Financial news

Google’s Stadia takes aim at $130bn video game market

By  | 

Via Financial Times

This year’s most hotly anticipated launch in the world of computer games is not a new console, or even a new title. Instead it is a new way to play games, from a new entrant to the world’s most lucrative entertainment market.

Google on Tuesday will launch Stadia, a service that will stream an initial 10 computer games across 14 countries at launch.

It promises players a high-speed, console-quality experience, from their living rooms to their smartphones, piped from one of the search giant’s many vast data centres.

Unlike the launch of a console, Google’s platform offers enormous scale. While Nintendo’s Switch sold a huge 1.5m units in its opening weekend in 2017, Google suggests that it will have a potential customer base of hundreds of millions from day one across North America and Western Europe. “We are very confident we can reach the widest audience,” said Phil Harrison, the head of Stadia. 

That is a tantalising prospect for developers such as Ubisoft, whose titles Assassin’s Creed Odyssey and Just Dance 2020 are among Stadia’s launch catalogue. 

“When you ‘turn on’ streaming, there is not a slow adoption period,” said Chris Early, senior vice-president of partnerships and revenue at Ubisoft. “It’s exciting to us to think about tens of millions of people who have access when you flip the switch.” 

Google will narrowly beat its main rival in cloud gaming, Microsoft, to a public launch. Many in the games industry had expected Amazon to enter the market too, building on the strength of its AWS cloud computing service and Twitch, which allows players to share live video of their games. But there has been little indication so far that an Amazon games service is imminent.

Analysts said Google and Microsoft are in for a long, expensive slog to win over consumers and developers alike.

READ ALSO  U.S. agency probes 12th Tesla crash tied to possible Autopilot use

The two companies have unrivalled ability to deliver their games because of their huge cloud computing businesses, but it is unclear whether consumers want this product any more than they did a decade ago when predecessors OnLive and Gaikai first launched. 

People playing the game ‘Doom’ at Google Stadia’s stand at a gaming event in Germany in August © Ina Fassbender/AFP/Getty

Unlike those start-ups, both of which were eventually acquired by Sony, Google and Microsoft have “near-infinite money”, said Bruce Grove, OnLive’s former head of engineering who now runs PolyStream, a new cloud-gaming start-up. “If you have that much money, you can mask the business model problems for a while at least — and it could be quite a long while,” Mr Grove said. 

Silicon Valley executives acknowledge they will have to play the long game. “Google is making a very long-term investment here,” said Mr Harrison.

“One of the benefits of working inside of Microsoft is it lets us take a longer term perspective on how technologies evolve,” said Phil Spencer, head of Microsoft’s gaming business. “We’ll make decisions that in the short run might have a negative impact on this quarter’s economics. But we have a long-term view on where this business is going.”

Column chart of World consumer spend on games content and services ($bn)  showing Cloud gaming could revive slowing games growth

Piers Harding-Rolls, games analyst at IHS Screen Digest, said Google is at a “massive disadvantage” to Microsoft and Sony, which has its own games streaming service, PlayStation Now. 

“They don’t have the content and they don’t have an existing [console] business to hinge off,” he said. “The console companies are very well positioned during this transition period because they can cater to all audiences.”

Though Google has promised at least a dozen more games will arrive before the end of the year, Microsoft last week announced that its rival xCloud project will boast more than 50 titles when it launches on Android phones and Windows 10 PCs next year. 

READ ALSO  UK voters head to the polls as Brexit's destiny hangs in the balance

Each Azure data centre that supports xCloud is fitted out with hardware that closely resembles Microsoft’s Xbox One console. That means any of the thousands of games that have been released on Xbox can be easily made available through xCloud. 

“The fact that our cloud platform is [based on] Xbox means [games creators] don’t need to develop for something new,” said Mr Spencer. “When we think about how this gaming space is going to evolve, we centred on three things that we thought were critically important: gaming content, a community of gamers, and global cloud infrastructure. The next generation of gaming competitors have to be world class at all three of those things.” 

While Google operates one of the world’s largest games marketplaces with its Android app store, those players and developers are often different to the console world. 

Google is trying to position that as an advantage, offering new kinds of experiences — such as clicking on a YouTube video stream to join the game — that go beyond emulating a traditional console experience. For instance, a group of four friends playing Ubisoft’s Ghost Recon Breakpoint will be able to see a live video feed of each others’ viewpoint. “That’s something we can’t do on a console today,” said Mr Early. 

A graphic with no description

But Stadia requires a fast broadband connection, with speeds of as much as 35 Mbps needed to play ultra high-definition 4K games at full resolution. Mr Early said that players’ internet bills are a potential concern, especially for those with download limits. 

That is just one anxiety among many that games publishers have about services such as Stadia and xCloud. A recent survey by EY of more than 200 video games industry executives found that while more than two-thirds agreed cloud-based games would be the “dominant form” of playing in five years, many also said they expected their development and infrastructure costs to go up as a result. 

READ ALSO  High-quality to be new growth focus

Added to that is uncertainty over game streaming’s business model. Microsoft has not yet set pricing for xCloud but has suggested it is open to experimentation with a variety of models, from one-off purchases to subscriptions and even advertising-funded services. 

That makes it hard for games creators to calculate how they will make a return from streaming, said Nicholas Lovell, game director at the developer Electric Square, especially before Stadia or xCloud has been tested at large scale. 

“You need these third-party publishers to bet on the new platform and I don’t know that anyone is prepared to do that yet,” he said. Last year, video games and services sales were $130bn, according to IHS Markit.

Mr Spencer argued that xCloud will, in time, help developers make money from markets such as India where consoles have never taken off. 

“The per user revenue might be different in these [new] markets but they are markets where [publishers] aren’t making any money today, so it’s additive to the business they already have,” he said. 

Simply selling to existing console players will not be enough to sustain growth, at a time when casual games on smartphones have been the primary way the industry has expanded its audience. 

“Today there are 200m-250m console players on the planet that get divided between us and Sony and Nintendo and that’s not really growing,” said Mr Spencer. “Clearly you’re not going to turn all 2.5bn people playing games today into console owners . . . You need to look at the devices that people already have.”

Print Friendly, PDF & Email

Hold dit netværk orienteret