Making Money from Video Game Streaming
February 13 2019 - 6 Stocks to Own for the Video Game Streaming Wars By Investopedia
The next big evolution in the video game market is expected to be streaming over the internet, which would allow play to proceed on a variety of widely-used devices without the need for specialized hardware. "The greatest disruption of entertainment is the combination of streaming and subscription. More people are engaging, with less friction, through cloud-driven services," as Andrew Wilson, CEO of game publisher Electronic Arts (EA), told Fortune magazine.
As providers of leading cloud computing platforms, Amazon.com Inc. (AMZN), Microsoft Corp. (MSFT), and Google parent Alphabet Inc. (GOOGL) are well-positioned to become leading players in game streaming, Fortune observes. In addition to these companies, Apple Inc. (AAPL), Verizon Communications Inc. (VZ), and Sony Corp. (SNE) also are worth watching, Business Insider reports.
The Streaming Gaming Race: The Key Players
Amazon: owns Twitch; reportedly developing a game streaming service
Microsoft: streaming service Project xCloud slated for 2019 launch
Alphabet: "impressive" tests of game streaming to ordinary computers
Apple: reportedly testing a subscription service to run on its devices
Verizon: reportedly testing a service, but uses specialized gaming devices
Sony: launched game streaming service PlayStation Now 5 years ago
Significance for Investors
The video gaming market represents $36 billion of annual revenue, per Fortune. Success in video game streaming is likely to rely on three main factors: the quality and variety of games on offer, the cloud-based technical infrastructure necessary to support game playing, and the choice of devices that can be used. Regarding the latter, services that allow game playing on common devices such as personal computers, TV sets, notebook computers, and smartphones, without the need for specialized hardware such as game controllers, will appeal to a broader market and thus have a decisive competitive advantage.
Amazon is a major video streaming provider through its Prime Video service, and it also owns Twitch, a leading online meeting place for gaming enthusiasts, as well as a leading place to watch live gaming. Amazon spent $1 billion in cash in 2014 for Twitch, outbidding Alphabet. Reports indicate that Amazon is developing a Netflix-like game streaming service, but that is not likely to be available until 2020 or later. It is unclear whether Amazon's Fire TV streaming video devices and controllers would be needed with this service.
Microsoft has announced that its Project xCloud service will become available to the public sometime in 2019. The company released a demonstration video in Oct. 2018, and CEO Satya Nadella says that their well-established Xbox gaming division gives them a competitive lead. "We have a huge back catalog, which is: We have our own games," he added, as quoted by BI.
Alphabet, experienced in streaming through its YouTube service, recently tested a video gaming service called Project Stream. Rather than requiring special gaming hardware such as Xbox, this test used ordinary computers both with and without Bluetooth controllers. The test involved the popular Assassin's Creed Odyssey game, and was "impressive, easy to use, and quick," per BI.
Sony, the makers of PlayStation gaming hardware have been offering the PlayStation Now streaming service for five years, but it has not become a huge hit, partly because "it offers a slightly-aged library of games," per BI. Subscription revenues for PlayStation Now in 3Q 2018 were $143 million, or 52% of a gaming subscription market worth $273 million in that period. EA's Access service came in second, at $90 million and 33% of the market, per Gamer Network.
Verizon offers a large library of video on demand to subscribers of its Fios TV service. Tests of its own game streaming service reportedly have utilized Xbox and Nvidia Shield devices.
Apple, as the maker of the Apple TV, the iPad and the iPhone, as well as an experienced hand at streaming with iTunes, might see video game streaming as a logical extension. However, to make its service popular, it would need to work with game publishers to provide game content. Another option would to buy one, as JPMorgan suggests, per a report in Barron's.
Electronic Arts. EA's Access service, mentioned above, requires the user to have Xbox hardware. EA also has a Project Atlas underway, joining "the growing list of companies looking to build a cloud gaming platform, where players will be able to stream video games with minimal hardware of their own," per Data Centre Dynamics.
Take-Two Interactive Software Inc. (TTWO). "Any technologies that bring us closer to more consumers in a seamless way is a good thing," as CEO Strauss Zelnick of game publisher Take-Two told Gamesindustry.biz. "There is a big opportunity for us [in streaming]," he added, while not offering details on what measures his company has underway.
Activision Blizzard Inc. (ATVI). This game publisher also has plans for a streaming service, and has been in talks with unspecified cloud services providers to supply the necessary technical backbone, per MarketWatch.
Nvidia Corp. (NVDA) is a leading maker of high performance semiconductors used by avid gamers. It also offers a game streaming service called GeForce Now, which is still in beta testing mode. The service runs on nearly any laptop or desktop computer, as well as the Nvidia Shield TV streaming device, per the company.
As in every new market, a big question is whether the first big innovator and early leader will be able to maintain that lead, or will subsequent entrants learn from the leader's mistakes and eventually overtake it. Another question is where the ultimate power, and thus the most profits, will be in this market, with the content providers or with the streaming infrastructure providers. Indeed, a final question is whether deep-pocketed players such as Amazon, Microsoft, Alphabet, and Apple will seek to acquire game publishers.
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