Analyst firm Piper Jaffray has predicted that video game revenue will be “100% digital by 2022”, securing its spot in the basket of lunatic ideas put forward by industry analysts.
The report, as seen on WCCFTech, takes “into account” a myriad of assumptions, predictions and expectations based on revenue the firm thinks was make by Grand Theft Auto V. The analysts also expect cloud gaming and streaming services to be fully adopted in as little as 2 years.
In the days of Netflix and other “on demand” services, it’s certainly easy to speculate that video games will be going down the digital-only rabbit hole. For the industry to take such a severe plunge into that ocean would — and in only 4 years — would be as devastating an outcome as it is ambitious as an idea.
“Netflix for Games” Will Never Work
The main assumption the analyst firm makes to base this prediction on is that the adoption of cloud gaming services will dramatically increase in the next couple of years.
The problem with that assumption is that the unicorn “Netflix for game” platform simply doesn’t and will never exist. The reason is the same that you cannot play Super Mario Odyssey on a PlayStation 4, or Halo on a Nintendo Switch. A huge part of these platform holders businesses — especially in the case of Nintendo — is the leverage their exclusive titles hold.
It’s not just exclusive titles, either. Often games are “optimised” for certain consoles, as each platform provides players with different features and social networking services. Even if two or three consoles share a feature set in philosophy, the income involved in keeping players within an ecosystem (like PlayStation Network or Xbox Live) is too great to lose.
It’s for this reason that Microsoft and Sony are launching their own game subscription services in addition to EA’s Origin Access service. Origin Access allows gamers to pay a yearly subscription fee to gain access to select games from EA’s older library to download and play on PC. This year it will launch Access Premier allowing gamers to pay a little more money to access new release games.
Unless Sony and Microsoft are willing to give up a significant share of their revenue earned from their similar offerings to EA, it’s hard to imagine EA sacrificing their own money by putting their games on those platforms. After all, EA is already telling gamers they don’t need to spend $60-$100 per games when they can pay $30/year for a bunch of games instead. Obviously that price point makes their games more accessible to a lot more people, but the risk of devaluing those games is ever present.
If publishers like EA wont give up their games to Xbox and PlayStation’s services, though, the amount of games offered by those platform holders will be paltry. Even if indie developers and smaller publishers jump on board, the biggest enemy of a “Netflix for games” is lack of choice.
Will gamers pay $30 per year per publisher, in addition to their online account access? It’s a harder pill to swallow. Will gamers shell out a higher price to get all publisher titles under one service? Maybe, but how high will they go? $150/year? Is that really a better option for the millions of kids who might buy a game once every few years at a heavy discount months after launch from a brick and mortar retailer? And even if it is, there will always be people wondering why they can’t transfer their library from Xbox to PlayStation, or from PC to Nintendo Switch.
The solution may well be entrusting a third party to deliver the “Netflix for games” platform, but for the industry to go “100% digital” that would mean these huge video game publishers shut up shop almost entirely and filter all their game sales through a middle man. That will defeat the purpose of digital game sales, which have high profit margin compared to physical game boxes that are sold through third party retailers.
The World Has Bad Internet
Another flaw in this ambitious prediction is the reality that the world doesn’t have the internet these analyst firms seem to think it does.
It’s one thing to say a country has “world class” internet access, to boast about speed and quality numbers. Jump on almost any competitive online game and you’ll see a different reality unfold. Many people can “get online”, but merely connecting isn’t going to be good enough for cloud streaming game platforms.
It’s true that a lot of people don’t understand their internet connection. For every nerdy journalist who is sent the latest high speed routers to review on a weekly basis, there’s millions of people innocently connecting their consoles through their iPhone’s internet hotspot and wondering why they aren’t having a great time playing online.
Many people are using routers purchased at the turn of the century. Some people exclusively game online at Starbucks. And then you have the problem of server locations. In remote countries like Australia, it’s rare to have a good server ping rate in any online game.
If game revenue is to be “100% digital”, Piper Jaffray is putting a lot of reliance on the growth of cloud gaming platforms. This technology works a lot like Netflix: you choose a game and start playing, except the game is being run from a server and not from your console. The idea is pretty solid, however it requires a lot of infrastructure to pull off.
One good example of the drawbacks is the recent Japanese release of Resident Evil 7 on Nintendo Switch. This video by GameXplain shows what running a game on a Japanese server from North America looks like. That’s not to say the concept doesn’t work in Japan. It does. The game plays well when the server isn’t thousands of miles away. The question that needs to be answered is who is going to set up these servers in every country to ensure every single gamer has an optimal experience?
If we’re going to say the entire industry will be 100% digital by 2022, it means that all publishers will need to have this cloud infrastructure in place. And remember, merely plopping a server in Sydney isn’t sufficient. What happens if you live in Perth? Or New Zealand?
It’s also worth noting that not all publishers are well greased in the wallet department as EA and Activision. It might be second nature for such companies to populate the planet with servers capable of running millions of instances of Call of Duty, streaming buttery smooth graphics into your home. But what about smaller publishers like Dead or Alive publisher Koei Tecmo? Its sales are a fraction of EA’s and while they’re still running a profitable business, they don’t have billions of dollars to splash out on fancy new servers all over the planet.
So maybe PlayStation and Xbox are the cloud providers, but that still doesn’t solve the world’s internet problem. How many people would actually be happy to spend money on games that are streaming poorly onto their devices? Forcing cloud gaming onto the entire industry will turn millions of people away unless the entire infrastructure is entirely flawless and as easy to get up and running as inserting a cartridge.
That’s not to say a 100% digital future isn’t possible or likely. But 2-4 years? There’d have to be a megalithic shift in the way the entire industry and its fans operate. The “proof of concept”, if any, is probably Apple’s iPhone ecosystem. You can’t buy a physical copy of Candy Crush Saga to play on your iPad, but anyone who owns a gaming PC or home console will tell you those aren’t really the experiences that gamers have come to expect from their games. They’re not the products video game fans are interested in, and aren’t the types of games that they (or anyone else, frankly) are willing to spend a lot of money on.
For now, analysts would do well to separate their iPhone gaming addiction with the larger video game industry. A 100% digital video game future is a long ways off yet.