OnLive employees will have stock replaced, but the future remains murky for streaming company
OnLive, the company that tried to sell the gaming market on the idea of a streaming, cloud-based method of playing games, has had a rough week. Employees were laid off, a new company was formed, some of those same employees were asked to return, and it was often reported that everyone involved lost their stock during the shift. While the details of what is going on are still being clarified, and will likely continue to be in the news while things are announced, we can at least report one piece of good news.
According to OnLive’s Jane Anderson, rehired employees will be granted stock in the new company, and those that aren’t rehired may be given the chance to consult for the new company, along with the possibility of new stock as well. The only problem is that the new company needs to either turn a profit, or be acquired again, for the new stock to be worth anything tangible.
The story began when tweets from Brian Fargo stated OnLive’s staff was being laid off, and the story was quickly confirmed. OnLive used a process called Assignment for the Benefit of Creditors, or ABC, to quickly purge itself of staff and sell the company’s assets in order to create a new company that retains the intellectual property, technology, and services of the original company. It’s a complicated process, but the end result was a company under new leadership that kept all the assets of OnLive while jettisoning both staff and previously issued stock. Stock which would, ideally, have grown in value had the company been acquired. This had to have been a bitter pill for longtime employees of the once-promising company.
“OnLive’s current initiatives will continue as well, with major announcements of new products and services planned in the coming weeks and months,” the company said in a statement. “An affiliate of Lauder Partners was the first investor in the newly-structured company, holding the view that OnLive is the future of computing and entertainment, and a passion to see OnLive’s breakthrough technology continue to grow and evolve. The new company structure enables OnLive to do so.”
It’s not all bad news, however, as some staff was re-hired once the acquisition was completed. “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,” the company stated. “Upon closing additional funding, the company plans to hire more staff, both former OnLive employees as well as new employees.”
The statement, including a FAQ that explained the loss of staff, the possible re-hiring of said staff, and the now worthless value of company stock, came with an offer for a chat about the company’s prospects. My attempts to get a company representative on the phone were politely but firmly turned down, although I was told my questions could be answered by e-mail. I asked about the stock given to the original employees, and it was confirmed that the stock now holds no value.
The question is, what now? Will new employees have their now useless stock replaced? “Rehired employees not only receive vested shares as a replacement of their old stock in the new entity, but new stock options as well that begin vesting immediately,” OnLive’s Jane Anderson told me. Additionally, staff that isn’t re-hired will be offered consulting positions in exchange for stock options in the new company.
So what was accomplished?
Lauder Partners is a private company with varied investments, including many in the world of streaming content. One of the benefits of the “ABC” deal is that everything can be handled both quickly and quietly, which means few details of the acquisition have been made public, and it’s likely that secrecy will continue.
CEO Steve Perlman was given no stock in the new company, nor was he compensated during the acquisition. It’s also possible that he carries some of the direct responsibility for the company being put in this situation. “Anonymous sources from within OnLive said that it was Perlman’s mismanagement and refusal to sell his company to interested bidders that caused it to implode this month.” Digital Trends reported.
The ideal situation for the company would have been either profit from the OnLive service, which proved to be a hard sell with consumers, or to be directly acquired by another company, which would have increased the value of stock held by both Perlman and employees. With a reportedly low user base and no immediate interest from major players in the content field, this shift to a new company with funding from Lauder Partners may result in a leaner operation with less overhead. This opens the door to development of the real value of OnLive as a company: The streaming technology and patents themselves. If those prove attractive, the assets could again be sold, which would lead to the stock given to the re-hired employees gaining value.
Who could be interested? With rival streaming company Gaikai recently acquired by Sony for $380 million, OnLive’s technology could prove attractive to Microsoft in order to build a streaming service into the next generation of Xbox hardware. It’s possible other hardware manufacturers may wish to incorporate OnLive’s streaming technology as well, or simply see long term value in the patents.
Expect OnLive’s business to be streamlined, costs cut, and employees put to work making the company’s assets look as enticing as possible to the big players in content distribution. There is still the possibility of a big payday for employees and investors, but it’s unlikely to be found asking customers to pay directly for streaming games.