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Cloud Gaming: Enabling a Next Generation Gaming and Streaming Paradigm

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Cloud Gaming: Enabling a Next Generation Gaming and Streaming Paradigm CLOUD GAMING: ENABLING A NEXT GENERATION GAMING AND STREAMING PARADIGM Analysts: Eric Abbruzzese, Michael Inouye TABLE OF CONTENTS 1. A CONFLUENCE OF GAMING AND STREAMING MARKETS 1. A CONFLUENCE OF GAMING AND The immense video streaming market is already laying the groundwork for high-volume, STREAMING MARKETS ....................... 1 high-bandwidth content potential, so the onset of cloud gaming excitement was not a sur- 1.1. Gaming Market Dynamics .........................3 prise. The gaming market is responsible for more than US$150 billion in revenue overall. 1.2. Video Market Dynamics and Any new service or technology that can tap into even a sliver of that revenue is promising. Similarities to Gaming ...............................4 2. STATE OF THE CLOUD GAMING MARKET 6 Cloud gaming promises a layer of flexibility not previously possible in the market. Low end- 2.1. Business Models Today and to-end latency enables data centers to take the place of processing needed by a user’s Shifting toward Cloud Gaming in the Near Future ........................................7 Personal Computer (PC), console, or mobile device. New spectrum availability and wired 2.2. Technical Details .......................................8 broadband opportunity, mature existing infrastructure from the video market, and increas- 2.3. Competition and Differentiators .............10 ingly powerful and efficient cloud-native technologies all contribute to this progression. Pro- 2.4. Gamification Outside of Gaming .............11 cessing in the cloud allows for any device to have the processing power of a high-end PC 2.5. Immersive Technologies as an without the local hardware cost. Cloud gaming represents a first step in cloud infrastructure Upcoming Feature for Cloud Gaming .....12 usage, with distributed and load-balanced compute in the future allowing more scalable 3. WHERE DO NETWORKS FIT? ...............14 power depending on user count and specific demands. There is even a sustainability com- 4. FORECASTS AND LOOKING FORWARD ..17 ponent when considering local user hardware versus shared data center compute in terms 5. KEY TAKEAWAYS ...............................19 of power draw and waste. This scalability is especially important in cloud gaming—by design, a unicast experience—as it will stress infrastructure and present a different content han- dling paradigm from traditional video streaming. www.abiresearch.com While these values are applicable to all gamers, it is important to distinguish between different types of gam- ers and their respective desires and market opportunities for cloud gaming: • Hardcore: These gamers represent the pinnacle of the gamer landscape (and include segments with- in the PC and console gaming market), investing heavily in gaming hardware/peripherals (e.g., high-end gaming PCs) and spending considerably more time and money on software/services as a whole. These individuals are currently not a primary target of cloud gaming services because these users demand the highest levels of gaming performance not currently available over cloud gaming services, and/or engage in considerably longer gameplay sessions than average, which can run counter to some of the cloud gaming services that operate under a metered business model. • Core: Historically, the core gaming segment included both PC and console gamers. On the PC side, these gamers often spend less on their gaming PCs than hardcore gamers. Similarly, consoles gamers often seek a more cost-effective entry into the core gaming market than those units favored by the hardcore gaming segment. Mobile gaming is also starting to move into this category, as more PC and console game titles and franchises cross over. Cloud gaming services are targeting these users, but it is not viewed as the primary growth driver at this time. • Casual: Casual gamers are defined less by the platform and more by time commitment and game type preferences. This gaming segment views video games as just another form of entertainment and often devotes considerably less time to gaming than the previous two tiers. Gamers who favor certain types of games can also be classified within this tier; for example, those who predominantly play games like puzzles/board games or word games would be classified as casual gamers. The cloud gaming market started targeting these users and continues to be a key target in the near term. • New: This is a significant growth target for the cloud gaming market. Cloud gaming helps disaggregate the gaming experience from dedicated hardware, so it can be perceived to have a lower cost of entry and address concerns around setup and technical considerations (e.g., adequate PC specifications). Access to a game library anywhere and anytime is an easily marketable value to most users. Add cross-device support, in many cases, and the cloud’s inherent ability to scale hardware power over time independent of user hardware, and the value is expanded further. Thanks to the overlap between