The days of the PlayStation and Xbox could be numbered, if a new video game service lives up to its promises and launches in the UK next year.

A new company claims to have developed a system that will allow video games to be played in the home via existing cable TV networks, without the need for any extra hardware.

The proprietary system is the work of Playcast, a venture capital-backed company based in the UK and Israel. It claims its new system will allow video games to be played live on existing set-top boxes of on-demand TV providers, such as BT and Virgin Media.

At an exclusive demonstration of the technology on Wednesday in London, the company’s chief operating officer Alon Shtruzman told The Times that Playcast will offer a selection of video games from leading publishers as a subscription channel. He said: “We see ourselves as a pay TV operation, engaging with companies like Virgin, Sky, BT in the UK and Cablevision in the US, offering video games on demand as part of the TV mix. The games portal will appear like a channel on the EPG [electronic programme guide].”

The idea behind the service is not a new one, and other companies are already working on similar offerings. Gaikai, for example, offers a games streaming service over the internet, while Onlive, which was announced in a blaze of publicity earlier this year, has yet to provide a convincing public demonstration of its technologies.

Chief among the technical difficulties involved in streaming games is the problem of latency, the delay between pushing a button on a remote control and anything happening on screen. For current on-demand services, a half-second delay in pausing or controlling a film is considered acceptable, but video games require instant on-screen reaction.

Playcast claims to have overcome this problem with a proprietary video compression system tailored specifically for video games. The company claims that the system cuts the control time lag to 100 milliseconds or less, which is faster than the human eye can register.

At the demonstration on Wednesday, the system coped well with a variety of well known console titles, and the gaming experience was virtually indistinguishable from that offered by a PlayStation 3 or Xbox 360. It should be emphasised, however, that this was a closed demo, with the game server and the cable box in the same room.

The first country to experience the real Playcast experience will be Israel, where the company plans to launch in January or February next year via the local cable TV provider, Hot. Launches in the UK and Spain are planned for later in 2010, and negotiations with potential partners are underway.

“We see the UK as a big opportunity,” Mr Shtruzman said. “The iPlayer has helped to establish this country as a world leader in internet protocol TV, and we see our offering as a natural addition to the existing Pay TV structure.”

Russell Barash, the UK managing director of Playcast, said that the company plans to model its online offering on current pay to view services. “At launch, we will offer a mix of between 15 and 20 games designed to appeal to all tastes, from brain teasers and simple puzzles through to complex games like Call of Duty. We want to launch with a package of games that you would subscribe to as you do a movie channel.”

Video game developers desperate to extend the profitable life of existing games are already embracing the system, Mr Barash said (see commentary). Sony and Microsoft, the makers of today’s high-definition consoles, are likely to be less keen, at least in the short term.

Both companies lose money on their hardware and recoup it via licensing fees charged to developers. Playcast will almost certainly affect game sales, even if – like current movie channels – it only offers top games several months after release.

“We could be looking at the last generation of separate gaming consoles,” Mr Shtruzman said.

The Times contacted both Microsoft and Sony, but both companies declined to comment.