Consoles in the cloud: Could games hardware soon be a thing of the past?

They Twittered. They guessed. They tried their hardest to fathom the truth. It was Mark Twain who said "the reports of my death are greatly exaggerated", but that has never prevented people from predicting and reporting the demise of people and objects in the 115 years that have passed since he did.

So when rumours emerged that Sony was about to snap up a major gaming streaming service, it led to frantic activity on Twitter and videogame news sites, with some suggesting that a streaming service would even mean the company's much-awaited PlayStation 4 may never be released. That subsequently led to speculation in some quarters that we could be seeing the beginning of the end for consoles as a whole.

Although Sony's press conference passed without any such buyout announcement, OnLive, which launched streamed gaming in 2010, said it was going to offer its service as a built-in function within the G2 series of LG Smart TVs, thereby cutting out the need for any console. Gaikai, launched a year later, has also been building its profile: it allows gamers to play streamed games via Facebook, for instance. Streaming offers a new way of delivering gaming content that does not rely on downloading games to a hard drive or buying a physical copy on DVD or Blu-ray. Instead, the games are stored "in the cloud". Players choose which games they want to play and they start instantly, streaming online to their consoles. When a gamer presses a button on their controller, keyboard or mouse, information is sent to the cloud servers on which the game is running. It tells the game what needs to happen, be it moving left or right or firing and so on.

What the gamer sees – and this is the crucial bit – is a video of their game streamed to whatever device they are using and, because it is a video, there is no need to have a super-powerful computer in order to play the latest blockbuster releases. Some developers believe it will be the future for games.

"I think we're heading for major change in this industry and probably what I like to call a 'cloud war' in the next two to four years," says Nick Burcombe, a former game designer at Sony Computer Entertainment Europe and founder of Playrise Games. "Perhaps it'll be the Playstation Channel with the most subscribers or maybe the Xbox Channel? The hardware should really be irrelevant and I should be able to log on to whatever device I like and play all the content I have paid for, with it all being compatible with whatever device I'm using."

Suggestions that Sony would not make a PlayStation 4 made sense, to a degree. Consoles are expensive to buy and make. When the PlayStation 3 was launched in the UK in 2007, following a delay and at a cost to the consumer of £425, Sony made a big loss on each one it sold. It was suggested that the company was losing around £200 on every machine, with the idea being that it would later profit from the games that run on them.

Streaming could free console manufacturers from having to develop major replacements of ageing consoles, each of which then relies on customers to invest large sums of money in order to keep playing. Enhancements would be made on the servers and they would be more gradual and less expensive, freeing up cash. The emphasis would be on service and content delivery rather than on ever-increasing specs.

"I am a big fan of cloud gaming if the price is right," says 69-year-old Nolan Bushnell, who, in creating Atari became one of the industry's founding fathers. Having been heavily involved in the walnut-dashed Atari 2600 console of 1977, he now feels the time is right for a new approach to what is, in effect, the distribution of games, as long as broadband speeds are fast enough to ensure that when a player presses a button, the action comes back within milliseconds.

"There are many games that can be served in the web, though there are some latency issues as you move from the server or play someone on another continent," he says.

"After all, we still have trouble exceeding the speed of light. But things get better and cheaper all the time. It may need a major console manufacturer with deep pockets to provide a subsidy for the scale needed to make this work."

Certainly streaming would allow companies to put their efforts into boosting the capabilities of the servers and connection speeds, the latter being particularly crucial. "For streaming to work properly in the long-term, broadband speeds have to be faster than they are today," BT's futurologist Ian Pearson says. "The Government is making investments in this area but we're looking at 2015 or 2016 at the earliest. Streaming will open up the rental market and shared play but it will only be one of a number of business models. For me, consoles still have a life."

Sure enough, in a Twain-esque manner, consoles are still being developed on a grand scale. Nintendo's new Wii U console is on its way and Microsoft is believed to be ready to release a successor to the Xbox 360 before 2015. Valve, a developer that makes the acclaimed Half-Life games, is said to be working on a new console of its own.

But the fact that supposed interest in cloud gaming by a major manufacturer such as Sony generated so much excitement shows that streaming is something that cannot be dismissed. Although Gaikai and OnLive are being treated as something of a sideshow for many gamers, OnLive's CEO Steve Perlman said the number of users worldwide ran into tens of millions.

"It would make sense for Sony to tap into streaming," says the console developer Robert Troughton, who currently heads up Pitbull Studio.

"Streaming may, in fact, be their best bet for recouping the losses that they've suffered over the last years. Apple killed the Walkman with the iPod, they're hurting consoles with the iPhone, iPad and iPod Touch and if it's about to come out with a TV then they'll be winning there, too. Sony have to pull something out of the bag."

Streaming would suit a TV manufacturer since it could serve games direct to its sets, cutting out the need for a console. Machines would only need to be powerful enough to handle video and physical copies of a game could be banished even though it would impact on a retail landscape already battered by downloads. And yet Sony and Microsoft are not solely interested in games. Both companies have been turning their consoles into media hubs combining film, music and photographs among a host of other features. Console owners can already stream movies, get a live feed from Sky or view previously aired programmes on the BBC iPlayer and 4oD.

Perhaps, rather than the demise of consoles, we are simply witnessing the firm demise of physical media that began when digital downloads became popular. Want a box set? Try Netflix. Need a DVD or Blu-Ray? Get LoveFilm instead.

"The success of Sky Go and Sky Anytime+ demonstrates how internet-delivered television continues to grow in popularity," Luke Bradley Jones, Sky's director of TV products, says of the changing landscape affecting broadcasters ahead of the launch of the on-demand service Sky Now. "It means our customers can enjoy even more choice and control over when and where they watch."

Whatever happens next in gaming will be analysed in great detail. Maybe consoles will go the same way as the plethora of CDs we used to wade through when dial-up internet was all the rage.

"The winning platform will be the internet," Mr Burcombe says.

"The hardware war will be over as it could all be rendered elsewhere and streamed to you, and developers can concentrate on making new and innovative content again to reach a much larger global audience."