Japanese cloud-gaming and VOD startup G-cluster plans to enter the U.S. market with an on-demand mobile gaming service, presenting a possible challenge to OnLive. The company has secured an unnamed amount of funding from Intel and Vivendi’s French mobile carrier SFR to expand its reach beyond home casual gaming and movie streaming into high-end gaming for tablets and smartphones.

G-cluster has already established itself in France, providing a casual gaming service through SFR’s residential broadband arm that customers can access through their TVs and set-top boxes or on their Macs or PCs. In Japan, G-cluster is offering an HD movie-on-demand service to connected TVs. But according to Sevan Kessissian, G-cluster VP of Content and Strategy, the startup has bigger ambitions than just casual gaming and video in the domicile. It plans to combine the processing might of the cloud and low-latency, high-bandwidth connections of new wireless networks to create a mobile service that supports high-quality, real-time gaming to tablets and other mobile devices. And it plans to launch that service in the U.S.

“We are in discussion with major partners in order to penetrate the US market” Kessissian said via e-mail. “The game catalogue will be a blend of the best casual games and AAA games.”

Kessissian didn’t provide any details about which partners G-cluster is in discussions with or when such a U.S. service would launch, but when it finally does emerge here it may find an already established competitor in the market. In December, OnLive announced its mobile gaming service for iOS and Android devices.

My colleague Kevin Tofel reviewed OnLive’s mobile beta on the iPad, over both Wi-Fi and 3G, and was particularly impressed by its performance when hooked into his home network connection. As Kevin pointed out in earlier post, virtualization services like cloud gaming to the tablet and smartphone are proliferating, delivering one more blow to already suffering PC sales.

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• Where the next-generation console fits in today’s video game market
• Bluetooth to Feel Blue as Personal Area Network Battles Loom
• Mobile 2012 and beyond

Show notes for this episode:

• The new Roku 2 devices sell for $60, $80, and $100. Check out the Roku website for more details.
• Roku has confirmed in its forums that Netflix subtitles and 1080p streaming won’t be available on previous-generation devices.
• New Roku apps include Angry Birds, Epix and AOL Video.

Do you own a previous-generation Roku video player? If so, we’d like to hear from you: Let us know if you are trading up or not! Fire away in the comments, get in touch with us on Twitter (@cordcutters) or on Facebook or email us at cordcutters @ gigaom.com.

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• Who and what to watch in the new era of the living room
• Connected consumer third-quarter 2012
• Managing infinite choice: the new era of TV user interfaces

EA will pay $650 million in cash and $100 million in stock for PopCap, which makes celebrated titles like Bejeweled, Plants vs. Zombies and Zuma and is considered one of the more quality producers of casual and mobile games. If PopCap hits certain earnings milestones by December 2013, it could earn an additional $550 million. EA is also providing $50 million in employee retention funds over the next four years.

EA said the deal, which is expected to close by August this year, helps EA drive toward its goal of building a $1 billion digital business. “EA and PopCap are a compelling combination,” said EA CEO John Riccitiello in a statement. “PopCap’s great studio talent and powerful IP add to EA’s momentum.”

For PopCap, the deal ends talk of an initial public offering and puts it into the hands of one of the largest game publishers. PopCap CEO Dave Roberts said EA is a good fit because of its increasing emphasis on digital. And EA’s size and reach can help PopCap scale up as it seeks a wider audience.

EA said the deal will will not have an effect on its fiscal year 2012 results and will be at least $0.10 accretive to EA’s fiscal year 2013 non-GAAP EPS. Electronic Arts has built up a solid digital business and has made purchases like Playfish for $400 million to get onto social platforms and just reportedly bought social gaming company Ohai. It also has a popular casual game platform in Pogo and it’s got a strong mobile business, especially on iOS.

But the company feels like it needs to speed up its digital ambitions and have more consistent hits and that’s something PopCap has managed to deliver on, whether its online, on social platforms like Facebook or on mobile devices. PopCap made more than $100 million in revenue last year and its games have been downloaded more than 150 million times. The pressure will be on for PopCap to generate new hits in a timely manner so it can add to EA’s bottom line.

The deal also helps EA as it competes more with Zynga, which is preparing for an IPO. Zynga has been a powerhouse on Facebook and is now trying to extend its success to mobile, which is exploding as a gaming opportunity. By grabbing a quality developer in PopCap, which is the third biggest developer on Facebook, EA can compete both on social and mobile platforms with Zynga.

This shows that the traditional gaming world is quickly evolving and give credit to EA for getting out ahead of this curve. Riccitiello has been preaching this transition for years and is now putting the pieces in place to take advantage of the evolution of gaming, which is moving away from big packaged titles into more bite-sized mobile and social games. The console business is still big money but the gaming world is increasingly opening to a wider audience through these new platforms and that’s where EA needs to be. It just took a bigger step toward that by grabbing PopCap.

