Following Stadia’s announcement at GDC, there’s been renewed debate over the viability of Game Streaming. The market feedback, as far as I can tell, is (still) generally apprehensive, with the following being the most common criticisms:
The user experience will be unacceptable due to network latency & bandwidth. Technically, the two are separate issues (latency affects responsiveness while bandwidth affects visual quality), but I’m lumping these into the same bucket. The point is that with the current internet infrastructure, unless you live in a major metropolitan area that is close to one of the servers, you won’t have a good experience.
The game console or PC is not an expensive enough purchase for gamers to be a hurdle. Gamers would rather buy their own equipment than tolerate the issues caused by latency/bandwidth as mentioned above.
There is no compelling exclusive content for gamers to care about. Gamers already have access to all the games that may be offered by Game Streaming services.
We don’t know what the business model would look like. From pricing to catalog ownership (you're really only "renting" these games instead of owning them), there's simply not enough information to make a purchasing decision.
There are other criticisms as well, but the general sentiment is that “no actual gamer would be interested in this”. I agree with the criticisms. And they are right; there is no way I would consider signing up to ANY of the game-streaming services anytime soon either. And I will continue to buy consoles and PCs for the foreseeable generations of gaming, and as long as I can afford to. However, I do feel that people are overlooking one of the greatest advantages of Game Streaming, and the markets where those offerings could find massive success, not in 20-30 years, but perhaps as soon as during the next generation.
Traditional AAA Gaming is Still Out of Reach (too expensive) for Most of the World When I used to work at a console games publisher, I saw most countries in developing markets to be "too small" to care about. In my sales reports, they were just “two-digit countries”, meaning that games only sold tens of copies in those countries while they were selling by the thousands or hundreds of thousands in American and Western European countries. However, as I traveled to those regions for work, I realized that those numbers did not reflect the reality and potential of those markets. People’s interest in gaming was as great as any other market, if not greater, and businesses around gaming were booming. Except, just not in consoles. The reason for this, if you look at how much these consoles actually cost to the locals, is obvious. Consoles are prohibitively expensive. Perhaps they’ve always been, but in developing countries such as those in South East Asia or South America, it is far worse. For example, in order to buy a PS4 Pro in a developing country, you need to spend what’s equivalent to about $1,000 ~ 1,600 in that country’s local currency.
Even simply based on the exchange rates, consoles are already more expensive in developing countries. But once you factor in the buying power of money in each country, the difference is quite astounding.
Add a game into the mix, and you're actually looking at what is effectively a $1,200 ~ 1,800 initial investment to those folks. Again, this is just to play a single game, which places it near the “PC MASTER RACE” tier in terms of how affluent and dedicated you'd have to be to gaming. This is why the console market is still so small in those regions; in practice, it’s only the ultra-rich or ultra-serious gamers that (can) buy consoles. Everyone else just plays on mid-range PCs or Mobile devices instead. And market data reflects this as well, showing that while these regions have been the primary drivers of growth for the global games industry, practically none of that growth is contributing to the console markets. My point is this: There is massive unfulfilled demand for what we in the first world consider “core (AAA) gaming content”. And, IMO, the success of mobile, despite the core gamers’ general apprehensive views toward them, is a side-effect of this. I also see the massive success of Fortnite (and, similarly, Apex Legends; though only briefly) to be more evidence of this. People DO enjoy and WANT more quality gaming content; they simply can’t afford most of them. And while my above examples focus on developing nations, there are many gamers in first world countries that face similar challenges.
Current-generation Consoles have a 160 million install base today. (PS4 + XB1 + Switch)
The number of PCs capable of playing the latest AAA games at "medium/good" quality is around 100 million. (very loose approximation!)
Meanwhile, according to Newzoo's 2017 report, there were already 2.2 billion active gamers in the world.
So, even if you add up the console and AAA-capable PC numbers (while completely ignoring multi-platform ownership! ^^), that still means (only) about 12% of active gamers are consuming AAA gaming content.
Fun fact: Only 3.4% of the world population are consumers of AAA gaming content Again, most of gaming’s audience cannot afford AAA content based on the ways they are currently priced. And that gap between demand (current or potential) and supply presents a clear and massive opportunity for the industry, starting with the developers of these premium content such as God of War, Spider-Man, Zelda: Breath of the Wild, Red Dead Redemption 2 or Resident Evil 2. Or Respawn Entertainment, with their next Star Wars game!!
A screen capture from the reveal trailer of "Star Wars Jedi: Fallen Order", the most anticipated single-player Star Wars game in decades. 90% of active gamers will not have access to this game.
