Remember Zynga? The developer of Farmville was the hottest gaming company in the market back in 2012. Then, consumers decided to stop playing games on social networks and switched over to smartphones. Zynga was not able to adapt and by now, the company has lost 58% of its value.
The shift from web to mobile gaming was drastic. Some companies like Zynga lost the race, while others like King emerged and flourished. Now, there seem to be two major shifts coming at once that are about to rattle up the gaming industry. Both these shifts create an opportunity for telcos to win big.
First there’s the move from freemium to subscription-based gaming. Epic Games proved the viability of the business model with its battle pass system in Fortnite. Others have followed suit and many new gaming services launched can be described as the “Netflix of gaming”. Game companies of all sizes are adopting the model, from Google Play Pass and Apple Arcade to Utomik and Hatch.
There’s a few good reasons why subscription gaming is taking off:
Subscriptions provide a more predictable stream of revenue from larger audiences compared to one-time payments; the freemium model largely relies on “whales” for the majority of revenue
Subscriptions support player retention, and vice versa; people already subscribed to a game are more likely to play it and the more they play it, the more they want to retain access to it
Subscriptions may be better liked by consumers than microtransactions, since they do not have the risk of taking things to the extreme, as was recently the case with EA’s loot boxes
The second shift is also something taken over from the streaming industry: the streaming component itself. Instead of downloading games to devices, cloud gaming gives gamers the possibility to stream games instead. Microsoft with xCloud and Google with Stadia are the forerunners in this category.
What do these shifts mean for telcos?
Game development companies adopting the subscription business model means telcos are able to copy over their existing partnership models with streaming services to gaming. Gaming companies have long used carrier billing, but the bundling business model has so far not been compatible.
However, if gaming becomes subscription based, it fits perfectly with telcos providing their own services on a continous, recurring basis. This opens up similar opportunities for bundling games in exactly the same manner as has been done with streaming services. Our recent survey shows industry analysts agree.
As for cloud gaming, two things are certain: this approachs means consumer devices don’t need to be as powerful, while mobile data capabilities need to improve.
Lower technical requirements for smartphones mean cloud gaming will make gaming accessible to people with cheaper devices. This means the huge audience located in emerging markets will get access to games their phones were incapable of running in the past.
On the other hand, cloud gaming needs reliable mobile internet. Telcos who are deploying 5G capabilities will find cloud gaming companies to be attractive partners with whom to push mobile data activations and data consumption out to the consumers.
We don’t know who will be the Zynga of subscription-based cloud gaming, and who will emerge as the King (pun intended). But the shift seems to be towards a direction where the business model (recurring revenue) and the technical needs of cloud gaming strongly overlap with telco strategies, especially in emerging markets.