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Microsoft has made no secret of the fact that it has been developing game streaming options, and at this year's E3 Xbox conference, it gave players their first real glimpse at how it will work. Essentially, there are two prongs to the offering – an all-streaming service that it still being developed under the codename Project xCloud, and another option launching into open trial in October called Console Streaming.

The latter will turn players' own Xbox One consoles into servers, streaming their own game library to them, while xCloud is likely to be more like Google Stadia – a persistent cloud-based service. More details on both versions will be forthcoming in the next few months, but Xbox demonstrated how it may work in practice at a behind-the-scenes Xbox Showcase.

Xbox showed several streamed games, running not on the usual large screens found around E3, but instead on an assortment of smartphones, each attached to a conventional Xbox One controller with a grip bracket. These were all the full Xbox One versions of the games, with no modifications to accommodate to the smaller screen size. Xbox say the games running on them – Gears of War 4, Resident Evil 7 and Halo 5 – were streaming from an Azure data centre 400 miles away, and in a hybrid model where server blades were mimicking an Xbox One console performing the newly-announced Console Streaming function.

Playing Gears of War 4 on the set-up felt a little slow, but that could have been more psychosomatic than a flaw in the service. The weight of the controller and the attached bracket to support the phone, combined with Gears games favouring clunky characters weighed down by heavy armour, may have created the impression that the experience was slower than it was.

Resident Evil 7 was ultimately a poor title to show xCloud off with. That's no reflection of the game itself, or even the service, but rather the environment. The Xbox Showcase took place in a brightly-lit auditorium, with overhead lights and plenty of background noise making the shadowy, claustrophobic horror game barely visible, and its chilling sound design inaudible.

Halo 5, however, showed the potential of streaming games, and the versatility of being able to play on any device capable of displaying the stream. Playing through a section of the single-player campaign, the controls were as responsive as I expected, characters moved with the speed and fluidity I was used to, and the game looked as sharp as ever – just much smaller.

Overall, it was a surprisingly smooth experience, except for some minor artefacting during the 'Elevator to Hell' mission in Gears 4, with distant backgrounds getting blocky if you stood still.

A common problem across all three games was that screen text designed to be read on a 55-inch screen is reduced to barely-legible pixels on a smartphone. This raises questions over the impact streaming could have on the gaming industry as a whole, particularly if phone streaming takes off.

Games like Halo 5 are designed top-to-bottom to be blockbuster experiences. They work best with a massive screen and surround sound, not pocket screens with tinny speakers. On the mechanical level, how would a multiplayer match hold up if played on a phone? Latency issues may be conquerable, but you wouldn't have the situational awareness afforded by a TV screen’s real estate. Or take Resident Evil 7 – it's a modern horror classic by any measure, one that reinvigorated the franchise. It doesn't matter if it's played from a disc, a digital download, or a stream, the material itself is unquestionable, a dark delight – if it's on a big screen TV or monitor. But it's hard to imagine any scenario where playing such a tense, absorbing title on a phone would be desirable.

It's tempting to think that players would respect the authorial intent of creators, and wouldn't even necessarily want to play AAA games on their tiny phone screens. Yet the reality is, for many people, that their phone is the screen they spend the most time on. The same arguments were made for film – no one wants to watch a blockbuster on a 5-inch screen! – and yet now you can download entire movies through Amazon or Netflix to your pocket device. If players start spending more of their time playing major Xbox games on their phones, will developers start designing to accommodate streaming to phones in mind?

Obviously, not all game streaming will be to phones – arguably, the phone-based showcase was a bit of a tech flex more than anything, allowing Microsoft to show the sheer potential of delivering high-end content to a device that would never be able to run it natively. There's also great potential in streaming for games that may become too big for other forms of content delivery – this console generation alone, we've seen Red Dead Redemption 2 clock in at around 120GB to download, and future titles will only balloon in size.

Microsoft's showcase proved that the backbone for streaming is viable, despite minor issues. If it can iron out the kinks by the time Console Streaming launches in October, there's a strong base for players to experiment with, allowing them to reliably – it seems – access their games when they're away from their Xbox. When it comes to streaming to phones, however, what we've seen so far makes a good example of why just because you can do something perhaps doesn't mean you should.

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