The tricky, but potentially lucrative, task of streaming videogames
Technology giants are trying to bring to videogames the same streaming capabilities that gave rise to Netflix and Spotify, a transformational leap that could usher in a new wave of growth for an industry bigger than Hollywood.
Microsoft Corp. and Alphabet Inc.’s Google recently announced efforts to let people play bigbudget, visually complex videogames — so-called triple-A games — on internet-connected devices without requiring specialized hardware that costs hundreds of dollars. They join traditional publishers such as Electronic Arts Inc. in a more than decadelong pursuit to stream triple-A games from the cloud to players anytime, anywhere.
That is critical to attracting players who don’t want to shell out for fancy PCs or consoles such as the PlayStation 4, Wall Street investors and analysts say. It could also lead existing players to engage more with — and spend more on — games, stealing away hours from movies, music and other media in the competition for consumers’ time.
“This is going to be positive for gaming,” says Mark Demos, a portfolio manager at Foundry Partners LLC, which invested roughly 2.1% of its $11.3 million (U.S.) midcap-growth fund and 1.7% of its $8 million activegrowth fund in Electronic Arts in late September. “The revenue pie probably will grow faster.”
Game-software revenue rose 59% to $121.7 billion world-wide between 2013 and 2017, and this year is on track to reach $134.9 billion, according to industry tracker Newzoo BV. By comparison, spending at the box office and on home movie entertainment reached a global record of $88.4 billion in 2017, the latest data available from the Motion Picture Association of America show. Global recorded-music revenue, including streaming, was $17.3 billion in 2017, according to the International Federation of the Phonographic Industry.
Streaming offers an opportunity “to reach a customer who isn’t perhaps as easily reachable today,” says Kareem Choudhry, corporate vice president of the gaming-cloud unit at Microsoft. Billions of people have internet access and “we know they’re not all going to buy a console,” he says.
Technologically, though, streaming games is challenging. Unlike movies and music, games are interactive, with highly detailed images created in real time based on players’ actions — in some cases hundreds at once. Even a half-second hiccup in piping the massive amounts of data needed to respond to players’ every in-game whim could be the difference between winning and losing in competitive games such as Call of Duty.
Efforts to stream games in the past failed in part because of such hiccups, known as latency. Today, a small number of services such as Sony Corp.’s PlayStation Now and Nvidia Corp.’s GeForce Now are testing the waters.
“There’s minimal lag,” says Phil Eisler, general manager of Nvidia’s cloud-gaming unit. “It’s not noticeable to the average person.” But for a professional competitive gamer, GeForce wouldn’t be ideal. “Esports pros are not the target for this,” Mr. Eisler says.
Industry watchers believe the spread of data centers and deployment of next-generation wireless, known as 5G, will do away with those challenges, soon letting people play a game in a triple-A franchise like Assassin’s
Creed by popping open an app on a TV or phone in much the same way they would find a movie on Netflix.
In fact, Assassin’s Creed Odyssey, the just-released sequel in the franchise, was Google’s choice to test game streaming on its Chrome browser for laptops and PCs. Google in its announcement said it is looking to solve some of the biggest challenges of streaming, and that blockbuster games are among the most demanding applications.
Analysts say the market has great potential.
“Streaming is a mass-market opportunity,” says Mike Olson, a senior research analyst at investment bank Piper Jaffray. “Just like mobile phones brought new people into gaming, so could streaming. Almost everyone has access to the internet.”
Streaming also could liberate publishers from the current standard of selling triple-A
games for about $60 a pop, and instead nudge them toward more-lucrative subscriptions. Analysts and executives say monthly fees like the kind Netflix and Spotify collect could help game publishers generate morepredictable revenue over time.
Electronic Arts believes that, “just like most media has evolved, subscriptions plus streaming will be the future of the business,” the company’s finance chief, Blake Jorgensen, told shareholders in late August.
One way game streaming could play out, analysts say, is cloudcomputing companies such as Amazon.com Inc. launch competing apps with broad selections of games and services such as player matchmaking and chat, much the way Sony, Microsoft and Nintendo Co. do on their consoles today.
Other possibilities: Publishers with large content libraries, such as Activision Blizzard Inc., release their own apps for an array of devices. Electronic Arts, Ubisoft Entertainment SA and other publishers already have services that sell games and connect players online. Or, they could cut
exclusive deals with device makers such as Apple Inc.
No matter how things shake out, the competition for gamestreaming customers “will be intense,” says Tim O’Shea, an analyst at investment bank Jefferies Financial Group. “It’s going to be a cloud war.”
Arthur Rich of Portland, Ore., used to buy new consoles every few years, plunking down hundreds of dollars each time for the latest advances in graphics, speed and storage.
The 36-year-old grade-school teacher says he gave up in the early 2000s because “it costs too much.”
Mr. Rich is a fan of streaming, though. He subscribes to Netflix and HBO Now, apps he accesses four to five times a week via Amazon’s Fire TV Stick, as well as on his smartphone and tablet when he travels.
“I would love it if I could do the same with videogames,” Mr. Rich says. And if a service could recommend games he might enjoy the same way Netflix does with movies and TV shows,
“that would be a big incentive to sign up as well,” he says.