What you need to know
- Bloomberg Intelligence is a firm that that delivers analysis on a variety of industries to help investors.
- A recent report from the firm shared to us describes how the cloud gaming market (that Bloomberg describes as cloud streaming gaming or CSG) could expand to become a $40 billion industry in the next ten years.
- Bloomberg cites markets like India leading the way. Coupled with the roll out of more powerful internet options, traditional console gaming plays second fiddle to mobile play in the region.
- Bloomberg analysists describe how Xbox is poised to lead the way in the segment, but warn against strong competition from PlayStation and NVIDIA.
As someone who has been following the gaming industry for the past two decades, I must say that the current state of Xbox Game Pass and cloud gaming is both exciting and perplexing. The potential for growth in this sector is massive, as predicted by Bloomberg, but there’s a significant amount of uncertainty that comes with it.
A Bloomberg Intelligence report, which our firm has shared, predicts that Xbox and Microsoft might spearhead a significant expansion of cloud gaming within the upcoming ten years.
As a researcher exploring the latest advancements in gaming technology, I’ve been particularly intrigued by Microsoft’s recent innovation – their Xbox Cloud Gaming service. At this moment, it’s exclusively linked with Xbox Game Pass Ultimate, offering an immersive gaming experience without the need for a high-end console.
Essentially, cloud gaming offers a way for users to sidestep the initial expense of purchasing a console, often amounting to hundreds of dollars, by opting for a subscription service that lets them play games using Microsoft’s remote servers. The game is then streamed directly to their own device.
The limitations of the tech at numerous, though. Light can only travel so fast, and even with the best fibre optic conditions, the end user’s physical distance to a data center can introduce latency or pixelated visuals. Furthermore, Xbox Game Pass Ultimate is also quite expensive at $19.99, particularly if you have no plans to use its additional features. You’re also limited to games within the Xbox Game Pass library, which contains roughly 300~ games on a revolving basis. However, Microsoft is on the cusp of fixing some of these limitations — more on that shortly.
Microsoft continuously grows the geographical span of its data centers to cater to its users, and at present, it’s building a server farm in Hyderabad, India, which is notably relevant to our current discussion.
Bloomberg Intelligence is a business that offers insights on numerous industry subjects to aid investors in making wiser choices. Lately, they have shared a report with us outlining their belief that cloud gaming could expand approximately ten times over the next ten years, eventually becoming a $40 billion global market.
Last year, cloud-based gaming services earned approximately $3.5 billion, representing only a small fraction of the $184 billion revenue generated by video game creators worldwide. However, we believe this proportion will grow rapidly as streaming technology allows developers to reach a wider audience that encompasses not just console and PC users, but also mobile device owners. This expansion is particularly significant for developing markets, where people predominantly use mobile devices instead of costly, stationary hardware.
The comprehensive report highlights that it’s India, not the United States, that is expected to drive growth in this sector. India stands out due to its preference for mobile gaming over traditional console gaming. The high initial cost of video game consoles exceeds the purchasing power in certain regions, making mobile gaming a popular alternative. According to Bloomberg, the development of advanced network infrastructure in countries like India during the next decade could trigger a surge in cloud gaming, given that major players such as Call of Duty may eventually be accessible on cloud gaming platforms.
According to Bloomberg, AI technologies are a key component in the pursuit of cloud gaming, due to their potential to create frames locally on devices, thus addressing latency problems. It’s anticipated that frame generation will significantly impact the upcoming console and mobile gaming generations. Microsoft is at the forefront in this area, opting for Snapdragon processors in its Copilot+ PC line, which include local NPU cores for AI generation without relying heavily on the cloud for video encoding. As technology advances, it’s likely that future devices like phones, consoles, and potentially even TVs will incorporate neural processing as a standard feature, thereby expanding the capabilities of cloud gaming beyond its current technical constraints.
It is anticipated that Microsoft (through its Xbox platform) and Sony (with PlayStation) will have a significant presence in the cloud gaming market, accounting for approximately 40% and 15% respectively. This projection is based on their extensive libraries of content and early entry into this field, giving them an advantage over other competitors.
