Analysts said OnLive was spending too much money and didn't have enough paying users.
Late last week, OnLive went through a complex bankruptcy alternative. The process, called "assignment for the benefit of creditors," allows it to continue operating its service. But employee stock options and investments from outsiders became worthless. HTC Corp., the Taiwanese mobile phone maker, said it expects to book a loss of about $40 million for its investment in OnLive.
Described as a threat to companies selling traditional packaged video games when it burst onto the gaming scene in 2009, OnLive offers video games streamed over an Internet connection, similar to how Netflix offers streamed movies and TV shows.
OnLive began offering game streaming to computers in early 2010 and later expanded to more devices, including tablets and smartphones. It also created an OnLive Desktop service to let you do something similar with a suite of Windows-based Microsoft Office programs.
OnLive was founded by technology entrepreneur Steve Perlman, who had worked on developing the technology for seven years before launching OnLive. Today, the company says it has more than 1.5 million active users, but this has not been enough to support what it pays for servers and data centers.
OnLive's board of directors said in a statement Sunday that it was faced with "difficult financial decisions" before it decided on the restructuring.
On Friday, OnLive's assets were acquired by a newly created company, also called OnLive. One of the old OnLive's early investors, Lauder Partners, is the first investor in the new OnLive.
Its other investors included AT&T Inc., HTC and Time Warner Inc.'s Warner Bros. AT&T declined to comment and Warner did not immediately return a message for comment. Autodesk Inc., another investor, also declined to discuss the development.
OnLive, which is based in Palo Alto, Calif., said that about half of its staff of 200 were offered jobs at the new company and more may get offers soon.
"I don't think that they set out to hurt employees, but it's unfortunate that people are going to end up unemployed over this," Wedbush Securities analyst Michael Pachter said in an email. "They probably should not have expanded as rapidly as they did, but it's clear that they were spending more than they could afford, so they restructured to right size the company."