Here’s a video we did last year with PopCap Co-founder John Vechey and CEO David Roberts:

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YouTube introduced its annotation feature some three years ago, allowing producers to jump from one video to another. Producers have long utilized this to build interactive adventures and photo challenges, loading a new video every time the viewer chooses an option.

Interactive Tic Tac Toe takes this type of YouTube hack to the extreme by presenting a new video for every single possible move available in the game. All in all, Jared produced 131 videos, which he tagged with more than 1,000 annotations, he told us via email. The whole thing took him about a month of 14-hour workdays. Adding all those annotations on YouTube took more than three days alone, Jared said. However, the most tedious task was the video editing. “Some nights I would set my alarm and wake up every hour to re-edit videos,” he told us.

This Tic Tac Toe game is only one of a number of videos produced by Jared that make use of YouTube’s annotation feature. He started to produce videos for the site about a year ago, and has been able to make a living as a YouTube producer since November.

“YouTube is my first actual job, and I love it,” the 21-year-old told us. “It’s the greatest job in the world.” Jared is now working on growing his viewership and eventually wants to become as big as Mystery Guitar Man and other YouTube stars.

YouTube has been working on ramping up the monetization of its content on recent months with a number of initiatives that aim to help producers become more successful. The Google-owned site purchased Next New Networks in March, and recently sent a number of YouTubers to college to freshen up on video production and storytelling skills. Jared’s interactive adventures may not quite fit in with some of these more polished productions coming out of the Next New stable, but his inventiveness goes to show that YouTube producers who want to make a living with online video are going to push the boundaries of what’s possible on the site.

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The reason? As game developer Olly Farshi so aptly put it when we were discussing the 3DS’ merits, iOS is a platform, and the 3DS is a toy. Toys are something we’re more likely to get bored with, but that doesn’t mean they don’t have their place. It may seem like a dismissive way to characterize a technically impressive new device that successfully brings a 3-D experience to the palm of your hand, but it’s exactly how prospective customers will think about the two when weighing a purchase decision.

That doesn’t mean Nintendo will lose out in every case. Some users are genuinely looking for a toy, not a platform. A parent, for example, might not want her children to have access (even restricted access) to a robust app ecosystem limited only by the decisions of the developers who program for it (and the policies guiding Apple’s app review process). That parent may also be reluctant to hand over an expensive and still quite fragile piece of electronic equipment to a child, which is what the iPhone and iPad are, despite offering competitive price points for their respective markets. Even the iPod touch, while more affordable than the 3DS depending on your storage option, can’t really be described as a “toy” with regard to its construction or design.

Nintendo promises apps, Netflix support and other additional features for the 3DS that could make it more like a platform in the future, but that doesn’t mean it’ll really become one. Nintendo of America President Reggie Fils-Aime made that clear when he recently went on record saying his company isn’t interested in working with amateur developers. It’s these devs that made iOS the market-changing platform that it has become, and inspired a legion of copycats.

Does that mean Nintendo isn’t “getting it?” Maybe, but even if it was, it wouldn’t change the fact that iOS has profoundly altered the gaming market, and Nintendo will benefit most from respecting those changes instead of trying to struggle against them. The introduction of 3D to a handheld console was a good start, as it clearly positions the 3DS in the realm of “fun.” No one’s going to want to run project reporting or invoicing apps on a screen that lets figures leap out at them.

The iPad 2 brings a lot of exciting new potential as an Apple gaming machine, thanks to its ability to output to a connected display in full 1080p HD. One title at least is already working to make this happen. But the iPad (and other iOS devices) are everything to everyone. They represent an evolution of the computing model that may replace a gaming device (among other things) for some users, but not for all, just like home computers never occluded the console gaming market. Nintendo may ultimately have to accept that Apple is better at reaching non-traditional gamers than it could ever be, but that doesn’t mean it’s curtains for the gaming company.

Is the 3DS an iPhone or iPad competitor? No, and Nintendo is generally doing a good job of not treating it as such (although promises of apps tend to confuse things). Categories are merely shifting, and there’s bound to be some jockeying for position, but in the end, both platforms and toys will be able to comfortably coexist.

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• Takeaways from connected consumer’s second quarter
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Have Confidence In Casual Gaming’s Inherent Appeal To Advertisers

David Scott, co-founder of Casual Collective (profiled on GigaOM here), said November was actually a strong month for them, advertising-wise. “From our point of view it would seem that the in-game advertising has been kicked up a notch,” Scott wrote me. He speculated that advertisers were getting more ROI for full video/interactive ads embedded in Flash games than in traditional media.

