We knew it was not a matter of if, but when: like with music and video in the past, digital transformation is now disrupting the gaming industry. Shifting consumer behaviour is a major driving force, as is recent progress with enabling technologies such as cloud, 5G and immersive reality. Here we look at the transformation of the gaming industry across different areas, and analyse what it means for mobile players.
Gamer behaviour is changing
Gaming is a popular pastime for people of all ages. GSMA Intelligence Consumers in Focus research shows that 60 per cent of the adult population across the 20 major countries we analysed plays digital games on consoles, PCs or mobile devices at least once a week. That is a significant user base. Our research also shows gamer behaviour is changing. First, there is a shift of gaming time from consoles to mobile devices, especially smartphones. This brings greater reach and higher consumer engagement, owing to the ubiquitous adoption of smartphones and the plethora of games available on mobile app stores.
Second, like with music and video, a subscription model is now emerging for gaming, as consumers show interest in it. Today, gamers have a broad and diverse range of options to choose: these include subscriptions for consoles (for example PlayStation Now, Nintendo Switch Online, Xbox Game Pass), cloud gaming subscriptions (Google Stadia, Tencent Start, GeForce Now), subscriptions designed for mobile (Apple Arcade, Google Play Pass) and subscriptions provided by game publishers (Uplay+, Origin Access).
What does this mean for the gaming industry?
It means disruption and innovation. The advent of mobile as a gaming platform and the rise of cloud-based gaming have disrupted the position of consoles as the dominant platform, opening up the market to new competitors. Console sales have been hit in recent years, while some OEMs have enhanced the gaming capabilities of their smartphones. Flagship mobile devices (Samsung Galaxy S21, Razer Phone 2 or Asus ROG Phone 5) are marketed specifically for gaming, with aftermarket accessories which can turn these devices into dedicated mobile gaming consoles.
It also means a new business opportunity. Let’s do the maths: 15 per cent of gamers in the countries we analysed already have a gaming subscription; half are not interested in a gaming subscription (for now), leaving an incremental market of at least 35 per cent of gamers. If subscription gaming is to work as a mass-market commercial product, gaming companies will need to attract non-paying gamers and turn them into paying gamers.
The prominent cloud gaming services in operation are run by the big companies with established cloud and content delivery network infrastructure footprints (for example Microsoft, Google and Tencent), but mobile players including Apple and a range of operators are making progress here too. Also, Netflix recently confirmed its intention to enter the gaming market, which is certainly a big development.
Why are operators looking at gaming, and why now?
So far, operators have mostly benefitted from gaming indirectly through upselling, as heavy gamers need larger mobile data allowances. However, the shift of gaming to mobile devices, coupled with technology innovation which heavily involves (or is led by) operators (for example cloud, edge, 5G) are driving new thinking.
The 5G element is important for at least two big reasons. First, streaming requires cloud-based content access, delivery and consumption, which in turn requires high-speed connectivity and low latencies: this is 5G territory. The rollout of 5G networks enables the faster and low-latency connections smartphone gamers need to have higher-quality, uninterrupted cloud-based gaming sessions.
Second, 5G users are more engaged with gaming than 4G users (twice as much to be precise) and are more interested in having gaming services bundled with their mobile connectivity contracts (40 per cent higher interest). Also, nearly half of people playing games on their smartphones frequently find the enhanced gaming experience enabled by 5G appealing, especially among younger generations (see chart, below, click to enlarge). This is something for operators to consider when designing their 5G and multi-play offerings and tariffs.
What are the strategic routes to gaming for operators?
An increasing number of operators are aiming to monetise the transformation of gaming via a more direct role. We have identified four possible routes for operators. Two of them are B2C-focused, selling third-party gaming services or developing own-branded services, often bundled with mobile or quad-play offerings. The other two are B2B-focused, offering premium network capabilities including edge technology, network slicing and private networks to gaming/media companies or developing e-sports. These routes are not mutually exclusive: a complete gaming strategy may well involve a combination of these options.
Selling third-party gaming services bundled with mobile represents the fastest and most common approach for operators, but it is largely a customer acquisition/retention strategy. Developing own-branded gaming services offers greater revenue potential. As with video streaming, operators will find it challenging to have a cloud gaming service which is competitive globally, however it is within their reach to launch competitive propositions for local markets. A range of operators have already launched local cloud gaming propositions, including Deutsche Telekom, TIM, Vodafone Italy, China Mobile and the three South Korean operators. KT and SK Telecom each aim to reach 1 million gaming subscribers over the next two to three years: this would correspond to around 10 per cent of their 5G subscriber bases, assuming most gaming subscribers will be 5G users.
What is the incremental revenue opportunity for operators?
Our revenue opportunity model considers multiple factors, such as the current adoption of subscription gaming, the probability core gamers will adopt a subscription in the future, the 5G effect (a function of 5G penetration 5G gamer behaviour) and pricing dynamics. We sized both the direct (gaming subscription revenue) and indirect contribution (core ARPU uplift) of gaming. The indirect contribution is important, as the average mobile spend of paying 5G gamers is 20 per cent higher than 4G, meaning 5G gaming attracts premium mobile subscribers.
Taking 2020 mobile revenue as the base, gaming subscriptions could generate up to 4 per cent of new revenue for operators in 2025. This ranges from 3 per cent in the UK, Italy and the US, to 4 per cent in South Korea. Given annual mobile revenue is set to grow by low single-digits in three of the four markets (and decline in Italy), the gaming opportunity, which comes on top of these figures, can be remarkable. In addition, operators are exploring the gaming opportunity in a period when traditional pay-TV revenue is under pressure and falling in some markets, providing one more reason to try and do well in gaming.
As mobile increasingly shapes the future of gaming, we will continue to track and assess technology developments, gaming adoption, and business opportunities.
You can read more on this topic in our latest report Gaming comes into its own: capitalising on shifting consumer behaviours.
– Pablo Iacopino – head of research and commercial content, GSMA Intelligence
The editorial views expressed in this article are solely those of the author and will not necessarily reflect the views of the GSMA, its Members or Associate Members.
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