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Some of the heaviest hitters in the technology industry introduced cloud gaming products in late 2019 and throughout 2020, making it seem like the “Netflix of Games” may finally arrive.

Unfortunately, the last few months have proven that even the biggest companies struggle to make the economics of game streaming work. Now that Stadia’s struggles have gone public and some news indicates that Amazon’s Luna is facing similar hurdles, let’s look at (potential) reasons why it’s been so difficult to make that business work.

Reason 1: People just don’t need a large library of games

There’s been compelling evidence that giving people access to a library of games leads to increased consumption and trying new genres, but it doesn’t impact a simple, observable fact: consumers benefit a whole lot less from a large library of games than from the near infinite amount of movies and TV on Netflix or the whole history of recorded music on Spotify.

People just don’t consume enough unique games each year to find a significant value in paying a premium to access the library. Based on a few assumptions, we calculated that each year an average person will listen to 22,000 songs a year and watch 3,900 episodes of TV and 217 movies. Meanwhile, many people who play console or PC games spend most of their year playing 5 – 10 games.

large game library

Thousands and thousands of hours in just a simple screenshot

That means an infinite library of content is much, much less valuable if it doesn’t have one of the small handful of games you’ll be able to get through in a year. These “Netflix of Games” products have tried to overcome this with killer apps and exclusive content: games they make in-house, acquire through exclusive licensing deals, or a proprietary backlog. Or they go on a buying spree of dozens of studios including high profile acquisitions of iconic brands and announce that they’ll make their new games exclusive. And this is why the closure of Stadia Game Studios makes it likely that Stadia is shutting down – without exclusive games, how will the service survive?

With all that being said, developers are seeing some benefits from the best version of the “Netflix of Games” – Xbox’s Game Pass. It just might not be how you expect. Developers have reported that being featured in Game Pass has led to more sales in the Microsoft Store because the Game Pass front page is essentially a big advertisement for a game. And with more people trying a game, the network effect begins: you’ll see it in more Twitch and Youtube streams, screenshots will show up on social, and word of mouth does its job. There’ve been numerous new Game Pass games that go on to be top sellers on Steam, too.

Reason 2: Mobile gaming and console/PC Games satisfy different needs

One of cloud gaming’s core pitches is that more than 3 billion people play games, but some of the most valuable content is tethered to consoles and PCs. There are 2.5 billion people playing games on their phone. If we can get AAA games on those small screens through streaming services, we’ll massively increase the size of the addressable market for AAA games.

The flaw that’s becoming clear, however, is that mobile games satisfy a very different motivation than immersive AAA games do. People play mobile games to distract themselves for short periods of time: a quick burst of fun on a commute, or a distraction over a lunch break. The game mechanics and revenue models are designed around this need.

Meanwhile, AAA games are built as immersive experiences that require nearly 100% of your attention for dozens of hours. They’re linear experiences that are wonderful when you’re wanting to be brought into another world, but barely compelling when you’re looking to take a 5 minute break in the middle of the day or on your way to work on the subway.

Cloud gaming is going to magically turn the billions of five minute sessions enjoyed by 2.5 billion people into small bursts of Sekiro or Cyberpunk, just because they’re accessible on phones and tablets?

You’d have to change the approach to mechanics overall to make that happen.

red dead 2 on a phone

A typical train commute takes less time than getting Arthur from Blackwater to Van Horn

Reason 3: Streaming tech’s evolved without cloud-native content

At Parsec, we believe that content determines the success of the industry – not technology. Consumers don’t care about new distribution technologies. They care about what those technologies allow them to do, and how they improve content experiences they already want to have.

In the case of cloud gaming, game streaming technology is a prerequisite for the industry’s success, but it’s not everything. Game streaming technology has existed for a long time, with OnLive and Gaikai starting their businesses in the late 2000s/early 2010s. It takes a lot to perfect the technology, but the technology exists.

The developers themselves have to lead the charge on cloud gaming by designing content unique to the experience streaming technology enables. And some of the technology companies are already following this approach. Take Facebook, for instance. They’re working with Genvid to produce a new type of game based on streaming and cloud technologies that delivers something unique to the consumer. Rival Peak is an early version of what’s possible, and 22 million people participated. This isn’t a AAA game streamed from the cloud. It’s something unique; it’s a novel experience that only the cloud could power. It creates a new kind of gaming habit, not forcing a new distribution mechanism on an existing one. That’s also why we’ve focused on using our technology to empower people to play local co-op games online through our Arcade.

Mainframe Studios in Iceland is also working on a cloud-native experience that could show off what is possible when you combine the creation of a game with streaming technology.

rival peak

Rival Peak makes a strong stride toward “cloud native” gameplay

Reason 4: Cloud gaming infrastructure continues to be too expensive

In 2019, we published a calculator to help companies understand the costs of running games in the cloud. It was specifically based on running a cloud gaming infrastructure on Amazon Web Services. There are certainly cheaper alternatives and ways to build your own infrastructure, but it illustrates an important lesson about the infrastructure costs of cloud gaming.

If CD PROJEKT RED were to run Cyberpunk 2077 on AWS machines, managing to overcome technical hurdles and successfully running multiple games on each GPU through virtualization or running games in a headless mode, it would cost about $0.45/hour to let someone play the game. Cyberpunk requires about 30 hours to finish. Playing the full game would cost the streaming service about $13.50. 100%’ing the game takes about 100 hours. Those more dedicated players would cost about $45. That would be a significant money losing experience for the cloud gaming business.

Keep in mind, that didn’t include the revenue share back to CDPR or other content rights holders. This theoretical service would likely lose money on every person that plays through the entire Cyberpunk story line.

The content, technology, and business isn’t there yet, but cloud gaming’s already thriving today

Cloud gaming and streaming technology is already delivering massive value to the industry and to game developers. It’s just not where you expect it.

Parsec’s tech is powering virtual events where consumers get to play games hosted in the cloud. Indie developers are getting instantaneous, and synchronous feedback from playtesters without leaving their house, making early builds available to consumers in the Parsec Arcade. And AAA studios like Ubisoft and Wizards of the Coast are rebuilding their media strategy, allowing thousands of journalists to play their most anticipated games months before they’re released.

These use cases are perfect for game streaming technology because they’re timeboxed (limiting overall infrastructure costs) and give game developers full control over the experience someone has playing their early build. Game developers can reduce the cost of a demo because they know the machine the game will be played on, and they don’t have to build a special version of the game that protects the IP of the game.

This also expands the reach of a demo beyond journalists and players that can visit (in normal times) the expo floor and reduces travel costs and increases accessibility.

It’s time to stop planning for the incoming “Netflix of games”, and start using cloud gaming for the cloud native, valuable experiences it delivers today.

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