There is no doubt the cloud gaming market is at an inflection point, with major heavyweights getting increasingly involved over the past 18 months. As of 2021, 75% of heads of US broadband households report playing video games for at least one hour per week and 30% of US broadband households reported subscribing to or trialing at least one free or paid gaming service.
Cloud gaming services provide a new opportunity to serve the gaming market and capture the consumer segment without gaming consoles or pc gaming hardware.
The continued advances in technology, growing expectations for entertainment consumption to be cross-platform, and the prospect of cloud gaming inclusion in ecosystem strategies make this an interesting market to watch going forward.
There Will be Few New Entrants – Establishing and operating a cloud gaming service is prohibitively expensive and challenging. The most significant requirement is performance-competitive cloud infrastructure. It is expected that if there are new entrants, given the state of current competitors it would have to be a party that is willing to employ the cloud resources of one of the current competitors, or already possesses substantial cloud computing infrastructure of their own.
Subscribership Will Benefit from Consumer Demand for an Aggregated Entertainment Experience - The growing consumer desire for aggregation within the disaggregated video industry may give hints as to the potential growth in appeal for a multiplatform cloud gaming service. Cloud gaming service subscribers may respond to marketing campaigns focusing on the simplicity of a single point of subscription, purchase, billing, and consumption - one that allows them to play across platforms. Along with increasing the appeal of the services to consumers, this aggregation approach potentially drives greater revenue for game developers by increasing their reach and making it convenient for consumers to subscribe to their content services.
There Will Be Collaboration, Cross-promotion, and Bundling – There are numerous opportunities expected to be explored across the gaming, connectivity, and consumer electronics device ecosystem. LG’s announcement in early 2021 of the availability of Stadia and GeForce Now on new TVs is unlikely to be the only instance of device bundling and co-promotion. Along with smart TVs, tablets, smartphones, PCs, and streaming media players are qualified targets. Additionally, service providers, networking equipment manufacturers, game publishers, and other parties are also likely to collaborate, partner and/or co-promote in some way. The more that cloud gaming services mature in performance and proposition, the greater the likelihood that companies in markets adjacent to gaming will see added-value potential in a cloud gaming tie-up in some form.
Content Rights and Agreements, and Software Industry Comfort, Will Evolve – Much like the initial friction between the video content owners, aggregators, and pay-TV operators over the new paradigm of watching content over the open internet, and their eventual adaptation - so too will the gaming industry. Its content agreements and its revenue structures evolve around cloud gaming as another viable revenue-generating channel. What this will mean for consumers at the service level, however, has yet to be determined. Studios and publishers may employ similar measures as those employed by premium video content owners with vMVPDs (online pay-TV services) – premium content access can be an optional add-on to a base content package.
Many Technical Issues Will Dissipate – Many of cloud gaming’s issues revolve around performance and over time, service speed and responsiveness will improve. Additionally, there will be a natural evolution in the average levels of network bandwidth and latency in consumers’ home networks and in their broadband connections. As technical issues become less of a concern, services’ subscriber acquisition and retention will gravitate back towards the typical dynamics of pricing, content package, and perceived value.
Multiple Players Will Bear the Costs Needed to Eventually Bring Cloud Gaming to Fruition – Cloud gaming’s history of service failures is an indication of the difficulty of the task. There are remaining issues to be solved, and it is likely that the idealized mainstream-friendly vision of cloud gaming that appeals beyond early adopters and dedicated gamers is still several years away. The costs involved with taking services to this point of technical and market maturity will almost certainly exceed subscription revenues in the near term. The market’s current slate of competitors is comprised of multiple companies that have considerable financial resources, and consumer ecosystem strategy commitments to cloud gaming. It is likely multiple parties will push ahead through near-term challenges and costs to reach the point where cloud gaming has become an accepted mainstream game consumption paradigm.
Success Won’t Necessarily Be Measured in Direct Profit and Revenue Generation – Due to the nature of most of the companies currently offering cloud gaming services, direct revenue, profit, and loss for their services may not be the ultimate metrics of success. Multiple players are more interested in the revenue long view - how well they can draw consumers in and lock them into their ecosystems for the long term. Multiplatform reach for cloud gaming services is essential to gain the scale needed for many of these players’ big-picture ecosystem objectives
As average broadband speeds increase, the number of cloud-gaming-viable connected consumer devices continues to grow, and cloud gaming services improve in both performance and consumer awareness, adoption interest is expected to rise accordingly. Consumer interest in a gaming service that spans their everyday platforms without any additional hardware investment is expected to steadily grow, but the opportunity presented to the industry is dependent on service pricing.
This is an excerpt from Parks Associates library of research. For information on our research visit www.parksassociates.com or reach out to me directly.
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