Jameson Hsu, “Chief Mochi” of gaming ad network Mochi Media, seemed to concur: “The optimism around games being recession-proof not only applies to retail, but also holds true for advertisers marketing to gamers,” Hsu said via email. “Gaming audiences have diversified beyond the 18-24-year-old male and it’s making for an attractive sector to market to.”

Jim Greer, CEO of user-created game platform Kongregate, expressed confidence that core advertisers, like game publishers and movie studios, would stick with them. “[K]nock on wood,” he said, “it doesn’t look like the ad slowdown is going to hit us as hard as I feared.”

Diversify Revenue Streams Beyond Advertising

When Steve Hoffman, CEO of RocketOn Inc., originally told me about his casual web-powered MMO last August, advertising was a major part of their revenue.

That focus has since changed somewhat for Hoffman, who was also a CEO in the dot-com bust era, and likens the current climate to the film “Groundhog Day.” “With ad revenue shrinking to a trickle, even before our thirsty startup has had a chance to get a mouthful, we’re relying on virtual goods sales to keep us from starving,” Hoffman said in our most recent exchange. “Fortunately, we’re a virtual world, and we can grow our own goods, so if all goes well, our children will be fed.” Casual Collective is using its virtual goods as a revenue source (users can buy “Casual Credits” for system upgrades) as well, and Kongregate recently added support for microtransactions and virtual items to its game platform.

As a social game startup with a heavy presence on free social networks like Facebook and MySpace, advertising has been a major revenue source for Zynga, but that, too, is changing. “[O]ver the past 6 months,” founder and CEO Mark Pincus said via email, “we have de-emphasized the ad component of our business model so we are relatively less affected than others.” They’ve incorporated user pay elements into games like their cross-platform version of Texas Hold ‘Em, for example. He said his company is still cash-flow positive, and is “cautiously optimistic about the near future.”

Have Faith In the Value Proposition of Casual Web Gaming — and Your Startup

The Casual Collective’s Scott thinks the recession could actually benefit the Flash casual gaming industry. Instead of spending $20-$50 on PC and console games, he argued, many consumers will gravitate to free web games — especially because they don’t need to upgrade their computer to play them.

Jim Greer echoes that theme while also emphasizing that the user-created nature of Kongregate’s games help the Jeff Bezos-funded startup stay small and by extension, its costs low. “[W]e don’t need a huge staff — we’re currently at 21 employees. That means that even if our revenue dropped to $0, we have 18 months worth of cash in the bank.” But he’s confident that their passionate user base of gamers, who reportedly play on the site a total of 10 million hours monthly, will keep them solvent. “If that kind of engagement can’t support a company of 21 people,” he concluded, “something is very wrong with the world.”

One can only hope. We’ll check back in the spring, to see if these startups have survived.

Image credit: Flash game “Intrusion” on Kongregate.

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Blizzard’s World of Warcraft is a juggernaut with 10 million players scattered across hundreds of servers — 226 copies of Azeroth in the U.S. alone — and a relatively low churn rate. Those players make for a good game few others can match: Hang out in the online city of Shattrath, or at the mouth of an instance, and you’ll soon find others with whom to raid.

Could Blizzard be looking to move all that action into the real world?

Real-world games have been tried before. Population density has always been one of their biggest challenges. The gaming might be good in Shattrath, but go to Times Square and you’re alone. Can Warcraft’s loyal followers help it make the first big real-world MMO?

Blizzard is in the rare company of firms like Apple and Google that make their own gravy — in other words, they’re able to generate a ton of buzz without traditional marketing. So when the firm started recruiting for an “unannounced online multiplayer game,” the speculation was immediate.

The World of Warcraft universe had its Big Bang 14 years ago with the release of a desktop RTS game called Warcraft; the Starcraft and Diablo franchises soon followed, each with its own universe, backstory, and global success. Given how well the the Warcraft franchise fared online, much of the speculation looked at MMOs set in these other universes.

Of course, Blizzard’s not talking. The company is notoriously tight-lipped about its plans, and steadfastly refuses to publish any game before it’s ready — a practice which has served it well and has even resulted in the cancellation of highly anticipated titles when they weren’t quite right.

Gaming analyst firm DFC thinks 2008 is a banner year for MMOs, and expects much less growth in coming years — a sure sign of market saturation. With new MMO titles like Conan crowding store shelves, maybe it’s time for Blizzard to change the game by moving it offline.

