How will the growth of cloud gaming impact telecom providers?

Telecoms.com periodically invites expert third parties to share their views on the industry’s most pressing issues. In this piece Olivier Avaro, founder and CEO of cloud gaming service Blacknut, examines the telecoms implications of the booming cloud gaming industry.

It’s been a phenomenal year of growth for Cloud gaming, with 31.7 million users on track to generate $2.4 billion in revenue for the companies pioneering this new area of gaming by the end of this year.

The idea of streaming games rather than buying physical copies may have taken a while to catch on amongst more mainstream gamers. Still, for families and casual gamers, it’s a convenient and affordable way to access hundreds of games on demand. Mobile operators in particular have been early adopters of Cloud gaming – more than 20% of service providers were offering Cloud gaming services with a separate subscription fee according to an Ericsson survey of 106 providers, with 19 of those providers offering those services in partnership with a Cloud gaming provider.

Yet, despite the growing popularity of Cloud gaming, it’s not all been plain sailing. There have been commercial casualties along the way, as smaller services fail to reach a critical mass of subscribers, and even the biggest players have found this new approach to delivering and consuming games to be a challenge. One example is Google’s Stadia, which will close in January 2023 after Google abruptly announced that “it failed to gain the traction” they were expecting.

However, this was less about the demand for Cloud gaming, and more about the specific business model Google decided to pursue. Firstly, in an attempt to position itself as a virtual console gaming platform, it targeted hardcore gamers, a demographic that’s not only notoriously difficult to please but is also a well-served segment of the entire industry.

Secondly, new games on Stadia had to be purchased in addition to the cost of a monthly subscription, while the total library of games available was fewer than 300 by the end of its lifespan.

The current Cloud gaming landscape

Stadia aside, Cloud gaming service providers are thriving and the Cloud gaming market is perfectly positioned for strong future growth. This is due to several factors, but the most important are the perception of Cloud gaming services amongst core gamers has changed, while the appeal of Cloud gaming is growing amongst audiences that wouldn’t typically class themselves as ‘gamers’.

Thanks to the global rollout of 5G, users of Cloud gaming services no longer have to worry about unstable connections and poor-quality experiences. 5G is also helping to make Cloud gaming more accessible to consumers via their mobile phones thanks to higher data capacity and faster speeds.

This high level of support across mobile devices is important. While mobile gaming is the world’s most popular form of gaming, mobile titles have long been dismissed by hardcore gamers as casual and inferior titles. But now that hardcore gamers can stream their favorite AAA titles to their mobiles, Newzoo predicts that 2.5 billion gamers will be playing on mobile by the end of 2022. For those consumers that see Cloud gaming as a Netflix-style service – something you can dip into when the mood takes – being able to pick up and play your games whenever and wherever you want is a big bonus.

There have been some big changes within the video game market in the last year impacting how video games are purchased, which is something that Cloud gaming services stand to benefit from. Video games are getting more expensive, with the latest titles on next-gen consoles retailing for $70, which means gamers are becoming more receptive to subscription-based models.

This has resulted in the video game industry shifting towards the Netflix and Amazon model of unlimited gaming for a monthly fee, where devices are just the distribution channel for gaming content. While hardcore gamers are still happy to spend hundreds on the latest console or gaming PC, there’s no longer a requirement to do so as the growing popularity of Cloud gaming means many of the latest titles can be played directly from tablets, PCs, laptops and, most recently, Smart TVs.

Opportunities for telecom providers

Whether it’s through Smart TVs, mobile phones or tablets, Cloud gaming is expected to grow exponentially as connectivity improves and access to content is expanded, with one report predicting that global revenue for the Cloud gaming market will reach $12.6 billion by 2028.

But as the report highlights, this growth will come with rapid urbanization, technological advancement and increased investment from developing countries – all of which will require the support of communications service providers and telecom providers, especially when it comes to expanding Cloud gaming services into developing countries. As the global rollout of 5G infrastructure continues, there are plenty of opportunities to upsell Cloud gaming services given the essential role that 5G plays for Cloud gaming.

Cloud gaming needs wide access to 5G networks to thrive. Performance requirements for streaming the latest AAA titles on mobile devices are already high and are likely to increase as the industry adopts AR and VR devices, with the future growth of AR and VR devices also incentivizing telecom providers to bundle and/or upsell.

The wider adoption of Cloud gaming will also require reliable, scalable, and high-performance mobile networks to avoid lag and congestion issues. Put simply, the network dependency of Cloud gaming makes it the perfect segment for Telecom providers to capitalize on.

Recent analysis by inCode found that almost 80% of Cloud gamers are willing to pay more for better connectivity on top of their monthly 5G subscription, so providers should consider working this into any attachments with Cloud gaming services. While Cloud gamers currently only make up 4% of the 5G subscriber base, this is expected to reach 25% in the next decade.

Cloud gaming providers generally want their platforms on as many devices as possible, and Telecom providers also play an essential role in marketing and wider adoption. Partnerships between Cloud gaming providers and Telecom providers are mutually beneficial; Cloud gaming providers get to reach a market of mobile phone owners that may be open to gaming on their devices, while Telecom providers can upsell data connectivity, 5G packages and data-slicing plans to their customers.

Challenges for telecom providers

Given the mutually beneficial relationship between Telecom providers and Cloud gaming services, it’s essential that Telecom providers work to improve their understanding of the gaming market, which requires a base level of understanding to recognize opportunities and the needs and wants of a gaming demographic.

While it’s not a prerequisite for partnerships, Cloud gaming providers get excited about the prospect of working with Telecom providers with knowledge of the market and existing partnerships with gaming companies (as long as those existing partnerships aren’t a conflict, of course).

No two Cloud gaming providers are the same, so when choosing who to work with, consider their position in the market, USPs, business model, and how their brand values align with yours. Plus, there is the question of whether their systems run on hybrid Cloud with public or private Cloud servers? This will have a bearing on how easy it is to deploy around the world and how much the system can be optimised. Equally, some cloud gaming providers are available on more devices than others, so another variable is accessibility and audience reach.

Ultimately, Telecom providers need to identify where they’re best positioned to add value in the Cloud gaming ecosystem – such as the markets they have a strong presence in that can support the growth of Cloud gaming providers in those areas – as well as the most suitable providers to partner with. While Cloud gaming services show no signs of slowing down, this is still early days for the market, so Telecom providers should do everything they can to establish beneficial partnerships now. Doing so will place them in a position where they’re able to benefit from the growth of Cloud gaming too.

Olivier Avaro is the founder and CEO of Cloud gaming service, Blacknut. Olivier began his career at Orange where he researched on video compression technology and was instrumental in the creation of the MP4 file format. He co-founded Streamezzo, which was acquired by Amdocs in 2010, and in 2016 founded Blacknut Games.