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Source: OnLive Found A Buyer, Cleaned House To Reduce Liability Prior To Acquisition (UPDATED)

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We’re hearing from a reliable source that OnLive’s founder and CEO Steve Perlman finally decided to make an exit — and in the process, is screwing the employees who helped build the company and brand. The cloud gaming company reportedly had several suitors over the last few years (perhaps including Microsoft) but Perlman reportedly held tight control over the company, apparently not wanting to sell or share any of OnLive’s secret sauce.

Our source tells us that the buyer wants all of OnLive’s assets — the intellectual property, branding, and likely patents — but the plan is to keep the gaming company up and running. However, OnLive management cleaned house today, reportedly firing nearly the entire staff, and we hear it was done just to reduce the company’s liability, thus reducing employee equity to practically zero. Yeah, it’s a massive dick move.

OnLive hit the gaming world hard when it launched in 2009. Promising playable games there were lag free, OnLive moved gaming to the cloud. The service took some time to gain traction but finally hit its stride last year with the addition of several top-tier titles. It was rumored in June that even Microsoft considered buying the company. Some even thought OnLive would be a good fit within Sony — until Sony bought OnLive competitor Gaikai last month instead.

“Sony Computer Entertainment will deliver a world-class cloud-streaming service” Andrew House, president and group CEO of SCE said last month. Sony paid $380M for Gaikai, a cloud gaming company with nearly zero brand recognition. OnLive could have gone for a lot more.

For an upstart cloud gaming service, OnLive has done relatively well for itself. The company initially outed only one cloud gaming console, but quickly embraced others. The software works with most Android tablets, ships preinstalled on Vizio TVs (and its new Co Star Google TV), and is available for the iPad and computer desktops.

We reached out to OnLive for comment but the company will neither confirm nor deny the claim. All the PR rep was willing to say was that the aforementioned Vizio Co Star launches today. The company also would not comment on the layoffs but Martyn Williams tweeted seeing OnLive staffers leaving their office carry boxes. These people likely just lost their jobs and equity prior to OnLive’s exit.

Update: OnLive provided TechCrunch the statement below. Like earlier reports suggested, it sounds like OnLive Inc. was dissolved and a new company, OnLive Inc 2 or something of the sort, will continue in its place and is likely backed by new investors. The statement indicates that “a large percentage of OnLive Inc.’s staff” will be hired by this new company, which will then hire more people. But there’s no word on if the original employees completely lost their equity. No matter how OnLive spins this move, it’s still looks shady to me.

We can now confirm that the assets of OnLive, Inc. have been acquired into a newly-formed company and is backed by substantial funding, and which will continue to operate the OnLive Game and Desktop services, as well as support all of OnLive’s apps and devices, as well as game, productivity and enterprise partnerships. 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.

We apologize that we were unable to comment on this transaction until it completed, and were limited to reporting on news related to OnLive’s businesses. Now that the transaction is complete, we are able to make this statement.