The video game industry is turning to the cloud

Viewing and listening habits have changed dramatically over the past decade. Consumers have set aside CDs, DVDs and programmed programs for subscription entertainment services such as Netflix and Spotify which are streamed online from vast server warehouses.

After a slow start, the video game industry is catching up with the rest of the entertainment industry.

The global cloud gaming market will grow from around $1 billion in 2020 to $12 billion in 2026, according to technology research firm Omdia.

Media consultants and analysts say the growth is due to increased consumer demand and increased investment from major console makers – Microsoft, Sony and Nintendo – to expand the reach of their games. They also point to the impetus given by a rapid increase in Internet-connected devices and the deployment of fifth-generation, 5G, high-speed mobile networks.

Initial predictions that cloud gaming might be a “console killer” were wrong. In fact, cloud gaming diversifies revenue for console makers and helps them reach new customers. “Ironically, console makers are driving the cloud [gaming]says George Jijiashvili, senior analyst at Omdia and gaming expert.

Cloud gaming expands the appeal of video games by increasing the number of devices on which games can be played, including not only consoles but also smartphones, tablets, PCs and smart TVs. Only a decent internet connection is needed.

“It’s similar to Netflix’s business model,” says Jeff Youssef, partner and media expert at Oliver Wyman, a consulting firm. Another benefit may be the collection of better customer data, he adds.

Services range from free, with the option to pay for additional features, to $10 or more per month for new premium games and a larger game library. Customers can also download games to consoles.

Microsoft’s Xbox is the undisputed leader in the cloud gaming market, Jijiashvili said, helped by the popularity of its console and its major cloud computing company, Azure.

At the end of 2021, Microsoft and Sony accounted for nearly three-quarters of total cloud gaming market revenue, according to Omdia.

In April, Satya Nadella, president and CEO of Microsoft, said more than 10 million people had streamed Xbox games.

The next growth tech markets in cloud gaming

Countries to watch 2022-2026

South Korea Prominent in esports and the metaverse, thanks in part to government support. Many developers are now focusing on play-to-earn formats, where players can accumulate cryptocurrency.

WE The largest console market and the source of most gaming innovation since the industry began.

China Competing with the United States for the largest overall gaming market, China is the undisputed leader in mobile gaming revenue.

Japan A bastion of consoles, Japan is beginning to embrace mobile gaming, with annual mobile gaming revenue expected to be 40% ($6.5 billion) higher in 2026 than in 2022.

Ssource : FT-Omdia Digital Economy Index

Meanwhile, Sony, which makes the PlayStation console and was the first major console maker to provide a cloud gaming service, says cloud gaming “remains a critical part of our overall business strategy.” Its customers can stream hundreds of games through its “PlayStation Plus Premium” service at $17.99 per month.

As the market grows, console makers increasingly face competition from dozens of startups offering subscription-based cloud gaming, as well as game developers and tech giants. Both Amazon and Google have cloud gaming services, although Google must close early next year, when netflixThe vice president for games of said that the company is considering setting up a cloud gaming platform.

The United States is by far the largest cloud gaming market, followed by China and the United Kingdom, according to Omdia. In terms of revenue, the U.S. market for cloud gaming subscription services is nearly five times larger than China, Jijiashvili says.

Chinese game companies are stepping up efforts to expand overseas by acquire western game companies and in partnership with hardware manufacturers. The expansion comes as its domestic market has slowed due to regulatory restrictions on the industry.

In August, Tencent Games, part of the technology company Tencent, until recently the Chinese company most valuable companyand Logitech, a Switzerland-based computer peripheral maker, said they are teaming up to develop a portable device which will support “multiple cloud gaming services”.

Cloud or console?

The perfect video game is a topic of endless debate. However, certain types of games, such as adventure and role-playing games, are better suited to be played in the cloud, says Omdia’s George Jijiashvili.

This is because they are less reliant on the quick “twitch” reactions required for “shooter” formats, where delays of a few milliseconds between pressing a button on the controller and a hit or punch landing or missing from the screen can ruin a game. Such “lag” has been one of the most common complaints about cloud gaming.

For now, graphics in console games are superior to cloud games, experts say. But that may change if developers start making games specifically for the cloud, rather than importing console games.

Such “native” cloud games could take advantage of the superior processing power of the cloud and allow hundreds or even thousands of people to play the same game simultaneously, says Phil Eisler, vice president and general manager of GeForce Now, a cloud gaming service from Nvidia. , which also manufactures the hardware used to process graphics in video games.

We’re not there yet, but there will be an “inflection point” when cloud-native games outperform console games, says Olivier Avaro at Blacknut.

Initially, China’s cloud gaming services mainly focused on its domestic market, sometimes bundled as a service in the county’s 5G network. “You might see some of China’s early attempts at cloud gaming as adding value to its 5G rollout,” says Neil Barbour, research analyst and gaming expert at S&P Global Market Intelligence, an information and financial technology provider.

For all cloud gaming companies, a key question is whether to try to increase revenue by increasing advertising.

In the case of mobile phones, it’s become the norm, with ads often blocking game features, says Stephen Bradley, managing director of Deloitte Consulting and gaming market expert.

But for “premium” paid games, there is “more resistance” to advertising among customers, he says.

Even if gamers are willing to accept more advertising in exchange for free or lower-cost games, experts doubt that advertising will become as important for streaming games as for TV or music. “I don’t think advertising will be able to balance the full cost of the cloud,” says Olivier Avaro, founder and CEO of Blacknut, a French cloud gaming service.

The sector is expected to grow steadily over the next decade, boosted by 5G, smart TVs and “casual gamers” who want more flexibility in how and where they play. But cloud gaming is unlikely to replace console anytime soon – if it ever does.

“It is still very early for [cloud gaming]says Omdia’s Jijiashvili. “It will become more and more important [and] will coexist with the console.