Flipping the Game Streaming Script
So, let’s change how we look at this technology. Instead of trying to get existing core gamers to use these Game Streaming services, and convince them that their experience will be "as great" as what they’re accustomed to (which, let’s admit it, would be a lie), what if we instead sold them as “affordable alternatives" to core gaming?
This, in principle, is exactly what mobile gaming did, and what made them enjoy such explosive growth across the world over the last decade. And I think it’s very important to note that mobile games did not grow this fast by converting the traditional gaming audience. Instead, they did so by being the affordable and accessible alternative. And none of their content were so-called “AAA”. Seeing the similarities yet? In fact, I’ve seen this actually work in some markets since almost a decade ago, where Game Streaming has been made available to traditionally non-gamers, by a company called G-Cluster. At the time, they were offering such old and simple games that a “real gamer” such as myself would have never played. But they were actually monetizing their audience at an impressive rate, and the publisher I worked for saw handsome incremental revenues for some of its oldest and least-wanted games. Keep in mind that G-Cluster's audience at the time was people who otherwise had near-ZERO access even to these games (this was before Mobile fully came into the picture).
G-Cluster's current catalog (2019). It includes a good number of older AAA titles. So, what if, instead of targeting experienced and demanding gamers, Game Streaming companies focused on the other end of the spectrum? In other words, what if they targeted the bottom of the gamer pyramid, instead of the higher end? This is a huge audience (as mentioned above) that AAA developers are currently generating ZERO revenues from. As the great Peter Drucker said, “The purpose of a business is to create a customer”, and this is one more way for AAA developers to convert “non-core-gamers” into paying customers (albeit at a lower margin).
In the longer term, giving more exposure and access to premium content to the lower end of the pyramid should also fuel the “maturing of” the gaming audience, further strengthening the games industry as more gamers discover more compelling content worthy of their hard-earned money.
Regarding Stadia and PS Now’s Positioning
So, Stadia’s initial positioning is, IMO, wrong (assuming they are indeed positioning themselves as a product/service for core gamers). Instead of marketing themselves to core gamers, they should be positioning themselves as the "gateway drug" (for the desperate lack of a better expression) to more serious gaming. From this perspective, PlayStation NOW's positioning is also far from optimized. If you’ve been a target of any marketing for PS Now, chances are very good that you already own a PlayStation 4, which means you are already a core gamer. And as I've said at the beginning, if you are a core gamer, there is very little reason to need/want game streaming. And that is reflected in the number of subscribers for PS Now, which is still only 1% of people who own PS4s, even though the service launched over five years ago.
That said, the “trial” functionality of PS Now (which allows people to download and own the game they are streaming via PS Now) is a great way to leverage the advantages of game streaming, and this was apparent even in their most recent earnings announcement:
"Gameplay time per user has grown significantly to the point where gameplay time on downloaded PS4 titles (i.e. games that also can be downloaded to your own PS4) is double that of streamed titles (i.e. games that can only be played via streaming)" - Hiroki Totoki (Sony's CFO)
So, I think, to truly maximize PS Now’s potential, Sony should aim their PS Now business at platforms OUTSIDE of the PlayStation consoles. In other words, they should be using PS Now primarily as a way to sell PlayStation games to people who don’t own a PlayStation. Over time, as these people try PlayStation games on non-PlayStation platforms (such as their web browsers or Smart TVs), some of them will develop a want for an actual PlayStation console, and some will even end up buying one; what a perfect marketing tool for the console itself! Similarly, after the PS5 is out, they could offer PS4 users access to PS5 games through PS Now as a way to up-sell them to the next-gen console. But I understand why Stadia, Sony and most of today’s Game Streaming contenders do not take this stance; it’s simply not “sexy”. As entertainment companies, it’s rather awkward to market yourself as “the place to get older, more affordable content!” Nobody wants to be The $0.99 Store or Walmart, even if may turn out to be a wildly lucrative business. There’s just something about being “affordable” that make people question your value proposition. And these large tech companies tend to have a lot of pride.
In a Parallel ... Industry (Video Streaming) Thankfully, however, one of our adjacent industries went through this process recently already; the movie & streaming video industry. In that world, Hollywood movies are the AAA videogame content, and NetFlix is what Game Streaming companies today are aspiring to become (quite literally, actually). And it’s interesting to note the parallels:
Video streaming needed the internet infrastructure (i.e. bandwidth) to catch up first, and NetFlix only started offering streaming in 2007, a few years after the YouTube outbreak
“Convenience” (relative to driving all the way to Blockbuster video) was always an advantage over traditional alternatives, and was NetFlix's main selling point even before they offered streaming
At least in the public's eye, the turning point for NetFlix was “House of Cards (2013)”; a brand new, high-quality exclusive content that was made specifically for the NetFlix platform. This wasn't actually NetFlix's first original show; that honor goes to "Lilyhammer (2012)".
