NVIDIA Corporation (NASDAQ:NVDA) just revealed the world's first-ever Android TV console, and the investing world seems to be torn.
On one hand, it's unsurprising the console was built for gaming -- or more specifically, games running on Google's (NASDAQ:GOOG)(NASDAQ:GOOGL) Android TV platform. After all, NVIDIA made its name by popularizing discrete graphics processing units, or GPUs, for PC gaming. And Google already told the world at last summer's I/O conference that Android gaming would be one of its primary points of focus going forward -- an equally unsurprising move given Android gaming's exceptional growth.
On the other hand, it seems an insurmountable challenge to be able to disrupt today's enormous $70 billion console game industry, especially given the traction enjoyed by the respective ecosystems of Microsoft's (NASDAQ:MSFT) Xbox One and Sony's (NYSE:SNE) Playstation 4 consoles.
But that won't stop NVIDIA from taking its best shot.
The Netflix of games
To better understand how NVIDIA wants to disrupt traditional console games, have a look at the SHIELD promo video it released a few days ago:
First, it speaks volumes that of the 73 seconds of content in that video, the first 67 seconds are dedicated to introducing consumers to the NVIDIA's GRID on-demand gaming service. Only in the end do we finally see the SHIELD console itself, with the narrator succinctly stating "SHIELD is your way in."
But that's not to say SHIELD isn't brag-worthy. To the contrary, it's being billed as the "central member of the SHIELD family of devices," and a worthy complement to the previously released SHIELD tablet and SHIELD portable products. The SHIELD console is also powered by one of NVIDIA's new 256-core Tegra X1 processors, has 3GB RAM, is 4K Ultra-HD ready, and capable of playing back and capturing 4K content at a blistering 60 frames per second. It also has 16GB of internal storage for local content, comes with a controller, and will be available in May starting at just $199.
So why the outsized focus on GRID?
Because after users buy a SHIELD device, the GRID on-demand gaming service will be a crucial driver of recurring revenue.
As it stands, NVIDIA is trying to hook existing customers by offering GRID free for all SHIELD device owners through June 30, 2015. If gamers want to enjoy GRID's ultra-low-latency streaming and growing catalog of games after that, they'll need to pay for one of two subscription tiers -- a Netflix-esque experience, if you will, for the gaming world.
NVIDIA still hasn't disclosed pricing for either tier. But we do know the first tier will be simply called "GRID," and gives subscribers the ability to stream available titles at 720p and 30 frames per second. The second tier will be dubbed "GRID Plus," and lets customers stream at 1080p and 60 frames per second.
Content is key
Of course, just as a broad library of content draws subscribers to Netflix, equally important to NVIDIA GRID is its ability to continue securing the latest AAA titles for gamers' streaming pleasure. Lucky for us, NVIDIA has that covered, too.
At first, there will be over 50 Android titles specifically optimized for SHIELD and available for download, including AAA titles like Crysis 3, Doom 3: BFG Edition, and Borderlands: TPS. This group capitalizes on the fast growth of both free-to-play and lower-cost Android titles.
Second -- and perhaps more important -- GRID's subscription price will include streaming access to 50 other AAA titles including console games like Batman: Arkham Origins, GRID 2, and Metro: Last Night Redux. NVIDIA promises new streaming titles will be added each week. This is where GRID showcases its greatest value.
Finally, the GRID service can be used to purchase and stream new release AAA titles, notably including the upcoming releases of Batman: Arkham Knight and The Witcher 3: Wild Hunt. Here's where GRID caters to hardcore gamers who want the latest and greatest in addition to the above value-add services -- all while relying on the computing might of thousands of GPUs in the cloud, which will eliminate the need to continually upgrade to the latest hardware console.
Disruption will take time
Investors should remember it'll likely take years for NVIDIA GRID to truly gain steam. It helps that the SHIELD console is relatively affordable at $199, and will arrive nearly two years after the respective late-2013 launches of both the Xbox One and Playstation 4. But that's still relatively early in the multi-year console upgrade cycle, so it'll be awhile until many gamers are ready and willing to consider switching gears and abandoning the status quo.
In the end, though, if NVIDIA can effectively plant the seeds for its vision now, GRID's potent mix of value and innovation might just be enough to usher in a new cloud-based paradigm for the gaming industry.