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June 21, 2021

Cloud Gaming: Macroeconomic Trends

By GlobalData Thematic Research

Cloud gaming is the most important theme in the global gaming sector today. As it matures, cloud gaming will become a key distribution channel for games across consoles, PCs, and smartphones. By eliminating the need for a specific gaming device, cloud gaming aims to attract non-gamers into the industry. To get there, it must focus on trends such as multiplayer gaming, integration of social media features, and make efforts to convert casual consumers into active participants. This will help cloud gaming platforms generate value for customers.

Macroeconomic Trends

Listed below are the key macroeconomic trends impacting the cloud gaming theme, as identified by GlobalData.

Covid-19

Covid-19 has exposed infrastructure-related teething problems associated with cloud gaming. Gamers rushed to experience cloud gaming during lockdowns, putting pressure on servers and networks. Nvidia’s GeForce Now service struggled to accommodate the sudden surge in traffic and briefly withheld new subscriptions before adding more servers. Google introduced bandwidth restrictions for 4K gaming on Stadia to ease internet traffic loads. Now that the pressure has subsided somewhat, companies are exploring options for transitioning users from existing services to cloud gaming platforms. Those that lack alternate services must instead focus on innovations to attract new customers to their cloud gaming platforms.

The iOS hurdle

Apple is the only Big Tech company that does not have a cloud gaming service at the time of writing. Though Apple has submitted Apple Arcade as an alternative, it is not cloud gaming but a game download service on iOS and Mac devices. The company’s stringent App Store policies, both in terms of revenue commission and app approval, prevent cloud gaming providers from reaching millions of potential users. Microsoft, Google, and Nvidia are exploring web browser based solutions to reach iOS users. If they succeed, Apple will lose control over its customers, and any effort it makes to launch a competitive service is, therefore, less likely to succeed.

Risk to publishers

Cloud gaming will increase the power of the tech giants in the gaming sector. They will not be confined to simply providing services but will also become game publishers in their own right. Publishers like Activision Blizzard, Electronic Arts, and Take-Two Interactive risk losing revenues as tech companies tap independent game developers to provide exclusive game titles for their services. The race for market dominance will ensure a reduction in publishing rates compared to those charged by traditional game publishers. Independent developers will be the biggest beneficiaries of this trend, gaining negotiating power as the competition between cloud gaming providers and traditional publishers intensifies.

Dematerialisation

Cloud gaming will boost the sector’s shift from physical to digital media, known as dematerialisation. Cloud gaming promises to make high-end games playable on any device with a display and internet connectivity. Therefore, its success will potentially jeopardise the market for expensive consoles and high-end gaming PCs in the long-run. In terms of monetisation, cloud gaming services are available through a monthly subscription, which reduces the users’ need to make large, one-off game purchases. However, monetisation models are still mainly at the experimental stage, and the industry is working to discover the best way to add customers and generate revenues.

Monetisation

Many publishers see the monetisation strategies of some cloud gaming providers as threats to their revenue. In 2020, several publishers retreated from GeForce Now after failing to strike revenue-sharing deals with Nvidia. The “buy once and stream anywhere” policy of Nvidia allows users to connect to existing accounts on Steam and stream their personal library of games on GeForce Now.

Publishers are wary of losing control over their internet protocol (IP) if games sold on one service can be marketed across multiple services, benefiting only the service providers. Google’s strategy demands that users pay for both a Stadia subscription and games and is, therefore, more favourable for publishers. However, it increases the cost for consumers. Cloud gaming providers must design policies that satisfy both publishers and consumers if they are to succeed.

Sustainability

According to a 2016 study from the Lawrence Berkeley National Laboratory, cloud gaming will cause annual electricity use to rise by 40% to 60% for desktops, 120% to 300% for laptops, 30% to 200% for consoles, and 130% to 260% for streaming devices. In 2020, researchers at Lancaster University in the UK concluded that there would be a 30% increase in gaming’s carbon emissions if 30% of global gamers adopt cloud gaming by 2030. It would rise to 112% if 90% of gamers transition to cloud gaming.

Companies such as Google, Microsoft, and Sony, are exploring renewable energy alternatives to fossil fuel-based electricity use in their data centres. As they compete in the cloud gaming market, those that act responsibly in the early days will be well-positioned to attract business partners and consumers in the long-run.

This is an edited extract from the Cloud Gaming – Thematic Research report produced by GlobalData Thematic Research.