the video and gaming markets, both from technical and business model perspectives, there is immense interest already in bundling cloud gaming services in the same way Over-the-Top (OTT) and pay TV services are bundled with broadband or other telco services. The presence of mature existing technology and the ability to repurpose that technol- ogy for a new medium provide cloud gaming another benefit. The triple and quad play bundles popular over the last decade can add cloud gaming relatively simply, in an effort to reduce churn of other services and increase overall Average Revenue per User (ARPU). There are also specific value adds that operators can attach to cloud gaming, such as low latency and priority access when leveraging their service. One must consider the potential that 5G brings to such a market as well, with higher bandwidth, lower latencies, and greater reliability and connection quality end to end. As infrastructure matures, technologies like network slicing and edge compute will be applied to cloud gaming, further improv- ing services and user experience. 2 www.abiresearch.com CLOUD GAMING: ENABLING A NEXT GENERATION GAMING AND STREAMING PARADIGM Cloud gaming is not a flawless proposition though, especially in its current nascent state. Uncertain scenarios around content ownership and rights leave questions around possible business models, content location, and user access paradigms. NVIDIA’s GeForce NOW, for example, has struggled to maintain content as pub- lishers have pulled their games, citing confusion and disagreements around content ownership and rights. This includes some AAA publishers, including Activision-Blizzard, 2K Games, and Bethesda. Variables are plenty; bandwidth requirements differ depending on the individual service, game, resolution, user-chosen settings, and average bitrates will rival and exceed high-fidelity video streaming, especially as frame rates increase, along with resolution (something uncommon in the video realm). User experience relies heavily on the quality of the infrastructure between the user and the data center, something entirely out of the user’s control with a possible negative impact on availability, reliability, and latency. There are some heavy limitations on content experiences across these variables; for instance, most multiplayer experiences require a certain level of overall latency, which cloud gaming may not meet. Finally, there is the intrinsic value of cloud gaming to the mass market, which, while promising, has not yet been proven. These technical considerations, possible barriers, and likely accelerators for cloud gaming are shared with other markets, and entirely unique. Content distribution looks similar to existing content streaming with video or music, while adding new variables like low-latency requirements and the inherent lack of buffer with inter- active content. Unique considerations in content ownership and business models present novel challenges. These dynamics intertwine to create a compelling, but complex opportunity for all players end to end: hard- ware, software, services, and supporting infrastructure. CR-IDCC-XYZ: CLOUD GAMING 1.1. GAMING MARKET DYNAMICS The video game market is now among the largest entertainment industries in the world with more than 2.3 billion individuals who play some type of video game. The number of gamers is expected to continue to grow 1.1. Gaming Market Dynamics over the next 5 years and beyond, driven, in particular, by mobile gaming. The video game market is now among the largest entertainment industries in the world with more than 2.3 billion individuals who play some type of video game. The number of gamers is expected to Figure 1: Number of Video Game Players continue to grow over the next 5 years and beyond, driven, in particular, by mobile gaming. World Market, Forecast: 2018 to 2024 Figure 1: Number of Video Game Players World Market, Forecast: 2018 to 2024 (Source:(Source: ABI ABI Research) Research) 4.0 Middle-East & Africa Latin America 3.5 Asia-Pacific Eastern Europe Western Europe North America 3.0 ) s 2.5 n o i l l i B ( 2.0 s r e m a 1.5 G 1.0 0.5 - 2018 2019 2020 2021 2022 2023 2024 3 www.abiresearch.com The Asia-Pacific region representsCLOUD GAMING: the ENABLINGlargest gaming A NEXT GENERATION base with GAMING51% of AND the STREAMINGworldwide PARADIGM total. China has the largest gamer population with 40% of the Asia-Pacific region (China, India, Japan, and South Korea, collectively, represent nearly 70% of the region’s gamer population). The regions of Western Europe, Eastern Europe, and the Middle East & Africa hold over 28% of the gaming population, with the Middle East & Africa segment adding a healthy number of mobile gamers, but revenue opportunities are markedly lower when compared to the European markets. The Americas, at roughly 20% of the player base, represent the second largest revenue opportunity, driven in large part by North America, which is strong across the gaming platforms. Mobile devices have been a cornerstone of the gaming market for nearly a decade, both in terms of the number of users and revenue, even though ARPU in general is lower than in the PC or console markets.
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