What do you think of this as a next gen system?  

Concept:  Capabilities would be about equivalent to what the PS3 and 360 currently do, so there would not be a significant advancement in technology.  You don't buy the console.  Instead, you put down a $150 refundable deposit.  You will get your money back when you return the machine, unless it is damaged (beyond usual wear and tear).  You would get any upgrades to the machine free of charge.  For instance, if a newer version came out a few years later that expanded the capabilities, you would get the new one by sending in the old one.

In addition to the $150 refundable deposit, you would pay a monthly fee of about $20 a month.  You would have to buy the controllers you wanted, but for that monthly fee, you would have access to any game developed for the machine.  You could play any game all you wanted for as long as you wanted, and switch between games playing multiple games on the same day.  You would not visit the game store anymore, because everything would be sent to you online.  

For online gaming, cheats would be allowed.  But if you use the cheats, you are (behind the scenes) put into groups against others who are also using cheats.  Only noncheaters would compete against noncheaters.

$20 a month, so every 3 months would be like buying a new game.  That means if you buy 4 games a year, this machine would be a bargain to you because you would have access to far more than just 4 games.  Quality of games would be about the same as what you currently get on the 360 / PS3.

Would you be willing to subscribe to something like this, and if so, how much per month would you be willing to pay (if you'd be willing to do more than $20 a month)?

More details.  

The way the game designers/developers would be compensated would be based on the total income divided up amongst the games according to play time.  That is, the more a game is played, the larger percentage of the total revenue is earned by that developer.  So while there isn't an instant payback on the scale of newly released games, there is a long term payback instead. Consider some of the cult games that start off with poor sales and then suddenly gain a stonger following later.  Something like that would mean the developer suddenly has an unexpected infusion of cash.  Just having a game on the network becomes an asset on the balance sheet of a development company.

Developers can update content / programming online, meaning the games could continue to change, even years after the initial release.  That would bring renewed interest to the game which would equate to more revenue, and also improves the game long term.  The incentive is for the developer to come up with games that people want to spend a long time playing, and to fix release bugs.

The main publisher would be the company that produces the console.  However, other servers can be setup to provide the console with "homebrew" games.  No revenue would be split to the other servers, but it would enable homebrew writers the ability to "prove" themselves, show the games they write and when it meets the level of quality that the main publisher is happy with, then the main publisher could either buy the game outright or put the game on the server and begin sharing the revenue with the developer.  To end users, it makes no difference where the game is, because it's part of the monthly charge either way.

The SDK would be offered free of charge, or for a very low fee and would actually work on a PC running a simulated console. The SDK wouldn't be fantastic, just enough to get you going.  Other developers could sell more extensive gaming engines that handle more of the physics, AI, etc.  But it would be enough to get someone who wanted to write the programs able to do them.

You complicated things too much for my liking with this refundable $150 and $20 per month, etc.

I just want them to be a slight or moderate power/graphics improvement, better online services, and cost no more than $300. 

Some consequences of this concept:

1) Machine is LICENSED, not sold.  That means NO TAMPERING or else you lose your deposit.  

2) Since the machine is LICENSED and all scores, trophies, etc. are stored on the net, if someone stole your machine, you wouldn't lose anything.  And better yet, once you reported it stolen, the thief would not be able to connect it to the network because it would be identifying itself and its identity would be that of a stolen machine, rendering it useless.

3) Each machine would have its own ID, and tampering with the ID wouldn't do any good because only IDs of existing machines would work.  If you tried to run the machine with some else's ID, the conflict would show up on the network and the "suspected" IP access automatically blocked. 

4) No piracy.  What is there to pirate?  You already have access to everything just by being on the network.  There's no way to have your machine able to log into the network unless you've paid the monthly fee.  In addition,the only way to pirate would be to crack open the sealed case, which then causes you to forfeit your deposit.

5) Holding onto $150 from everybody enables the company to make $$$ in TVM (like interest), and yet makes the venture "risk free" to try for the user, making it all the more appealing.  

6) The publishing companies would still benefit from doing what they do best -- marketing.  No longer do they need to worry about  distribution.  They still get their share.  If they want to buy the full rights to the game from the developer and pay the developer one lump sum, that's their choice!

7) Retail stores are the ones that stand to lose the most from this method, because they can't do the huge markup margins on the games anymore.  Aside from selling the subscription for the consoles, and maybe gift cards for months of usage, there is really no other profit.  The same is also true about game resellers, since they would not be able to resell any games for this console.

8) No DVDs to break / lose.

9) Requires an online connection to play any games. To this end, the console would probably need 4G and wifi built in.  Everything revolves around a high speed connection, so that would be one of the primary focuses of this console.

Ok, explain how it's more complicated to pay $150 for a machine and $20 per month vs paying $300 for a machine and $60 a game?  The whole concept wouldn't be marketed at the level of detail I'm posting. That's just for the bean counters and legal aspects.  The marketing would be:

"Try it risk free for as long as you like!  Cancel your subscription anytime and get a full refund on the hardware!"

Would that not be appealing to you?

I wouldn't buy it because I like owning my own stuff even if it costs extra, I like being in control.

But maybe if the games are good, others will like the deal.

its a fun idea, but a lot of people like the physical media, having a download only device doesn't work (as demonstrated by Onlive and the PSP Go)

I can't see developers choosing to create games for this device, the way you propose the cash is distributed to developers effectively means that games like FIFA, Madden and CoD, would benefit most as they are "ever green", I don't often play a game more than one more time after I've completed it and I often go back to playing these evergreen titles as they are always fun and distracting, I can see games which only have single player getting really affected by this, as to compete with the time I play online, I'd have to intentionally go for getting all achievements/trophies for the system

how does SONY, MS and NIntendo or who ever does this make money off the hardware when they are giving away free enhancments. 

your concept is flawed because 20 dollars an month from lets say 50 million people is 1 billion dollars. An the amount spent on games an month is much higher than that figure. 

But something like this could happen but it will be cloud and not free upgrades

To be honest I didn't really read the whole thing the first time, but I read it fully now.

I guess its a cool idea, and a lot cheaper in the long run as long as you would normally buy more than 4 games per year. Still just seems too annoying to me though. It sounds more like you're just renting the console than actually owning it. For something that cheap its kinda weird to have monthly payments. 

I could see it working as say $200 for the console (none of that refundable down payment stuff), and then you own the console no matter what...its yours, no monthly payments. But then instead of having game stores everything is bought online and you have the option to buy each game outright (normally) for the usual $50-$60 or you can buy a game plan for unlimited gaming for $20/month but you don't actually own any of the games, you're just streaming them from the online source. 

See the model I'm going after here is the Netflix model.  

I have over 250 DVDs that I bought before I subscribed to Netflix.  I haven't bought one since.  I used to buy 1 or 2 a month, and rent from blockbusters about 6-8 a month.  It's brought my entertainment cost way down, and yet we're seeing a magnatude greater in the number of videos we watch through netflix and the mailer.

I have no desire to retain the DVDs anymore because I know I can get it whenever I want.  There are just a handful left that I am going to buy, and that's basically to complete my collections (yes, silly reason).

The download models employed by the other vendors doesn't work because people don't want to wait days for some of these huge games to download when they could go pick it up in the store and play it right now, fast, without having to wait.  There's little to no advertising for the online games.  But if ALL of your games are online, you don't browse the catalog at the store anymore, then all of the marketing is done differently.  If the whole game doesn't have to download before you can play it, then those wait times are drastically reduced.