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Free-to-play games, already competing for the attention of a growing video game audience on mobile devices and computers, are making a play for the living room.

Upstart technology firm Ouya (pronounced OOO-yah) is developing an under-$100 video game system that connects to the TV, a $16 billion market that has traditionally been owned by Microsoft, Nintendo and Sony and the big-budget titles designed for their consoles.

Its new game console, which will use a customized, open Android-based operating system for high-definition video games, could provide the first direct-to-market pathway for independent developers to bring the next Angry Birds and Temple Run to the TV.

MORE: Ouya's website

About the size of a Rubik's cube, the Ouya system is smaller than traditional consoles but the controller is comparable in size to current models. Features include buttons, two joysticks, a directional pad and a touch pad.

Consumers will have access to an online store - similar to the Android Market and Apple App Store- that is full of games, each of which must have a trial portion that is playable for free. "After that trial, it is entirely up to the developer" how they want to make money from the consumer - for example, though full downloads, subscriptions or in-game purchases, says CEO Julie Uhrman. "We are just tired of gamers spending $60 for a (console) game and feeling cheated."

Online and mobile game sales make up a growing portion of the $60 billion global games industry and next year may surpass console and PC games spending, estimates consulting firm PricewaterhouseCoopers,

"We wanted to come up with an idea that really leveraged where the growth in gaming was and bring it to the television," says Uhrman, a games industry veteran who previously worked at online game rental company GameFly, IGN.com and Vivendi Universal. "We think it is pretty disruptive."

Current investors have staked Ouya enough for the company to develop working console and controller prototypes. Ouya begins a funding campaign today to raise $950,000 on Kickstarter.com for further product development. Ouya's plan is to have its system available in the first quarter of 2013.

Minecraft developer Markus "Notch" Persson plans to deliver an updated version of his hit game for the console. Ouya hopes to appeal to hard-core gamers and casual players, as well.

The sub-$100 price could perhaps drive Microsoft and Sony to drop prices on their systems, says Wedbush Securities analyst Michael Pachter. "Ouya could hit a sweet spot with gamers."

But open-source developed games are "not going to push Call of Duty or Madden aside," says Mike Vorhaus of consulting firm Magid Advisors. "I think there is going to be a lot of interest and experimentation."

Developers who donate $699 on Kickstarter get a console, two controllers and a game development kit. They will keep 70% of game revenues; Ouya gets 30% - typical of online and mobile game models.

"It is still super complicated to bring games to the living room, which is one of the reasons we are seeing all the growth move to mobile platforms," Uhrman says. "Some really high-profile developers are leaving their shops and going to mobile. It shouldn't have to be this way."

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