The Video Game Industry (and Those Outside It) Are Doubling-Down on Cloud Gaming
2020 has seen major investments in "games-as-a-service," as new players enter the ring, with an eye on 2021.
On-demand, streaming entertainment has gone from a niche segment of the market to the dominant force for TV, movies, and music – and now, the video game industry is preparing for the next round of "streaming wars." Last year, the Canada Media Fund released its Closer, Wider, Faster report, which found that cloud gaming is exploding in popularity and investment (Zion Market Research predicts a 27 percent annual growth for the sector over the next six years, with expected sales of $6.9 billion in 2026). Since then, there have been several big developments that show the industry is treating cloud gaming as the "next big thing," and that Canada will become a key player in its growth from here. While the COVID-19 pandemic may have slowed certain developments in the industry over 2020, it hasn't changed the outlook that 2021 will be the year cloud gaming hits a new level of market penetration.
Amazon is now betting big on cloud gaming, having announced Luna, its platform available on early access in the US for now; meanwhile, Google Stadia has been available in Canada for a little over a year. Stadia is Google's entry into cloud gaming, allowing you to play video games in the Google Chrome browser and on certain smartphones and tablets, but it is just the first in a wave of new entries into the cloud gaming arena. With 44 percent of gamers reporting they would subscribe to a cloud gaming service, there is a great deal of opportunity on the horizon, for giants like Microsoft and others to get those cloud gaming dollars.
Google goes big, while Microsoft brings Project xCloud to Canada
Google emerged, last year, as the first of the web giants to place cloud gaming at the centre of its video game business model. Stadia – developed in Montreal – allows players to stream games using Google Chrome and Android phones and tablets. But, despite being the first major player to launch a cloud gaming platform, Stadia still has a ways to go. The number of games available to play on the service is limited (it launched with 22 titles, and has slowly been adding since then), and that has remained an obstacle when it comes to adoption from players. Google is hoping to change that and dramatically increase the number of games being made for and supported by the platform in a short period of time.
Last March, Google announced it was partnering with Unity to launch the new Stadia Makers program. The program includes several measures to reduce the cost for developers to create a Stadia game, with a clear expectation that those who apply for the program will release a game in the following months.
Meanwhile, the company is investing considerably in infrastructure as well. Google has now launched Game Servers. This project is specifically for developers making Stadia games, and provides backend services to help them run their games in Google's cloud.
Microsoft is hot on Google's heels
Like other streaming platforms, such as Netflix, Amazon Prime, or Spotify, Google Stadia charges a monthly subscription fee ($11.99/month in Canada). Global Web Index found that roughly 1 in 5 internet users in the U.S. and UK would be willing to pay, at most $10 or £10 per month for a cloud gaming service. With so many Canadians already subscribing to various services, the threat of "subscription fatigue" will mean competition for subscriptions will likely be fierce for cloud gaming companies.
With this in mind, Microsoft currently represents the biggest potential threat to Stadia. Thanks to its very successful video game console legacy (Xbox), and its existing cloud services infrastructure, the company is poised to become Stadia's rival upon launch.
"Subscription fatigue is a real thing," xCloud corporate vice president Kareem Choudhry told Canadian publication MobileSyrup. "I’ll say those three necessary ingredients if you need the best gaming subscription out there: those three C’s being “content, community and cloud.” And I believe that Microsoft has got an incredible amount of momentum, history, heritage, investment and capability across all three of those C’s...I’m incredibly excited about Microsoft’s opportunity to combine them in the right way that can just delight gamers and fans in regions all around the world."
xCloud is currently in free public preview. Last year, Microsoft opened this preview to testers in Canada, after testing in the U.S., UK, and South Korea. The company is showing serious intent to win the Canadian market, too – it has translated dozens of the games being offered in the Project xCloud preview into Canadian French. While Project xCloud is still in development, it is looking like the battle for subscription dollars could be a Google vs. Microsoft showdown, at least in the short term.
New players enter the game: Amazon and Tencent/Huawei are getting in on the action
Amazon has its eye on the video game market. Since it created Amazon Games' first original title, Crucible, in May last year, the company has launched its own cloud gaming platform called Luna in early access in October 2020. “The big picture is about trying to take the best of Amazon and bringing it to games,” Mike Frazzini, Amazon’s vice president for game services and studios, told The New York Times. “We have been working for a while, but it takes a long time to make games, and we’re bringing a lot of Amazon practices to making games.”
Given the company's ownership of Twitch, which itself revolutionized the video game streaming world, the opportunity is there for Amazon to harness the gaming community to propel its cloud gaming agenda forward.
Meanwhile, in China, another massive movement is happening in the cloud gaming world. Tencent, the gaming giant famous for the battle royale game Fortnite, is now working with Huawei. Together, they have set up a laboratory to develop a cloud gaming platform. Tencent has been working on cloud gaming for some time – as Technode reports, the company began a closed beta test of its service early last year. Now, it will incorporate Huawei’s Kunpen processor into this service.
This partnership comes with an incredible competitive advantage, spurred by cloud gaming's potential and its current biggest downfall: bandwidth. Cloud gaming requires fast internet connections – Tencent runs the world's largest gaming company, essentially built on the concept of multiplayer and streaming services, and Huawei is the world's largest telecommunications company and a driving force behind 5G adoption around the world (although it won't be one in Canada).
Ultimately, external factors will drive cloud gaming adoption
The growth potential for cloud gaming is massive; games market research firm Newzoo has said the industry could be worth $3.2 billion by 2023, while GlobeNewswire forecasts $8 billion by 2025. But the perpetual elephant in the room, when talking about cloud gaming, is performance. Limelight Networks' State of Online Gaming 2020 report found that, in every country except Japan, France, the UK, and the U.S., respondents said that fast performance was the most important aspect of playing a video game. Without 5G networks, cloud gaming simply cannot deliver this, because it cannot accommodate the quality of AAA titles that gamers now expect.
“Like most other expansions in gaming this comes down to the pixels and the networks...Gamers demand high frame rates. The processing load to draw these frames requires powerful hardware whether it’s local or in a data center. Internet speeds are getting faster and latency is dropping as the network edge moves closer to the user," Jon Peddie, president of JPR, told Digital TV Europe.
Rollout of 5G networks recently started in Canada. What's yet to be seen is how quickly Canadians will embrace cloud gaming as the primary way they consume video game content when connection speed is no longer an issue. If the success of streaming television and music is any indication, along with the momentous adoption of lighter mobile games as an on-the-go form of entertainment, gamers will likely be all too happy to embrace the cloud as soon as companies can make it worth their while.