The Coming Evolution of the Video Game Industry
The video game industry is on the cusp of an exciting evolution: Having first transitioned to games in the digital space, now expanding to gaming across platforms and devices, the video game industry is poised to offer “gaming as a service”.
First, we have seen a move away from purchasing physical copies of games, as the ability for some systems to play games made for their previous generations also increases the life of a game. Second, we are seeing an increase of gaming flexibility, allowing games to be played across platforms and devices. Video games have been transitioning towards the digital model for some time now and gaming services such as Playstation Now and Microsoft’s Xbox Game Pass and Xbox Play Anywhere (the next step being Project xCloud) are allowing people to play their games, previously only on physical discs accessible only with their consoles, on multiple compatible devices and platforms.
The above two changes have been happening for some time now but this third shift is far more recent. We have just stepped into gaming as a service — subscriptions to libraries of games and streaming video games rather than buying them — creating an array of possibilities in many distinct areas of the gaming industry. The combination of these three stages has begun to kick into high gear and is sparking a new wave of competition and innovation in this industry.
First Stage: Games in the Digital Space
The first stage of the transformation of the gaming industry has been the transition away from purchasing physical copies of games towards digital distribution. The digital distribution of video games has aided in introducing key changes into the gaming industry, the largest of which has been the creation of digital storefronts such as Steam and the Epic Games Store selling vast libraries of games from indie to “AAA developers”. Other developments during this time are the proliferation of mobile games on a wide range of devices such as phones and tablets and expansion of the subscription model with services facilitating online multiplayer and digital game libraries such as Playstation Plus, Playstation Now, Xbox Live, and Xbox Game Pass.
The digital distribution of video games has encouraged innovation and competition from developers across the board. The rise of digital distribution also came hand in hand with increased power in a range of devices. Games moved from physical discs on PC and cartridges on consoles to digital downloads not only on computers and consoles, but additionally to mobile gaming on less powerful yet still capable portable devices such as tablets and smartphones. Today the market for mobile gaming accounts for approximately 51% of the market share in the global gaming industry, with console and PC gaming comprising 25% and 24% respectively.
Furthermore, statistics from the recent Sky is Rising report — including that the digital format has grown to approximately 80% of video game sales since 2017, the number of games released each year on Steam has dramatically risen from 2012, the U.S. gaming penetration rate among the general population reached 66% in 2018, the number of North American mobile gamers is around 225 million people, and the global mobile video game market value is over $120 billion — all demonstrate that the video game industry is seeing substantial growth in games, gamers, and money in the industry.
App stores, digital PC gaming stores, and game console stores have allowed a wider range of developers, not just AAA developers or big studios, a gateway to consumers. Going digital has removed two key barriers to entry and competition: it has eliminated the need for manufacturing, shipping, and distribution of physical copies of games (though there is still a strong market for physical copies and collector’s editions) and increased developers’ reaches into varying systems and platforms. This shift towards digital distribution has also contributed to broadening the business model in gaming, no longer just about single up-front purchases, towards multiple different means of game monetization such as free-to-play, subscription, and freemium styles.
This shift created a natural flow to the next stage, gaming across platforms and devices. Developers took advantage of the nature of digital distribution and the growing power of an increasing array of devices to create games that could be played across those devices and platforms.
Second Stage: Gaming Across Devices and Platforms
As games have gone digital they have not only transitioned to being available across multiple devices (games being offered on both of the latest systems) but platforms as well (games being offered that have cross-platform capabilities where players on an Xbox can play with others on PCs and Playstations). Devices no longer needed optical drives to handle games; games could be downloaded digitally through the device. This had two main effects: First, it gave the market for mobile games ample room to grow, which it has clearly done. And second, this shift to digital allowed developers of all sizes the ability to offer their games far more easily across platforms and devices. This movement has brought greater accessibility to gaming as a whole and allowed it to offer more cross-platform opportunities.
With this development came the capability to play games not just across a range of new devices, but to even be able to play the same game together with friends on competing platforms such as Xbox, Playstation, and PC. Some games may be played on PCs, tablets, laptops, and even phones – the massively popular game Fortnite is one example of this. Further taking advantage of compatibility across devices, Microsoft offers its own cross-device service called Xbox Play Anywhere (Sony’s cross-device service streams the games) where users can play their Xbox games on their PCs. Similarly, Apple is developing Apple Arcade, a game subscription service for iOS, Mac, and Apple TV to be released fall of this year. Apple Arcade is being designed to allow subscribers to play games across multiple Apple devices and will host a curated list of games, some from developer and studio partnerships with Apple, exclusively on the Apple Arcade.
One game being available on multiple platforms is not new; consumers could previously purchase multiple copies of the same game for different systems. What is new is the increase in cross-platform capabilities such as singular universal accounts for games and multiplayer functionality regardless of what platform other players are using. For instance, game data from Playstation can’t be transferred to Xbox but the number of games are growing where users can access their accounts for one game on a Playstation, Xbox, or PC or play the same game competitively with friends across those platforms. Games such as Fortnite and Rocket League are examples of the start of this change. This stage of development in the video game industry is beginning the process of de-emphasizing which machine you have in the first place. The combination of gaming in the digital space, advances in computing power, and gaming across devices and platforms has led to the newest stage of gaming we are currently sitting at the cusp of: the switch to subscription-based services providing gaming as a service through the cloud streaming of video games.
Third Stage: Gaming as a Service
We are now beginning to see a shift in the model from providing games as goods towards providing gaming as a service. This means that in the future, access to games may increasingly be sold through a subscription model to a library of games that can be streamed to a device. This contrasts with one-time purchases of singular games, which until now has been the prevailing business model.
Highly successful firms in related industries, such as entertainment and software, have made similar shifts towards providing their products as services under a subscription model: Netflix made the switch from mailing physical copies of DVDs to its customers to offering the streaming and downloading of its library to them under tiers of subscriptions. Microsoft and Adobe switched focus from one-time purchases of the Office and Creative Suite software to offering their lines of products through digital download under a subscription model. Looking back at the previous stages of development and the comparison to related industries, this change appears to be the next logical step in the evolution of the video game industry as well.
There is some evidence that the transitions to the subscription model and games as a service are already underway. Sony’s Playstation Now streams games on the PC, PS4, and some iOS devices. Another service, Shadow, is a subscription service that offers cloud-based gaming across Windows, macOS, Linux, Android, iOS, and a beta service on Ubuntu. Playstation Now, Shadow, and soon-to-be live services such as Google Stadia, Microsoft’s ‘Netflix for games’ Project xCloud, and Amazon’s reportedly in-development service are all making gaming less about the machines we have to play games on and more about the strength of our internet connections. With the rise of these streaming services and those like Apple Arcade lessening the requirement of having a more powerful device, more people are able to play all types of games. These emerging services, streaming and non-streaming, are lowering the barrier to entry for gaming and inviting new people to play.
Furthermore, these new innovations touch related industries as well and could go beyond stimulating competition and innovation in the video game industry. These early days of a transition to streaming may increase the need for faster and more stable internet connectivity speeds, likely increasing consumers’ demand for competition in the broadband market. However, until these emerging services reach adulthood, they will likely not be employed by professional gamers. Input lag and latency are both problems these services will have to thoroughly quash before being accepted by professional gaming, meaning that more traditional models and ‘gaming as a service’ models are likely to coexist, catering to different segments of the market.