OnLive assets sold to new company, service will continue

UPDATED: Cloud gaming pioneer OnLive has confirmed that its assets have been sold to a newly-formed company with “substantial backing.” OnLive will continue to operate its gaming and desktop streaming services and supports its current partnerships, the company said in a statement.

“The new company is hiring a large percentage of OnLive, Inc.’s staff across all departments and plans to continue to hire substantially more people, including additional OnLive employees. All previously announced products and services, including those in the works, will continue and there is no expected interruption of any OnLive services,” the company said.

OnLive said initial reports on the situation at the company were “way overstated,” but the company could not respond until the transaction was completed. The management team remains intact, but no further details were released. (original story continues below)

OnLive, a cloud gaming startup that promised big-budget game titles streamed to a TV or computer, is now denying rumors that it is shutting down and laying off its workers. It all started following an email reportedly sent by an OnLive employee who told veteran video game developer Brian Fargo that the staff was being laid off and the OnLive service would be shut down with a new company formed. The employee, however, then tried to recall his sent email.

Mashable quoted a source close to the situation who said the staff was fired at a company meeting, with some of the employees potentially rehired as the company transitions to something new.

UPDATE: Joystiq is reporting that the company has been sold to a third-party and that at least 50 percent of the staff was laid off. A former employee told Joystiq that employees were not getting severance and that OnLive was dealing with operating costs of $5 million a month. There’s at least one report of OnLive employees leaving the office with moving boxes.

I reached out to OnLive PR and was told by spokesman Brian Jacquet in an email that: “My comment is no comment on the news other than to say the OnLive service is not shutting down.”

That still leaves a lot of wiggle room including the potential that the service has been bought by another company. OnLive has been rumored to be an acquisition target of Microsoft (s msft) or Sony in the past. Sony eventually bought OnLive rival Gaikai.

Some citics and competitors have wondered whether OnLive’s business model was sustainable. TransGaming CEO Vikas Gupta questioned whether’s OnLive’s fluctuating operating expenditure and performance concerns would be able to hold up over time. That’s a key question because the company is required to make big investments in data centers to support its streaming service.

Mashable said the company has turned down acquisition offers in the past and now may be only viable as an intellectual property play based on its cloud patents.

The company has been inking deals lately including with Ouya, the TV game console Kickstarter project. The company’s Twitter account is still pushing out updates on product news.