Report: Cloud gaming will be a $4.8 billion industry by 2023 (Newzoo)

The advent of a new generation of consoles comes with a host of unknowns, but cloud gaming is likely to feature prominently.

Today, games and esports analytics group Newzoo released a new report examining the state of cloud gaming, and the firm’s research posits that the segment will generate upwards of $585 million in 2020. An industry-wide focus on cloud gaming, Newzoo said, will increase that number to a massive $4.8 billion by 2023, just three years from now.

For Guilherme Fernandes, market consultant at Newzoo, this projected exponential growth is a product of cloud gaming’s current experimental state. Right now, it’s very much in its infancy, and tech companies are still figuring out the best way to package and deliver their cloud services. Soon, though, Fernandes expects to see a handful of business models emerge that will set the bar for new methods of game delivery.

“After having proven that the technology is viable and can deliver great experiences, cloud gaming is looking into what it can do that no other forms of gaming can,” Fernandes told GameDaily. “If people can already play the games cloud gaming services offer elsewhere, there is little incentive for mass adoption and to abandon all existing hardware. There are some cloud features that are currently being tested and developed, although it might take a few years until they are fully fleshed out.”

Today, the sales pitch involves comparing cloud gaming to video streaming services like Netflix and Hulu; in the same way those services deliver video content, cloud gaming platforms deliver game content. This boiled-down description is the easiest way to sell the tech to the average consumer, but Fernandes said that it’s also an oversimplification.

“While there are natural similarities between video and game streaming, they are quite different at their core. On one hand, they often offer content libraries that users can access and stream to several devices for a fee, without significant hardware constraints (in most cases). On the other hand, cloud gaming has much more demanding internet connection requirements, due to the significantly larger amount of data being transmitted--games require the player to regularly input commands and the connection must be seamless so that immersion is not broken.”

In the current console generation, we’ve seen some impressive successes and less-than-ideal attempts at harnessing the cloud. On the positive side, Sony’s PlayStation Now service has quietly set the standard for cloud this gen. Meanwhile, Google’s Stadia has performed less than ideally mostly due to a lack of content and some technical hiccups.

As we head into the next generation of consoles, Fernandes said that part of the reason cloud gaming will explode could relate to hardware costs amid a COVID-19-related recession. Consumer budgets are likely to be limited throughout 2021, meaning competitively-priced cloud subscriptions could become a more attractive option. To that end, the market is likely to see a number of new players aim to get a hand on the ball.

Meanwhile, Sony and Microsoft’s approach to cloud in the new generation are likely to be very different.

“Sony and Microsoft, who are both console makers and owners of two of the most popular cloud gaming services, are focusing on generating revenue via parts of their business other than cloud gaming itself,” Fernandes said. “Sony’s strategy still seems to rely heavily on console hardware units sold and high-quality first-party titles. Microsoft is aiming at getting as many players as possible into its ecosystem via more openness and high value-for-money subscriptions, of which xCloud is just a complement to.”

Source: Newzoo
Source: Newzoo

Fernandes said that Newzoo expects cloud gaming to remain on the peripheral, at least at the start of the next generation, while hardware-based gaming will be the primary method of consumption. That’s not to say that other stakeholders won’t pop up to disrupt the market, but right now none of them have the clout to take on Sony and Microsoft.

Moving forward, however, Fernandes said that cloud gaming will rise in prominence as consumers realize that it is a cheaper alternative to constant hardware updates. The undemanding nature of streaming means that subscribers can play games on more platforms and barebones hardware. However, demand for high-end gaming hardware will always exist.

“Cloud gaming will go from a particular use case to a common way of playing games in a variety of circumstances as the technology becomes more established and users weigh the several options at their disposal,” Fernandes predicted. “Nevertheless, there will always be a part of the player base that will not stop playing on local hardware, particularly the most competitive players, who require a gaming experience with the least amount of input latency, and hardware enthusiasts, who take great pleasure in owning the equipment they play on.”

Cloud gaming as a technology is not enough to sustain the games business on its own, however, and Fernandes said that fun games are the prime determinant of consumer adoption. Simply put, if the games aren’t fun, people won’t pay for your service.

“Cloud gaming services and games being developed for this technology will first and foremost have to offer a quality experience in order to succeed. Technical features and improvements won’t be enough to guarantee a title’s success on its own.”

As we approach a new generation of consoles, it will be interesting to track the predictions made in Newzoo’s report. COVID-19’s impact on the games industry has been substantial, but new platforms are an unknown variable. As Fernandes pointed out, cloud services may be a more attractive option for many consumers amid a recession. Expect significant jostling in the market in the coming months as tech companies vie for a piece of the cloud pie.

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Editor-in-Chief

Sam, the Editor-in-Chief of GameDaily.biz, is a former freelance game reporter. He's been seen at IGN, PCGamesN, PCGamer, Unwinnable, and many more. When not writing about games, he is most likely taking care of his two dogs or pretending to know a lot about artisan coffee. Get in touch with Sam by emailing him at  sdesatoff@rektglobal.com or follow him on Twitter.