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The Mirage of Cloud Gaming (And How to Reach the Oasis)

The Mirage of Cloud Gaming (And How to Reach the Oasis)

Cloud gaming is the new “thing” in the media industry.

Whether it’s a game publisher or platform, there’s constant talk and even more ambition to be the so-called “Netflix of gaming”. And notably, this opportunity is coming with a lot more momentum than OTT video ever did: Microsoft and Google will be launching their services by the end of 2019, Sony has already had its in market since 2014, Amazon is expected to join the fray in early 2020, publishers Ubisoft and Electronic Arts have also announced cloud-based subscriptions that will launch next year, with Activision Blizzard and Square Enix rumored to be planning the same. And so on.

This speed stems from several differences between the gaming and video industries. From a technology basis, penetration of high-speed Internet and personal media devices is much higher than in 2007 (when Hulu and Netflix’s OTT service launched), as is consumer willingness to spend on digitally delivered content. Furthermore, a meaningful portion of gaming spend and engagement has been online since the early 2000s and has been rapidly growing ever since.

On the content front, engagement is also far more concentrated among a handful of titles in gaming than is the case in the video industry. This means that deep and broad catalogue rights are less important, and a plausible gaming service can be launched with only a few anchoring titles. And even where catalogue is concerned, these rights tend to be available.

In gaming, growth has piled up on top of each other like a geological stratum. This reiterates the idea that cloud gaming will grow the market.

One of the reasons it took so long for Big Media to launch its streaming services was the fact that movie/TV libraries and future output tended to be sold for three to seven terms as many as four years in advance. And competitively, every media company has seen Netflix’s success since 2007, as well as consequences felt by its competitors who waited too long to enter digital video. To point, it has taken more than a decade after Netflix for the major content companies to launch their own D2C SVOD services, but many of the major game publishers are launching their own D2C services at the same time as aggregator platforms Microsoft/Amazon/Google.

Yet for all its enviable success, Netflix hasn’t really created new value in the video ecosystem; it just stole share from both content companies and distributors. In fact, it’s believed to have placed deflationary pressures onto the industry by cannibalizing consumption to an economic model that generates (far) less revenue per hour watched than traditional TV or transactional video, and accelerating cord cutting.

Still, there are reasons to be more optimistic about the effect cloud delivery will have on the gaming industry. By the time streaming reached video, it was already the most popular and intensely consumed media category on earth. Gaming today has far lower penetration and less average usage per customers. Furthermore, gaming has always had far higher barriers to adoption and usage. There’s been no equivalent of free over-the-air broadcast in video gaming – gamers always needed to spend money, access a device, be in a specific place, and load up an experience.

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The Mirage of Cloud Gaming (And How to Reach the Oasis)
The Mirage of Cloud Gaming (And How to Reach the Oasis)
Jul 05 2019