Video Games: Cloud Invaders

Bracing for the Netflix-ization of Gaming

What was your first memory of playing video games? Mine was playing Centipede at the local pizzeria. Armed with quarters and enough money for one slice of pizza, we would play until we were either broke or our fingers were sore from firing digital missiles. Eventually my friend got an Atari game system and after months of begging for the same, my Dad caved in and bought us a gaming system – an Intellivision game system. He told us over and over that it was a better system to Atari but it didn’t have all the cool games that my friends played. It was hard sometimes being the daughter of an engineer who cared about technology superiority, but at least the hockey game let you punch people.

Game choices moved quickly after that – Tetris on my Macintosh Plus, Donkey Kong on my Nintendo DS, Brickbreaker on my Blackberry, and now Candy Crush on my iPhone. The common constraint through the years was that the games I played continued to be dependent on the device I owned.

When the Internet came about, new firms started disrupting traditional media businesses such as newspapers, radio, and television by giving consumers what they wanted, when they wanted, and on the device they wanted. But it didn’t disrupt the video game industry. Game publishers were able to use the Internet to augment their revenues. They used the Internet to increase in-game sales and sell software directly to consumers, and tapped into the smartphone market and the growth of mobile gaming.

Are video game publishers immune from disruptive threats? The authors of this report answer with a resounding no. There is a technology on the horizon that has all the characteristics of a disruptive threat to the video game ecosystems — the cloud.

The video game ecosystem has been evolving over the last few years — towards group play vs. single play, to in-game monetization vs. software sales, to renting vs. buying hardware, to video games being a spectator sport, and to software being made for all devices vs. software made specifically for hardware. These new trends in the video game industry could make it much easier for the big cloud players to come in and start pulling away revenue.

The cloud-based providers will be able to offer low-cost access to cloud-based gaming and a wide array of gaming content. They will also be able to monetize gaming in non-traditional ways that play to their strengths — through in-game monetization, in-game advertising, broadcasting, and digital. For consumers, cloud will make it easier to play games on different platforms and allow players to be device agnostic, hitting pause on a PC game and picking it up again on a mobile device. Game developers will be able to support more devices as compatibility issues decrease between software and hardware.

eSports, a $1billion business and growing, will have increased opportunities on the cloud and we believe game publishers will still be able to thrive in the emerging video game world but will have to adapt their business models to ensure they’re positioned appropriately.

If the report is right, I may finally be able to play PacMan!