Research: 'Cloud Gaming' Faces Major Challenges, May Reach $400M In 2014

Players habituated to the console market and difficulties in establishing business models will be a significant challenge for the on-demand streaming video game business, says new research, which finds the emerging sector "may struggle". In a new report on what it calls the "video-streamed games-on-demand sector", or VSGoD for short, Screen Digest says that the speed of delivery and quality when conditions are optimal have a lot to offer gamers: "“With VSGoD, users can start playing graphically intensive games instantly on practically any connected PC," says the report's author, Ed Barton. However, the report claims this "technological performance, however impressive, is unlikely to shift consumer games-buying habits significantly in the short- or even in the medium-term." Already the best-known operators, OnLive and Gaikai, have very different approaches to serving streaming games. OnLive targets consumers directly with an online storefront and plans to drive distribution through marketing, while Gaikai is for now promoting its service as a tool that can help publishers sell games, selling blocks of streaming capacity that publishers can employ on their own websites. "In North America, the key market given the location and rollout priorities of providers, we believe that VSGoD will generate $332 million in 2014," says the report, noting that as "the most prominent consumer-facing operator," the success of OnLive will be "crucial." Revenues in Western Europe, where OnLive has made deals with major distribution partners, can be expected to total $79 million, Screen Digest concludes. One problem the research sees is the fact that pricing models for services like OnLive are "comparable" to online and packaged retail, except without the benefit of physical ownership. Further, the primary audience for these services is likely to be a core-market gamer who has already invested in a console or gaming PC and has no need to transition. "This leaves a small group of potential customers for VSGoD services to target," says Screen Digest. The primary opportunity for these services will come during the next hardware transition, the firm predicts. Only when faced with high prices for new consoles will game consumers be more likely to try streaming's alternate avenue, it says -- and new hardware appears unlikely to hit the market until 2013 or 2014, given the current cycle's extended lifespan. Poses the report: "The big question is: Can existing services survive until that window?" "On a standalone basis, it looks as though VSGoD services will have a tough time initially,” says Barton. “Key to their future potential will be territorial expansion and broadening the target platforms away from the PC into connected TVs, set top boxes, mobile platforms and possibly games consoles." The ability to serve streaming games on mobile platforms might help establish an initial market, says the research, and the sector should see a "period of experimentation" as operators try to determine ideal tech and pricing solutions.