We’ve all heard about OnLive’s (one of the forerunners of cloud gaming technology) negative impact on console systems like the 360, PS3, and Wii, but perhaps the death of console gaming is inevitable. Nintendo may be in a better position than its competitors since it has had a history of sacrificing raw power and the latest technological marvels for innovative gaming, and this may very well extend its console life. Nintendo – the last man standing! But that is going off on a tangent.

There is a growing trend towards digital distribution in the past decade and this is not hard to believe as we are currently in the internet age. Nearly everyone nowadays have access to a high-speed broadband connection. We can see the results in a variety of areas: eBooks can be downloaded and read without walking into a bookstore, while music can be purchased without taking a single step into a music store.

The same holds true for video games even at this very moment. There is already a shift from actual off-the-shelf video games to game distribution services in the gaming industry. Sony has its Playstation Network, Nintendo features the WiiWare, and Xbox’s offers both Live Arcade and Live Community games – all services that download video games straight to the console’s harddrive without a retailer’s lending hand (and heavy pockets). Of course, nothing has come close to the potential impact of cloud gaming technology.

The future of video games is a dark and scary place for retailers. Gamers typically expect a new next-generation console to launch every 4 or 5 years, and retailers expect to make a killing off these hot cakes. But with cloud gaming technology, all the necessary firepower (and much, much more) takes place outside the gamers’ home. No longer is it necessary for gamers to purchase the next-generation console, or the expensive graphics card and computer to play the latest games. These state-of-the-art games can be played in stunning high-definition instantly on nearly any computer (including Mac!), television set, or mobile phone. Gaming will instantly become much more accessible to a greater number of people then ever before. Not only will hardcore gamers be satisfied with cloud technology’s powerful capabilities, but also casual gamers who don’t want to tangle themselves with expensive controllers and consoles.

Apart from the consumers, publishers will also benefit from cloud technology. GameSpot has a quote from Morgan Securities’ Michael Pachter that supports this idea using the OnLive game service as an example:

In our view, the OnLive model will appeal immensely to publishers, who will likely derive greater revenue per sale than is derived through conventional retail distribution. Instead of 20 percent of the game’s purchase price going to retail and another 20 percent to the console manufacturer, OnLive will likely charge around 30 percent (our estimate) of the proceeds, with the balance going to the publisher.

Although cloud gaming has both its upsides and downsides, I believe that the gaming industry as a whole will benefit from the “new generation of gaming.”