Cloudy Forecasts

Cloudy Forecasts
Nick Gibson

By Nick Gibson

September 14th 2012 at 10:00AM

Nick Gibson analyses what the future holds for cloud gaming

The $380m acquisition of Gaikai by Sony in July has undoubtedly changed the current cloud gaming landscape, but what does it mean for the future of this fascinating if commercially unproven market, and how will it impact Sony’s prospects?

Contrary to what many seem to think, the sort of video stream-based games on demand services provided by Gaikai and the troubled OnLive have been around since the early 2000s, provided by companies such as G-Cluster.

With such a long history, it begs the question as to why the market has not blossomed sooner. The obvious answer – that there hasn’t been the broadband infrastructure to support it –  tells only part of the story.

G-Cluster was acquired in 2003 by Japanese cable giant Softbank Broadmedia, a company whose network infrastructure was perfectly capable of handling video streaming.

Since then, around two-dozen companies have announced or launched games on-demand services. However, none has been able to move beyond monetising relatively niche audiences.

The reasons for this underperformance are manifold but, as bandwidth and technology have steadily improved, it’s become clear that they lie less in the perceived inadequacies of the streaming technology or network infrastructure and more in the target audience and the content being offered to it.

Until recently the focus of games on demand providers was the PC, not only as the client platform but, crucially, also as the source of games content.

The market for major client download and boxed PC games has been shrinking for over 12 years precipitating a downward spiral of decreasing investment and ever fewer major exclusives each year.

Fortunately, Sony’s purchase of Gaikai has radically revitalised the market’s prospects by opening it up to consoles as a source of content and a natural client platform.

As a source of content, the PlayStation platforms’ library is vast, containing more blockbusters than PC can manage and comprising games that are much better suited to streaming to different client platforms such as TVs due to their controller interfaces.

Consoles also represent great client platforms too, with their plug-and-play ease of access, TV connectivity and huge dedicated gamer audiences.

SIZE MATTERS

For Sony, the acquisition provides a new but hugely complementary distribution method that neatly overcomes the potentially commercially debilitating issues of digitally distributing games that can be 50GB in size or more to limited capacity hard drives.

It also provides valuable low-friction try-before-you-buy marketing opportunities.

The addressable market for PlayStation games could potentially double based on Sony’s current TV shipment volume alone.

Extending its vast portfolio of titles to a mass market as yet unreached by Sony’s core gaming business also fits well alongside its current mobile PlayStation diversification strategy.

I believe this is a key reason why Sony paid so much to secure a proven cloud gaming solution, and it will be interesting to see how Microsoft, Nintendo and other consumer electronics companies respond.