The pieces are definitely in place:

• The density problem is solved: With Warcraft’s huge installed base, there’s probably a Rogue Night Elf within a hundred meters of you right now.
• People are always connected: Blizzard has thrived overseas. Starcraft is so popular in Korea, it’s the subject of TV shows, contests — even standup routines. In many of these countries, cell phone use far outranks what we’re used to in North America. Worldwide, the majority of Internet-enabled devices are cell phones, not PCs. Game developers can rely on a mobile, connected player base.
• We have our controllers: These mobile devices can access the Internet, have rich audiovisual displays, and know where they are. That’s key for everything from quests to face-to-face real-world combat. Heck, with clever use of accelerometers and screen gestures, your iPhone could double as a sword as easily as any Wiimote.
• There’s stuff to do: Wonder about geographic quests? Geocaching, which involves finding caches at specific locations, is a popular sport among GPS enthusiasts, with 613,734 caches active worldwide at the time of writing.
• We’re used to constant interactions: Facebook, instant messaging, and Twitter have taught an entire generation (or two) to deal with constant interruptions from a global social network. And casual gaming, which has been a part of the workday since Minesweeper, is now big business.

A real-world MMO has one more advantage: Revenues. The opportunities for sponsorship, or for driving players to real-world locations to make real-world purchases, make Blizzard’s current revenues look tiny by comparison.

All we need is the players. And Blizzard’s the most likely company to let the Orcs loose in Times Square.

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With such a mismatch of competition, this news might call to mind Verne Troyer attacking Yao Ming with a wiffle bat, but Terry’s brought a secret weapon in the form of his newly appointed board chairman: Nolan Bushnell, who in addition to being the co-founder of Atari, kinda sorta helped launch the entire game industry.

This is not just a vanity appointment, the two men assured me in a conference call; Bushnell will advise game developers in NeoEdge’s network on how to polish their titles for maximum entertainment and stickiness.

NeoAds will largely concentrate on casual games, at least at first, so Bushnell appears to be the ideal veteran for the job since given their simplicity and ease of play, many of the most popular web-based games resemble Atari titles from the 70s.

But how does NeoAds work, and why did Bushnell, who hasn’t been closely involved in the game industry since the 80s, return to the fray? Highlights from my conversation with the two men are below.

Casual Games: Great Potential, Poor Economics

“The casual game space is wonderful but has had bad economics,” Bushnell said.

As both a supporter and watcher of the casual games market, he’s noticed the disjunct between the audience for games and the platforms on which they ran. “When you looked at the console game market, the domestic market got stuck at about 15 million,” he noted. Meanwhile the audience of players in the casual market, primarily defined as simple web-based games, totals some 80 million in the U.S., comprising 34 percent of all American Internet users, according to Parks Research.

Roughly 98 percent of those casual gamers, however, don’t pay to play, Terry noted. “We’re not saying the purchase of games goes away,” he said, but at least an ad network will make that audience monetizable.

DRM Meets ARM

As an open ad network, NeoAds provides digital rights management in an effort to reassure publishers. At the same time, it deals in advertising rights management, creating advertising inventory and distributing revenue to partners based on clicks and impressions via ads embedded in a game’s pre-roll and interstitial.

Terry said the service will be available for downloadable games on the network, opening the possibility that titles for the hardcore gamer market might also work in this space. They already have partnerships with numerous established publishers, and via their site MostFun.com, indie developers can also apply to join.”I like that it mimics to a certain extent the living room and the television,” said Bushnell.

And while impressions are their main focus, Terry told me they’re also seeing impressive clickthrough rates between 2 percent and 6 percent. “One of the things that seems to matter is how tightly the ad frame is integrated into the game,” he said. (See screenshot above.) They also work to partner advertisers with contextually appropriate games — Nestle with the sim game Chocolatier, as a potential example.

Going Up Against Google

As for the prospect of competing with Google’s ad-based network (by far the largest among several other competitors in the ads-for-games space), both Terry and Bushnell sounded positively blasé. “So far AdSense for games seems like regular AdSense,” Terry opined, audibly shrugging. “We’’ll have to see what it looks like.”

When it comes to architecting dynamic ads into games, Bushnell added, “There’s a bigger technical twist, there’s a lot of stuff that goes into it. It sounds simple but it’s really not.

“They’re very good at announcing,” he said of Google, but when it comes to execution, “They’re going to need some help.”

How this space shakes out is anyone’s guess, but Bushnell is excited by the prospect of having an immediate revenue stream for game developers. “When you change the economics and allow easy publishing, you unlock the floodgate to creativity….You have the chance of unintended consequences on the positive side.”

But will Bushnell himself create games running on NeoAds?

“We’ll have some announcements,” the Atari co-founder said, somewhat coyly. For now, he remains careful about dispensing chairman wisdom to developers on the network. “You gotta dance around that,” as he put it. “Everyone’s a prima donna; I give [advice] where it’s welcomed.”

But what developer would hesitate to take design advice from, you know, the father of videogames?

Bushnell chuckled with his distinctive bass rumble, “You’d be surprised.”

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