What role for telecom operators in cloud gaming?

The global Cloud Gaming market is expected to see swift development in the upcoming years. Generating $665 million in 2019, it is forecast to record 65% growth over the next five years, according to key analysts. This would mean nearly $8 billion in total annual revenue in 2024, a figure that has whetted the appetites of many players. (source OVUM)

Cloud Gaming services are highly dependent on the network and therefore appear an ideal segment to conquer for telcos. Just how can telecoms operators gain market share and make the situation work to their advantage?

What is cloud gaming?

« Cloud gaming » is an on-demand service enabling people to play the latest generation video games on household equipment (TV, smartphone, tablet), alike streaming.

Many benefits for the users…

Cloud gaming, via dematerialization, offers much more than simple cost and time-savings to players. It helps rethink the customer experience at several levels.
It first gives the ability to play on any platform (Linux, Windows, Mac OS…). A simple screen and an internet-connected device allow you to play games, whatever the computing power required.
Furthermore, users can access the latest versions of the games, without having neither to download nor to install the software.
Last but not least, it is a good way to solve hard drive space issues. The servers are continuously updated, in a transparent manner.

…despite significant disadvantages

The detractors to dematerialization regret the need to be constantly connected to the internet. They also criticize it for additional latency. Some also fear the generalization of a « Netflix » type of model for video games. The multiplication of actors may compel users to subscribe to multiple platforms.

A very competitive market

When start-ups attack the video games giants

The first concrete technical advances in terms of cloud gaming were introduced in the mid-2000s. Among the most visible, the Blade start-up launched a cloud computing service named « Shadow » in 2015. It enables access to a video game streaming library.
In the same year, Nvidia, a company specialized in designing processors and graphic cards, launched GeForce Now. This cloud gaming service has been available in France since January 2018 but is still in beta version.
The most popular service of the market probably is « Playstation Now » launched by Sony. The business model is slightly different from that of its competitors. It is a monthly subscription service (14,99€/month in France) which gives access to more than 500 games accessible in streaming. It is estimated that the service would reap almost 52% of the revenues generated by the access services to subscription video games.

What about GAFAM?

The Net giants have also started to surf the wave, convinced that after music and video, the streaming revolution will affect the world of video games.
First, Google, with its Stadia pro (9,99€/month) service announced last March. Like its competitors, Google will launch its gaming-on-demand platform. The idea is to enable the video games editors to reach the +2 billion Chrome users throughout the world. As a special feature, Stadia will offer an innovative link with Youtube. When a player needs help during a game, for example, he may get video suggestions with scenes unfolding exactly where he is at in the game.
Second, Amazon and Microsoft especially would be working on their streaming video games solutions for 2020. The latest will launch its xCloud project which will enable people to play its Xbox games on any device (smartphone, tablet, game console) connected to the Internet.

What opportunities for telecom operators in cloud gaming?

Connectivity, the lever of quality of service

The major telecom operators are going to play an important role in this market for many reasons.
First, cloud-gaming represents a major opportunity for these players to enhance their very high broadband networks and to offer an innovative video game experience on all screens (TV, PC, tablets, and smartphones) to their customers. 5G, which will offer a differentiated QoS according to the services, fits perfectly into this framework.

Contents, sources of value, differentiation, and loyalty

Second, the Telcos may play a role in contents. For a few years, they have worked on changing their positioning. From mere distributors of connectivity solutions, they have become multiservice digital operators. Numerous Internet service suppliers have smelled the scent of revolution and engaged in video gaming.

In France, it was the case for SFR, with its previous NeufBox, which started very early in on-demand gaming, in partnership with Wiztivi.
Orange had been in this market for several years via its «Orange Jeux» service [1]. The operator is also speeding up by preparing a PC-in-the-cloud rental service, targeted at players. In a way similar to what the Blade company offers, the user will only have to connect an HDMI dongle, provided by the operator, to his screen to connect a keyboard, a controller and a wireless mouse and enjoy his dematerialized PC.

Among our European neighbors, Proximus, the telecom market leader in Belgium, has precisely developed a partnership with Shadow. In the fall of 2019, Shadow will be accessible to any Proximus customer equipped with its new generation of decoders. Thanks to Shadow, this decoder will be used as an ultra-powerful video game console with all the latest games available, whatever the catalog.

Third-party service distribution, to enrich the data plans

And finally, the international operators of mobile telephony may act as « distributors » of these services, as it was previously the case with the past agreements with Netflix and Spotify.
For example, Sprint and Vodafone have planned to offer the mobile cloud gaming service called Hatch in their 5G plans. In the same way, LG and Softbank have a similar agreement with GeForce of Nvidia. For the operators, it is a good way to upsell larger data plans, in addition to contributing to subscriber acquisition and retention.

The competition looks stiff on the world market of cloud gaming. It is nevertheless a real growth opportunity for the operators mastering the network, one of the key drivers of quality and customer satisfaction. To earn significant revenues from it, they will have to go beyond simple connectivity: quality of service adapted to gaming, plans including games, and partnerships for contents will be crucial for their success.

[1] Sources: IDATE and Factiva


Arthur Benda

Strategic Marketing Consultant