In September, Google announced it will be shutting down its game platform Stadia on January 18. Google will be making a full refund to anybody who bought Stadia hardware or bought gaming content. The announcement is reported to be a shock to the online gaming industry because it calls into question the business model of selling gaming through monthly subscriptions.
Gaming is a huge business. In 2021, gaming generated $214 billion in revenues worldwide. That represents over 6% of all spending on entertainment. Gaming market experts are predicting that this will grow to over 10% during this decade.
The pandemic triggered a growth spurt in gaming, with revenues almost tripling since 2019. During that time, there was also a big change in the dynamics of the industry, where many games are offered for free. Many game makers are willing to forego the upfront fees for purchasing a game, which is a barrier to entry for consumers, and instead are hoping to get tens of millions of users by giving free access to games. Free games get monetized by microtransactions within the games to buy in-game goods and services. The biggest example is Fortnite, which is free to play and yet generates several billion dollars per year in revenue from players. Currently, almost all mobile games and six of the ten top PC games are free. The console game companies have stuck with the traditional paid model.
Before the pandemic, some large tech companies like Apple, Google, Microsoft, NVIDIA, and Tencent created online gaming platforms where customers could get access to libraries of games with a monthly subscription. The online platforms were chasing several groups of gamers. First, online games freed players from an expensive PC or console, and gamers could play with a handheld device anywhere they could find fast broadband. Second, the online platform libraries were meant to attract casual gamers who aren’t focused on playing only a few games. The vast majority of gaming revenue comes from casual players.
But online game platforms like Google got mixed reviews. The biggest complaint was that gaming through handhelds could be sluggish – a death sentence for gaming. This speaks more about the quality of broadband connections than it does the gaming platforms. Serious gamers using PCS or consoles invest in buying the fastest broadband available. But people willing to game on handheld devices from anywhere were subject to the big variability in broadband connections away from home. I recently talked to a librarian whose library had banned online gaming because it killed the broadband connections of other library patrons.
Google obviously didn’t achieve the goals it had set for the gaming platform and didn’t get the number of subscriptions it was hoping for. Online reviews of the Google platform are mixed, with some users loving the service while others pan it. Some users said the online libraries of games aren’t dynamic, with the companies going for a large library instead of a great library.
Google’s demise might spell a change in the idea of subscription gaming – it might not be what enough people want. But even if these online services die or aren’t very popular, there is still going to be a huge demand on broadband networks to carry gaming content. Both PC and console platforms invite gamers to play online with friends by setting up VPNs. Many of the popular free games allow for multiple players, in some cases millions at a time.
Gaming has spread to all age groups in the US. 24% of all gamers in 2022 are under 28, while 26% are between 18 and 34. But the other 40% of gamers are over 34, with 6% of gamers over 65.
Ten years ago, we didn’t even mention gaming when talking about uses of broadband. But for many households, gaming has become the predominant driver of bandwidth demand. Interestingly, people don’t just play games, and millions watch others play games on Twitch and YouTube. While the Google gaming platform didn’t make it, I think we can expect gaming to be a significant driver of broadband usage.