Cloud gaming platforms allow people to play the latest titles on smartphones and other devices wherever they happen to represent a significant opportunity for telcos looking to establish stickier subscriber relationships and improve average drive-up revenue per user (ARPU).
The latest estimates from gaming market research firm Newzoo suggest that cloud gaming services generated around US$585m of revenue in 2020, more than tripling from US$170m in 2019. And the company is now forecasting exponential growth that will see cloud gaming worth US$4.8bn by 2023.
Grandview Research comes to a similar conclusion. It estimates that the global cloud gaming market was worth US$470m in 2020 but will expand at a compound annual growth rate (CAGR) of 48% between 2021 and 2027. Another source, Mordor Intelligence, valued the cloud gaming market at US$1.2bn in 2020 but forecasts a much more modest CAGR of 15% between 2021 and 2026.
5G provides market accelerant
Multiple factors will accelerate the adoption of cloud gaming amongst consumers – most notably the increasing penetration of mobile data services delivered over fifth-generation (5G) networks that offer improved gameplay through lower latencies and higher bandwidths. 5G networks will enable real-time rendering of multiplayer high-fidelity cloud games that use heavy graphics, made possible by this higher bandwidth and resulting speed.
Omdia predicts that a combination of new 5G networks and a gradual expansion of the coverage provided by existing infrastructure mean 5G enabled services will expand rapidly. In 2020, 5G represented less than 3%, mainly because live 5G networks tended to centre on a small scale, limited coverage implementations in specific cities and regions of the world whilst other operators remained at the planning and testing phase. Telcos in the Asia Pacific (and China, Japan and South Korea in particular) have led the way, for example, closely followed by those in the US, Europe, and the rest of the world coming behind.
After a pandemic-induced pause to rollout schedules, more 5G networks will come online this year and next, however, alongside larger volumes of lower-cost 5G smartphones. That will help drive the percentage of 5G mobile subscriptions to 6% of 2021, rising to 30% by 2025, predicts Omdia. By 2024, 5G subscription penetration is expected to be highest in North America (67%), followed by Europe (42%), then Asia and Oceania (26%), with early adoption led by younger members of regional populations.
Telco cloud gaming services and partnerships in place
In the US, these include all three major mobile network operators (MNOs) – AT&T, T-Mobile and Verizon. AT&T’s Foundry innovation centre has been working with cloud gaming company PlayGiga for example, while Verizon announced a partnership with game streaming platform Twitch in August 2020. Sprint collaborated with Hatch to offer unlimited mobile cloud gaming on its 5G network as early as 2019. Its T-Mobile subsidiary Sprint has worked with Microsoft xCloud to test and develop its services.
Across the Atlantic in Europe, Deutsche Telekom launched its MagentaGaming service in August 2020 with help from RemoteMyApp after a year of testing. In February 2021, Orange and Vodafone Group also announced they would partner RemoteMyApp and PCM Connect to launch Vortex cloud streaming platforms across France, Belgium, Spain, and South Africa. Proximus also offers cloud gaming services in Belgium in partnership with Shadow.
UK telco BT entered a partnership with Google’s Stadia cloud gaming platform in January 2020. Vodafone inked a similar distribution deal with Microsoft xCloud and Telefónica joining up with GeForce Now. Cloud-gaming specialist Blacknut now powers services for Telecom Italia, Swisscom and POST Luxembourg. In Russia, MegaFon and Tele2 both offer cloud gaming services based on the Loudplay platform. VimpelCom has developed its Beeline Gaming service in cooperation with GeForce Now alliance partner GFN.ru since July 2020.
Asia is also a hotbed of activity. SK Telecom partnered with Microsoft to launch its 5GX Cloud Game service in Korea in September 2020 (Indian telco Jio is involved in a similar collaboration for Xbox players). Korea Telecom (KT) worked with Taiwan-based cloud gaming software company Ubitus to beta test its service last August. Ubitus is the white-label cloud gaming company behind cloud-powered games for Nintendo’s Switch platform. Another of its telco partners is China Mobile which launched its 5G cloud game streaming service in April 2020.
Japanese telco KDDI was something of a pioneer with its Ubitus GameNow cloud gaming service for cable broadband customers as early as 2014. That proposition has since been extended to include mobile gamers in partnership with GeForce Now. Other GeForce Now partners include LG UPlus (Korea), SoftBank (Japan), Taiwan Mobile, Turkcell, Zain KSA (Saudi Arabia) and Pentanet (Australia). Also active in Japan is NTT DOCOMO, which made a strategic investment in Rovio subsidiary Hatch in 2019 and is expected to launch a commercial service based on the platform shortly.
Expanding source of revenue and carrier billing options
Cloud gaming partnerships is a significant market opportunity for looking for ways to maximise the return on their considerable 5G infrastructure investment and establish new sources of revenue to offset declining revenue from voice calls and SMS messages. Most people signing up to cloud gaming services tend to be younger players, often those without access to bank accounts, credit or debit cards (especially in emerging markets of Asia and Latin America) playing games on their smartphones.
Monthly subscription fees tend to be low value, typically between US$5 (GeForce Now), US$10 (Google Stadia) and US$15 (Microsoft xCloud) a month in developed countries. That makes them similar to subscription video on demand (SVOD) services like Netflix, Disney+ and Amazon Prime, which are increasingly funded through direct carrier billing (DCB) options that charge the fees directly to the customers’ mobile phone account.
There is already evidence suggesting that bundling SVOD services with mobile subscriptions helps telcos attract new customers and retain existing ones. A similar strategy with cloud gaming is likely to have the same effect, more so if telcos make them easy and convenient for young gamers to pay for using direct carrier billing.