Games has grown over the past few decades to become a hugely valuable market that generates very high customer engagement. According to the latest study by analyst firm Newzoo, the global games market will generate $152.1 billion in 2019, almost ten per cent growth from 2018.
That’s 57 per cent more than the $97 billion generated by the global theatrical and home-movie market last year, and eight times the $19.1 billion generated by the global recorded music market and games is growing in every region of the world. And, unlike those other formats where the shift to digital has been slow, more than 90 per cent of revenues will come from digitally delivered games.
After a few years without too much happening, over the past year or so there has been a significant movement towards game streaming with companies like Google, Amazon, Electronic Arts or Microsoft announcing their cloud gaming projects. Cloud gaming is estimated to be worth $2,5 billion by 2023, so the fact that these giants have made their move now suggests the scale of the opportunity. There’s no longer any discussion on whether streaming will happen, but rather on the right way to compete.
Why is this happening?
Mobile gaming, with 45 per cent of the global games market, remains the largest segment. This is due to the ubiquity of mobile phones, low entry barrier for game developers, and the lower expectations around how a mobile game should look and play.
On the other side there is PC and console gaming, where gamers buy-in to a never-ending upgrade cycle, with new hardware costing several hundred pounds each time.
Cloud gaming bridges the gap between HD gamers and these billions of people playing in low spec devices. It lowers significantly the entry barriers to AAA games, multiplying the market reach for games companies. It also provides a more convenient user experience, as downloads are no longer needed, and many other benefits like real cross-platform gaming and the ability to play with friends and family around the world.
Even gamers who already own a gaming PC may struggle to enjoy a decent performance of the latest AAA games, as according to Steam's hardware & software survey, between 50 per cent and 80 per cent of them don’t have the recommended GPU or processor requirements. This is one of the main reasons why cloud gaming is set to shift the industry from a hardware-based to a software-based industry, ready to emulate Netflix and Spotify’s approach to content distribution.
Historically, Telcos have only played the part of providers of connectivity for PC and gaming consoles. But with cloud gaming, telcos have a real opportunity to move much higher up the value chain.
Importantly, while many of the existing players are targeting hardcore gamers, cloud gaming is likely to be much more appealing for the mass market/family segment. This is because cloud gaming solves pain points which are relevant for this segment (tech literacy, cost of hardware, cost of games, parental control, content, discovery, so on), but not for the hardcore gamer.
Plus, telcos already target families and mass-market consumers. This means that their whole marketing machinery is already geared at promoting new, value-add subscription services. They already have all the tools they need to launch and promote cloud gaming services, actually giving them an advantage over the big games companies who are getting all the attention at this point in the hype cycle.
There are other reasons too why cloud gaming is a sensible way for a telco to expand its entertainment portfolio:
- The advent of 5G will lead to ‘industry 5.0’: here’s what you need to know and how your company needs to prepare
- Games as a customer acquisition tool: streaming games represents the first big opportunity in some time to offer a completely new category of digital services to their subscribers, making a differential offering if they are first movers.
- As an up-selling tool: the possibility to enjoy high-end games on a TV or PC represents a good reason for customers to upgrade to premium connections (5G).
- As a retention tool: Cloud gaming can promote customer loyalty and reduce churn when bundled into top-tier tariffs together with connectivity and Pay TV subscriptions.
- Increasing ARPU: telcos have a fixed cost for each new subscriber that they connect and supply with a set-top box. The more services they sign up for, the more profitable that customer becomes.
The 5G opportunity: a radically new use case
Telcos have struggled for a long time to find new sources of growth and market expansion. Now, 5G is on the horizon, but it represents a fresh new supply of costs along with huge uncertainties regarding its monetisation.
When it comes to getting consumers to adopt new network technology, you need an appealing use case to underpin your sales pitch. 3G was all about access to the mobile internet, and 4G was launched with the promise of streaming music, TV and video. When it comes to 5G, cloud gaming happens to be the most compelling, brand new service that telcos can base their roll-out around.
The biggest impact 5G will have on residential customers is faster speeds and reduced latency. Those also happen to be the key barriers to launching a commercial cloud gaming service.
With 5G, any smartphone or connected tablet will have 10–100 times more data per second, compared to 4G, which is essential for sending high-definition streams. This means there are two different service propositions telcos can offer:
- In 5G-connected homes catalogue-based subscription services can be offered. Families will be able to play the latest games on almost any TV or PC, even in remote locations not reached by high-speed fixed broadband.
- Gaming on the move changes the perception of mobile gaming. As mentioned previously, mobile gaming has been limited so far to casual games that can be processed locally by a smartphone or tablet. With 5G, millions of mobile devices will be ‘AAA gaming-ready’, as the processor and battery intensive work can be done elsewhere, converting tablets or smartphones into real next-gen consoles. Multi-device gaming will assume its full meaning, as you can start a game on your PC and pick it up on your smartphone with no difference in the quality of the gaming experience.
- Navigating the 5G fast lane: the sophisticated hackers of today will look to capitalise on any weaknesses they can
5G makes VR gaming more viable
The speed of 5G also brings VR content into play. Processing and streaming of VR can be extremely demanding but there are already ongoing projects to provide cloud gaming in affordable VR headsets in order to create a more enriched and convenient gaming experience at greatly reduced user costs.
All of this is likely to happen sooner than you might think. Already, several telcos across the world have already started to commercialise cloud gaming subscriptions on 5G networks. Telecom Italia was the first in Europe, and several others are in various stages of trialling their own offering.
With all telcos looking for ways to monetise their 5G networks and increase their revenues, streaming games services represent an unmissable opportunity to turn their networks, finally, into the most significant gaming channel.
Javier Polo, CEO, PlayGiga