Cloud gaming: New opportunities for telcos?

(Re)Connecting with Consumers

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How telcos should be preparing for the seismic shift in the video games market signposted by Google’s new Stadia cloud gaming service.

Gaming is following video to the cloud

Cloud gaming services enable consumers to play video games using any device with a screen and an Internet connection – the software and hardware required to play the game are all hosted on remote cloud services. Some reviewers say connectivity and cloud technologies have now advanced to a point where cloud gaming can begin to rival the experience offered by leading consoles, such as Microsoft’s Xbox and Sony’s PlayStation, while delivering greater interactivity and flexibility than gaming that relies on local hardware. Google believes it is now feasible to move gaming completely into the cloud – it has just launched its Stadia cloud gaming service. Although Microsoft is sounding a more cautious note, it is gearing up to launch a rival cloud gaming proposition called xCloud.

This report explores cloud gaming and models the size of the potential market, including the scale of the opportunity for telcos. It also considers the potential ramifications for telecoms networks. If Stadia, xCloud and other cloud gaming services take off, consumer demand for high-bandwidth, low latency connectivity could soar. At the same time, cloud gaming could also provide a key test of the business rationale for edge computing, which involves the deployment of compute power and data storage closer to the end users of digital content and applications. This allows the associated data to be processed, analysed and acted on locally, instead of being transmitted long distances to be processed at central data centres.

This report then goes on to outline the rollout of cloud gaming services by various telcos, including Deutsche Telekom in Germany and Sunrise in Switzerland, while also considering Apple’s strategy in this space. Finally, the conclusions section summarises how telcos around the world should be preparing for mass-market cloud gaming.

This report builds on previous executive briefings published by STL Partners, including:

What is cloud gaming?

Up to now, keen gamers have generally bought a dedicated console, such as a Microsoft Xbox or Sony PlayStation, or a high-end computer, to play technically complex and graphically rich games. They also typically buy a physical copy of the game (a DVD), which they install on their console or in an optical disc drive attached to their PC. Alternatively, some platforms, such as Steam, allow gamers to download games from a marketplace.

Cloud gaming changes that paradigm by running the games on remote hardware in the cloud, with the video and audio then streamed to the consumer’s device, which could be a smartphone, a connected TV, a low-end PC or a tablet. The player would typically connect this device to a dedicated handheld controller, similar to one that they would use with an Xbox or a PlayStation.

There is also a half-way house between full cloud gaming and console gaming. This “lite” form of cloud gaming is sometimes known as “command streaming”. In this case, the game logic and graphics commands are processed in the cloud, but the graphics rendering happens locally on the device. This approach lowers the amount of bandwidth required (sending commands requires less bandwidth than sending video) and is less demanding from a latency perspective (no encoding/ decoding of the video stream). But the quality of graphics will be limited to the capabilities of the graphic processing unit on the end-user’s device. For keen players that want to play graphically rich games, command streaming wouldn’t necessarily eliminate the need to buy a console or a powerful PC.

As well as relocating and rejigging the computing permutations, cloud gaming opens up new business models. Rather than buying individual games, for example, the consumer could pay for a Netflix-style subscription service that would enable them to play a wide range of online video games, without having to download them. Alternatively, cloud gaming services could use a pay-as-you-go model, simply charging consumers by the minute or hour.

Today, these cloud gaming subscriptions can be relatively expensive. For example, Shadow, an existing cloud gaming service charges US$35 a month in the U.S., £32 a month in the U.K. and €40 a month in France and Germany (but there are significant discounts if the subscriber commits to 12 months). Shadow can support graphics resolution of 4K at 60 frames per second and conventional HD at 144 frames per second, which is superior to a typical console specification. It requires an Internet connection of at least 15 Mbps. Shadow is compatible with Windows 7/8/10, macOS, Android, Linux (beta), iOS (beta) and comes with a Windows 10 license, which can be used for other PC applications.

At those prices, Shadow is a niche offering. But Google is now looking to take cloud gaming mainstream by setting subscription charges at around US$10 a month – comparable to a Spotify or Netflix subscription, although the user will have to pay additional fees to buy most games. Google says its new Stadia cloud gaming service is accessible from any device that can run YouTube in HD at 30/60 frames per second (fps), as long as it has a fast enough connection (15–25Mbps). The consumer then uses a dedicated controller that can connect directly to their Wi-Fi, bypassing the device with the screen. All the processing is done in Google’s cloud, which then sends a YouTube video-stream to the device: the URL pinpoints which clip of the gameplay to request and receive.

In other words, Stadia will treat games as personalised YouTube video clips/web-pages that a player or viewer can interact with in real time. As a result, the gamer can share that stream easily with friends by sending them the URL. With permission from the gamer, the friend could then jump straight into the gameplay using their own device.

What is cloud gaming?

Table of contents

  • Executive Summary
  • Introduction
  • What is cloud gaming?
    • Why consumers will embrace cloud gaming
  • Ramifications for telecoms networks
    • Big demands on bandwidth
    • Latency
    • Edge computing
    • The network architecture underpinning Google Stadia
  • How large is the potential market?
    • Modelling the U.S. cloud gaming market
    • New business models
  • Telcos’ cloud gaming activities
    • Microsoft hedges its bets
    • Apple takes a different tack
  • Conclusions
    • Telcos without their own online entertainment offering
    • Telcos with their own online entertainment offering

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