The perils of cloud gaming

The Big Story

Does cloud gaming have room for everyone?

It's been a big year for cloud gaming, and this week's no different: Microsoft has finally started rolling out Xbox Game Pass access on iOS, as part of its ongoing xCloud beta. It's a big step forward in Microsoft's ambition for omnipresent gaming — and it also offers an opportunity to step back and consider the cloud gaming industry as a whole.

There are three main business models in cloud gaming, and they differ significantly. Here's a breakdown, loosely adapted from Newzoo's recent report on the industry:

• Most obvious are the Netflix-style streaming platforms, where customers subscribe and get access to a big catalogue of streamable games. Game Pass and PlayStation Now are the biggest in this space, but they're not the only ones: Publishers, telcos and startups are launching their own versions. Meanwhile, Amazon and Google are trying to attract players to their respective cloud platforms, though both rely on markedly different subscription and à la carte models.
• Then there's the "cloud PC" model, where customers get access to high-powered hardware via the cloud, but don't get any software bundled in. Shadow PC and Nvidia's GeForce Now are two notable examples.
• Last but not least is the "tech provider" model. These companies, as the category name implies, simply license their cloud streaming tech, primarily to other companies that want to build Netflix-style platforms. Ubitus, Wiztivi and RemoteMyApp are three examples.

There's just one big problem: It's hard to see how any of these business models can work for most companies. Cloud PC businesses already appear to be struggling: Shadow recently entered bankruptcy, while Nvidia doubled its prices. Google Stadia, which has a hybrid cloud PC/Netflix model, has had a rough time, too.

• Convincing someone to pay a monthly subscription for access to hardware is a lot harder than convincing them to pay for games.

The tech providers seem to be doing okay, for now. But being reliant on streaming platforms as customers, they can only thrive if a plurality of streaming platforms exist. And it's not obvious that the market can sustain that plurality.

• Right now, every telco and publisher wants its own streaming platform, and they seem to be willing to pay to have one. But there's likely a limit to how many services people will subscribe to at once.
• Just as we're seeing in TV and movie streaming, platforms need a standout content library to win subscribers. It's hard to see how smaller platforms can compete with Game Pass, for example. (Even Sony is struggling to match the Game Pass catalog!)

To complicate things further, the tech platforms are laying the groundwork for the homogenization of the smaller platforms. RemoteMyApp CEO Andreas Hestbeck told me via email that the company works "as an aggregator for our B2B partners," with a publisher relations department that can help RMA's customers get access to titles from publishers that RMA already has deals with. That makes it much easier for companies to launch streaming platforms, of course — but it runs the risk of their catalogs all looking awfully similar.

Maybe a plurality of platforms can exist, each catering to different niches. But it seems likely that only the biggest will survive. Deutsche Telekom's RMA-powered MagentaGaming and Vodafone Italia's Ubitus-powered GameNow both have a whiff of Verizon's go90 about them — in other words, they may not be long for this world.

• And the biggest companies — Microsoft, Sony, Amazon, Google — don't need external tech providers for their streaming platforms. They can do it all themselves.

The future, then, doesn't look good for the rest of the cloud gaming industry. RMA's Hestbeck said "the product offering has not been entirely proven by any company yet." The big question is whether any company will ever get the chance to change that.

— Shakeel Hashim

Overheard

• "A product can't be popular in the target area without accurate localization insights, steady content marketing, and a carefully planned final release." —Tencent's Man Zhou explained in detail how the company localizes games for different regions, which can involve significant tweaks to gameplay and aesthetics.
• "It's like an atomic bomb … People are going to have to reinvent how they do the job of marketing — well, not reinvent but go back to where it was 10 years ago." —Tenko Games CEO Adam Jaffe said Apple's incoming IDFA ban is going to upend mobile gaming.
• "It's clear that we made the wrong decision here." —SIE CEO Jim Ryan said the company would no longer shut down the PS3 and PS Vita digital stores this summer, after player backlash.

A MESSAGE FROM LENOVO

The pandemic upended life as we knew it. Most of us experienced the abrupt shift in the way we work, learn and connect, with blurring lines between office and home. While the future of work continues to evolve, the focus on a more engaged and fulfilled workforce will outlast the pandemic.

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Lootbox

• ByteDance bought C4games, the latest sign that it's trying to grow gaming unit Nuverse into a major Tencent competitor.
• Epic raised at a $28.7 billion valuation. Sony invested $200 million in the $1 billion funding round. Meanwhile, court documents revealed that Epic lost almost $200 million on the Epic Games Store in 2019, with a projected loss of $273 million for 2020.
• Amazon canceled its Lord of the Rings game, reportedly due to contract disputes with Tencent, which bought the company Amazon was working on the game with. Seems Amazon still can't figure out gaming.
• On Protocol: Oculus added subscription billing for VR content, with Rec Room and a bunch of fitness and productivity services available at launch.
• Companies are interested in buying Square Enix, CTFN reported. Square Enix shares soared on the news, but the company said it wasn't considering a sale.
• GameStop CEO George Sherman is leaving, confirming a Reuters report from last week. This is the latest in a series of departures since Chewy founder Ryan Cohen became the company's chairman.
• AppLovin raised $1.8 billion in its IPO, which valued the company at $28.6 billion. But its stock immediately dropped upon trading, and is still trading well below the IPO price. In other IPO news, Krafton finally filed for a listing in Korea.
• Backend-as-a-service startup Pragma raised a $12 million series A led by Greylock. Co-founded by a former engineering lead at Riot Games, Pragma gives studios tools for account management, matchmaking, social systems, store fulfillment and telemetry.

Look out for

Nintendo sues Bowser

In what might be the pinnacle of nominative determinism, Nintendo filed a complaint against Gary Bowser, who it alleges led a hacker collective called Team Xecuter. Even more excitingly, this sets up the prospect of a Bowser v. Bowser court battle, which might be the greatest development in Mario history.

— Shakeel Hashim