Pain points
In this analysis, it’s clear that Microsoft and other cloud gaming providers face numerous challenges as outlined in the report. For instance, despite Apple claiming to “open up” its app store for cloud gaming by January 2024, the situation is quite different. Just last week, Microsoft was voicing complaints about Apple to regulators. Apple’s supposed opening is more of a deception, given its fees and in-app purchasing rules that render the business unsustainable. Google Play has shown some improvement, but the regulations and policies of both Android and iOS have driven Microsoft to focus more on developing the web version of Xbox Cloud Gaming, which only includes Fortnite due to Epic Games’ attempts to steer clear of Apple’s history of anticompetitive practices that often mock regulators. I remain skeptical about Apple’s potential role in helping Microsoft grow its business, but perhaps there are additional reasons for Bloomberg to be hopeful.
According to Bloomberg’s predictions, Microsoft might introduce ad-supported pricing tiers for Xbox Cloud Gaming in 2025 to make the service more accessible for budget-conscious customers. However, according to our current information, it appears that Microsoft isn’t actively planning on implementing ad-based tiers for Xbox Cloud Gaming at this time, although they have looked into the idea. However, plans can change, and it’s certainly a viable approach.
The UK competition authority has made Microsoft relinquish the rights for cloud gaming of all Activision-Blizzard games, effectively granting Ubisoft exclusive global licensing for these titles in their cloud format. Currently, it’s NVIDIA GeForce Now that is profiting from offering cloud versions of these games instead of Xbox. At this moment, there’s no indication that Ubisoft intends to share these games with users of Xbox Cloud Gaming. However, due to the recent struggles in the market for XDefiant and Star Wars Outlaws and the decline in their stock value, Ubisoft might be more open to striking a deal than before.
Massive potential, massive uncertainty
According to the report written by Nathan Naidu, an analyst and researcher at Bloomberg, he highlighted Microsoft’s strong hold in the gaming sector regarding Xbox. However, he cautioned that even with Microsoft’s technical edge, Sony still poses a significant competitive threat.
The Xbox dominates the market for cloud-streamed gaming due to its edge in game library and cloud technology compared to major competitors. This advantage, especially in cloud technology, is expected to increase during the forecast period by Bloomberg Intelligence, distinguishing it from Sony and other significant competitors in this field. The strength of Xbox’s cloud technology contributes to a superior user experience, leading to successful user acquisition. Although Sony’s [PlayStation Now] currently boasts the largest game catalog, including high-quality first-party games that are comparable to those provided by Xbox, we believe this is Sony’s primary defense against its main rival, Xbox. We anticipate that Sony’s future cloud gaming strategies will be more responsive, as they adapt to potential actions taken by Microsoft’s Xbox unit, particularly regarding platform exclusivity of key game franchises.
Currently, Microsoft’s gaming sector finds itself in an unusual position. Previously, I discussed how Xbox was experiencing some growing pains, and its substantial acquisition of Activision-Blizzard has further amplified the need for increased financial resources. To meet this requirement, Microsoft has started making moves that were once considered unconventional — making Xbox exclusives available on PlayStation with no signs of slowing down.
In essence, Microsoft acknowledges that Sony’s PlayStation platform is leading the console market war, given that it has sold approximately three times more consoles than Xbox, according to some reports. However, Microsoft asserts that it currently has more Xbox users than ever before, with a potential audience of half a billion users, thanks to popular mobile games like Candy Crush Saga and the success of Call of Duty. To find growth in a console market that’s not expanding much, Microsoft is extending its reach into mobile gaming and PC gaming, but it faces numerous challenges there, such as Steam’s dominance on PC and Apple’s competitive behavior.
Microsoft’s diversity has historically been its key asset, but its propensity for venturing into different sectors sometimes leads to negative impacts on other entities, as its focus tends to shift. For instance, while Microsoft’s Xbox console continues to cater to tens of millions of users, challenges such as major publishers bypassing the platform and independent developers resorting to social media to request assistance highlight an Xbox division that appears stretched thin, possibly overextending itself in the process.
If Bloomberg’s projection that the cloud gaming market will expand significantly over the next decade proves accurate, it would be unwise for Microsoft to lose focus on this promising sector.
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2024-09-10 18:40