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Subscription models and the streaming of games are becoming increasingly important for the gaming industry. What does this mean for game console manufacturers like Nintendo, Sony or Microsoft?
Gaming is a normal leisure activity for many millions of people in Germany. According to a representative survey by the digital association Bitkom, 53 percent of Germans aged 16 and over say they play video or computer games at least occasionally. According to the survey, they spend an average of 26 euros a month on this. Interested parties can see which new products the games industry wants to use to attract customers in the coming days at the Gamescom computer games trade fair, which starts today in Cologne.
New business model
The industry is a very dynamic branch of the economy with annual sales in the hundreds of billions. The consoles from Nintendo, Microsoft and Sony are still very popular with gamers. But a new business model could soon establish itself that lowers the barriers to entry for more demanding games and puts pressure on the console market: so-called “cloud gaming” – i.e. games that are on outsourced server computers and played on PCs, tablets or smartphones become.
“Internet access, screen, controller – that’s all you need for ‘cloud gaming’,” says Sebastian Klöß, Head of Consumer Technology at the digital association Bitkom tagesschau.de. “Because the players no longer need powerful processors and graphics cards, even for complex blockbuster games. Instead, they access the computing power of data centers via the Internet.” You can use the games by subscription, roughly comparable to video streaming.
Large selection of games, monthly fixed price
Current market data from Germany shows that “cloud gaming” is becoming an important factor for the industry: According to a joint study by PwC Germany and the game association of German game manufacturers, 8.6 million people aged 16 and over used cloud services last year in Germany. “Cloud gaming” is also considered a growth market internationally.
It is becoming increasingly popular, especially among younger gamers, explains Werner Ballhaus, Global Entertainment & Media Sector Leader and Head of Technology at PwC Germany. Above all, new payment models made “cloud gaming” attractive, the expert said tagesschau.de: “Subscribers have a large selection of games at a fixed monthly price, while providers have customer loyalty and monthly income. The market is also being driven by big tech companies.”
Other providers sense a deal
Providers outside of the games industry have now also discovered this potential. But it is by no means certain that the business model will actually work, despite the good forecasts made by the experts. “The ‘Cloud Gaming’ market is characterized by strong competitive pressure, and not all initiatives are successful,” says Çiğdem Uzunoğlu, Managing Director of the Digital Games Culture Foundation, describing the situation in the industry.
This is also shown by the failure of the Google streaming service Stadia, which was discontinued in January of this year. Nevertheless, the video streaming service Netflix is now venturing into the gaming industry. The US company is initially testing a small cloud offering in the UK and Canada.
At the beginning, the test only includes two games that can be played on TVs from Samsung and LG, among others. Streaming boxes from Amazon, among others, can be used, and Windows PCs and Apple’s Mac computers are supported.
infrastructure problems
There are also technical reasons why cloud gaming has limitations. “Currently, the infrastructure for nationwide ‘cloud gaming’ with outsourced computing power in the form of 5G or broadband connections is not yet in place,” explains PwC specialist Ballhaus. In contrast to video streaming, the data transfer in “Cloud Gaming” goes in both directions, because there are uploads and downloads. This could lead to delays when playing – depending on the network quality and server performance.
This is an essential factor for the technically highly demanding players. “Anyone who, for example, keeps crashing into the crash barrier in a car racing game because their control commands were transmitted too late will quickly lose interest in ‘cloud gaming’,” emphasizes Klöß.
Consoles sold millions
At the moment, the game console business is still working brilliantly. The Playstation 5 in particular is selling well. According to the latest information from management, Sony expects sales of 25 million consoles this year. Since the launch of the console in 2020, more than 40 million units have already been sold – despite supply problems that have now been resolved.
Business isn’t going so well for Microsoft, but the US manufacturer’s Xbox Series X has already sold more than 20 million units. On the occasion of the Gamescom games fair, there was speculation as to whether Nintendo could present the successor to the extremely successful Switch console there.
“‘Cloud Gaming’ complements rather than replaces”
The user numbers also show how popular the game console is at the moment. The number of console gamers in Germany has increased continuously in recent years from 15.9 million in 2019 to 18.9 million most recently, according to Felix Falk, Managing Director of the game association tagesschau.de. So is it too early to announce the end of the gaming console? Falk says yes. “The development so far shows that ‘cloud gaming’ complements rather than replaces the existing gaming platforms such as the console and the PC.”
Because, according to Falk, game consoles have many advantages that gamers appreciate: “They offer a lot of performance for a comparatively low price and are also optimized for gaming. They are usually operated on the large TV in the living room and are therefore ideal to play with others.”
Industry expert Uzunoğlu from the Digital Games Culture Foundation sees it this way: “There are many indications that game consoles will continue to be an important part of the market.” Sony and Microsoft also operate their own cloud services with PlayStation Now and Xbox Cloud Gaming, and certain titles are also available as cloud versions on the Nintendo Switch. “So game consoles currently give gamers the choice of how they want to get their games, and who doesn’t like having a choice?”
Control over prices and dates
PwC expert Ballhaus cites other reasons that speak in favor of the future of the console: From the manufacturer’s point of view, control over end devices and platforms gives more opportunities to retain sovereignty over content, prices or user data. The topic is also not unimportant for the players: consoles give the players control over their game library without being dependent on third parties. “For ‘cloud gaming’ services, access to games could depend on the service provider’s business decisions.”
Ballhaus therefore also expects consoles to remain important in the market despite the rise of “cloud gaming”: “It is possible that the future will bring a combination of cloud gaming services and traditional console platforms to cover the needs of different gamers.”
“Cloud gaming” has the potential to make both game consoles and gaming PCs superfluous, according to Bitkom specialist Klöß. “But whether this technology will prevail within a console generation is a completely open question.”