Cloud Gaming Poised for Takeoff

The cloud gaming market appears to be ready for some substantial growth, although it will be tough sledding for new players to enter the scene.

In her newsletter published Tuesday, consumer technology guru Elizabeth Parks maintained that the cloud gaming market is at an inflection point as heavyweights in the industry continue to ramp up their involvement in it, and gaming gains popularity in consumer households.

As of 2021, 75% of the heads of U.S. broadband households report playing video games for at least one hour a week, and 30% of those households acknowledge subscribing to or trying a trial of a free or paid gaming service, according to Parks, who is the president and CMO of Parks Associates, in Addison, Texas.

“Cloud gaming services provide a new opportunity to serve the gaming market and capture the consumer segment without gaming consoles or PC gaming hardware,” she wrote.

“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,” she added.

Few New Entrants

However, Parks predicted there will be few new entrants into the market. Establishing and operating a cloud gaming service is prohibitively expensive and challenging, she noted.

The most significant requirement is performance-competitive cloud infrastructure, she continued. 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.

One place a new player may get the infrastructure it needs is at Google, noted Ross Rubin, the principal analyst at Reticle Research, a consumer technology advisory firm in New York City. “Google’s decision to focus on white label offerings indicates it thinks there are better prospects in partnering than going it alone as a first-party service,” he told TechNewsWorld.

He added that while the window for newcomers isn’t closed, it may be narrowing. “It’s still an enthusiast market,” he said. “There’s more opportunity at the lower-cost, ad-driven end of the market, as opposed to the relatively expensive subscription end.”

Battling Established Brands

Mark N. Vena, president and principal analyst at SmartTechResearch in San Jose, Calif. agreed that conditions are becoming onerous for newbies to the market.

“It’s difficult for companies who don’t have a history in the gaming space to be seen as credible, since so many of the established players have strong brand reputations around gaming, particularly from a legacy gaming title standpoint,” he told TechNewsWorld.

“Both Microsoft and Sony really cornered the market a few years ago by gobbling up some of the more prestigious gaming studios with franchise titles under their belts, which lock out potential new entrants,” he said.

“Netflix, for example, is clearly trying to make inroads into the cloud gaming space and is running into difficulty because they don’t have well-known titles in their gaming arsenal and more importantly, they’re not perceived by consumers as a gaming destination,” he added.

Established players can also afford to trade losses for market share. “Microsoft has focused on using its cloud service as a lost leader. Most companies can’t afford to do that,” David Cole, an analyst at DFC Intelligence, a market research firm in San Diego, told TechNewsWorld.

Entering the gaming market is usually a challenging proposition to begin with, and doing it over the cloud has additional hurdles, maintained Michael Inouye, a principal analyst at ABI Research, a global technology intelligence company.

“A new cloud gaming service will have a competitive disadvantage in most cases when it comes to game libraries,” he told TechNewsWorld. “Publishers just aren’t willing to put their games on every cloud gaming service out there.”

“In some cases,” he continued, “publishers may be pushing their own platforms, have pre-existing deals with other cloud gaming services, or just don’t agree with the business model.”

Cross-Platform Demand

Nevertheless, Inouye maintained that the market is vast and opportunities are available to new players, especially in mobile gaming.

“Mobile-based cloud gaming, at least for premium services, can be challenging because of competition with free-to-play in many cases,” he said, “but success can be had in the Asia-Pacific region because gamers there have shown a willingness to pay for mobile game-based content, although revenue per player is lower.”

Parks also predicted that the consumer desire for aggregation in the video streaming market will spread to cloud gaming. 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, she wrote.

Along with increasing the appeal of the services to consumers, she added, 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.

“More consumers are demanding cross-platform gaming experiences so they can experience and participate in gaming regardless of the device that they’re using — console, smartphone, tablets, PC, or even a Chrome laptop,” Vena explained.

“Gaming has now become a multi-platform phenomenon and gamers don’t want to be hemmed in by gaming on a single device or OS platform,” he continued. “It’s a consequence of the multi-device world we now live in, which is only to grow in significance as 5G connectivity becomes more pervasive.”

Frugal Gamers

Inouye agreed that there is absolutely a growing demand for cross-platform titles, and gamers especially appreciate it when games are cross-platform buys — meaning, if you purchase a game for the console you also have access to the PC version — but gamers can be frugal, too.

“At the end of the day consumers will always welcome the chance to play their games on more platforms, but not if they have to pay for every copy or have to make compromises across all platforms to get that capability,” he said.

“Gamers who are willing to upgrade their hardware won’t accept poorer PC or console performance just to get access to content on all three platforms for the same price,” he concluded.

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