And the customers Roberts is pursuing aren't teen-boy gamers with (he says) average incomes under $25,000 per year, but prosperous families that take in $50,000 or more and will happily pay $400 for a dedicated game machine (with some of that cost likely buried in the monthly subscription fee the same way cellular phone companies subsidize handset purchases)if only to keep game-playing kiddies away from mom and dad's computers -- and allow parents to give each kid his or her own login that only allows age-appropriate games.

As another sales kicker, how about chat and other interactive features that allow both child and adult users to communicate with other gamers? What about online player vs. player games, either as part of the basic subscription fee or as a premium service?

Once the basic mechanism is in place and has proven itself, why not add these other spiffs? You already have a game-on-demand online delivery system that competes with physical game CD/DVD sales, right? Sure, there are a few tiny problems here, like the fact that even though Roberts didn't want to talk about specific prices for specific games, they had better be a whole lot cheaper than the store-bought physical versions if only because you can't play them if you suddenly cancel your Phantom subscription or, although this was not made clear, perhaps even if you switch from a Phantom-partner broadband supplier to one that hasn't signed up with them.

As one industry observer pointed out when he first heard the Infinium Labs story, "You buy the console. You buy the games. Then you pay to play the games you bought on the console you bought. It's sort of like buying an arcade game but still having to put quarters in. And ads!"

But is this really any worse than paying for cable TV, finding that all the basic channels are full of ads, then paying extra for premium channels, and paying yet more for pay-per-view "events?" Lots of households do this without thinking about it. Why shouldn't a company like Infinium Labs extend the same business model to games and profit heavily by doing so? After all, the cost of server space and delivering all this data (securely) over a high-speed network has come down radically over the past few years, so the basic overhead of getting the system going can't possibly be as high as a cable TV channel startup, and we seem to see at least a few of those every year.

Getting it all up and running

The day I met with Roberts, he was uncharacteristically dressed in a suit and tie, nervously getting ready to meet with some of his investors. He's claiming $25 million in first-round funding so far, with more to come. He's renting high-end office space in Sarasota, Florida, and rapidly hiring both local staff and telecommuters.

Although the infamous phrase, "burn rate," was not uttered, it hung in the air over the conference table we borrowed at Robrady Design. Roberts' enthusiasm and drive was as strong as any I saw in Silicon Valley in 1998 or 1999, except that the costs of building an online business in Florida are a fraction of what it would cost to build the same business in Palo Alto.

The "race against time" factor is still there, though. Will Infinium Labs be able to attract enough ISP partners, enough game developers, enough subscribers, and enough advertisers to achieve a positive cash flow before the investment money runs out? That is always the big question in any kind of online service business.

Then there's the security question. Is that dedicated PC with so many features disabled really necessary? Couldn't a nearly-as-good level of anti-copying protection be achieved at much lower cost purely through software? Won't Palladium essentially make the Phantom unit itself obsolete? And couldn't the same privacy and control-over-your-own-equipment concerns that cause many consumers to balk at the idea of "Trusted Computing" that assumes consumers are not to be trusted become a significant sales barrier?

How about competition? Couldn't someone else come up with a slightly less secure but much less expensive online game delivery system that could be sold directly to consumers instead of through ISPs?

And thinking of competition, couldn't another company that is less security-obsessed, but charges lower commissions to game publishers, take away market share in a hurry, assuming game publishers are willing to accept (possibly) a small amount of file sharing in return for a higher share of net user fees -- and a potentially much larger market if this theoretical competitor didn't require customers to purchase (or possibly lease) a specialized, locked-down computer that costs as much as a "real" one that can also be used for kid homework, adult office work, and other non-game tasks?

The beta program may help Infinium Labs learn

The next stage in the rollout is a beta test that's supposed to start this fall with between 100 and 300 testers. "We want beta testers who are hackers and crackers who will try everything to get around our security," Roberts said when we talked.

Don't bother to apply. The company has over 17,000 applicants already, in large part due to these Slashdot mentions.

Perhaps in the course of the beta program the Phantom console itself will prove to be unnecessary. Or perhaps its cool looks will awe everyone who sees it in person so much that it'll become the next living room "must have" for prosperous suburban families.

For whatever it's worth, and no matter how the beta test and subsequent full-scale product rollout goes, Infinium Labs is pioneering a new way to hook game-eager customers up with sales-eager game developers. Whether this company succeeds or fails, the idea of online retail game delivery is sure to stay with us, and -- in one form or another -- will almost certainly replace the idea of PC and console games being physical things that are only sold in plastic packages through traditional retail channels.


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