Regarding the last point, I believe that Google saw this as well and decided that Stadia would need something similar when they hired Ms. Jade Raymond; to produce compelling and high-quality exclusive content that proves Stadia’s concept to the consumers and addresses the stigma around it being a platform for second-hand, low-tier content.
But let’s take a closer look at some of NetFlix's data:
Their video streaming service grew at a solid pace even when most of their content were older movies that were already available on DVD/BluRays, or TV shows that were too old to be found elsewhere. In other words, their initial growth was built on older content that presumably "nobody wanted". Even House of Cards did not premier until 2013, a whole six years after NetFlix began offering streaming.
The most-viewed shows on NetFlix are not movies, but TV shows. And even on NetFlix, their own shows are NOT the most-watched content. Instead, old licensed TV shows are (see below - Red bars are all old TV shows owned by other networks).
I would argue that, even though shows like House of Cards were critical in elevating NetFlix's brand value, NetFlix may no longer need to continue producing their own content now that they’ve established themselves as a main player in the video content distribution ecosystem. (but I’m sure they will continue to anyway, in order to keep a larger share of subscriber revenues, or at least to maintain that brand prestige)
Ultimately, older content is primarily what has driven the streaming business, and Game Streaming must also accept AND embrace this, instead of stubbornly trying to pretend that they can compete with the top-tier incumbents right out of the gate. NetFlix did not challenge Hollywood movies directly either; at least not until they were the dominant player in their own market. And while I’m sure Hollywood executives were sneering at NetFlix years ago (and some still do), most no longer dare.
NetFlix did eventually challenge Hollywood on its own turf with ROMA (2018), but this was over a decade after they began their streaming service
Pride and Prejudice So, Game-streaming folks, focus on your strengths and go for the "non-core-gamers" (for the lack of a better term) instead! There is absolutely no shame in it. The market ultimately rewards companies that present products that people want AND can afford. And while current gamers (the ones you are going after) may be able to afford your products, let’s face this before it’s too late for you; they don’t want your products.
Stop chasing the core gamers, and hoping that a few technological gimmicks like "State Share" will change their mind (The PlayStation 4 has a similar feature called "Share Play", which is a really neat feature but used by virtually no one).
The official guide to Share Play on PS4
Instead, go for the other 90% of the gamers that do not already have access to AAA gaming content. Again, these are gamers who don’t play these top-tier games NOT because they don’t want to, but because they cannot get over the $500~1,800 initial investment. There are way too many such people in the world today, and history has repeatedly shown us that those who recognize and serve such unfulfilled needs are rewarded massively.
...and those Criticisms Do Not Apply to Non-core-gamers Finally, regarding today’s criticisms of Game Streaming that I mentioned at the beginning of this blog, you’ll see that none of them would be a big issue for non-core-gamers:
The user experience will be unacceptable due to network latency (responsiveness) & bandwidth (visual fidelity) Non-core-gamers are not nearly as sensitive to either as core gamers are. In fact, there’s a good chance that most won’t even notice them.
And while it’s true that developing markets don’t yet have the best internet infrastructure, they’re better than many assume. According to the U.N., the broadband penetration rate for Mobile users is already above 50% in most Developing countries.
The game console or PC is not an expensive enough purchase for gamers to be a hurdle. As I demonstrated, for non-core-gamers, they ARE too expensive (or are perceived to be).
There is no compelling exclusive content for gamers to care about Non-core-gamers don’t need exclusive content. And everything from the core AAA market is already out of reach for them; because they are “exclusive” to platforms they can’t afford (i.e. consoles or AAA-capable PCs).
We don’t know what the business model would look like Business models which have proven to work for this non-core-gaming audience have been around for over a decade
And, ten years from now, when you are the latest talk of town (again!) and wielding a respectable share of the industry for having cultivated a whole new class of gamers, make that proper push for the rest of the market then (a la "House of Cards"). Most of the issues we are talking about today will have been resolved by then, and with a massive catalog, clout and testimonials by millions of satisfied customers, you’ll be much better-positioned to finally win over that holy grail; core gamers.
Good luck!
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