The cloud will eventually remake the gaming world, Barron’s declared last year. The trend might be moving faster than we expected.
On Tuesday, Google unveiled a cloud-gaming service called Stadia that will launch this year. It enables gamers to play streamed games on their computers, televisions, and smartphones without the need for a separate console.
The announcement drove big moves in game-industry-related shares. Advanced Micro Devices (ticker: AMD) stock soared 12%, adding $2.8 billion in stock value, on the day of the announcement. Its graphics technology will be used in the service. Conversely, the stock prices of traditional players such as
(GME) dropped markedly this week. Shares of Google-parent
(GOOGL) rose 1.2% on the day of the announcement.
The Stadia rollout is the latest example of the tech battle moving to the cloud. From software to music to video streaming, industries are shifting to cloud-computing services because it offers quicker scalability, cost efficiencies, and a closer connection to the customer.
Gaming is a huge global market, reaching $135 billion in sales last year, according to market research firm Newzoo. Google says its aim is to reach hundreds of millions of consumers. Stadia “expands the audience for people that can play the big games like Call of Duty,” KeyBanc Capital Markets analyst Evan Wingren tells Barron’s.
Publishers will benefit from the additional distribution streaming offers, he says, while traditional hardware game-console makers could potentially lose business. GameStop is a “clear loser,” he adds, as the decline of physical game disc sales accelerates.
In the past, streaming game services sputtered because of slow internet speeds and latency issues. But Google is confident current broadband infrastructure has improved enough to make it work. Google said that Stadia will require 25 megabits per second (Mbps) of download speed to stream high-definition 1080p resolution at 60 frames per second. U.S. broadband infrastructure can easily absorb those requirements. Ookla reports that the average fixed U.S. connection speed on its Speedtest checkup service is 95 Mbps.
But there are other key questions around Google’s gaming strategy. Will the business model be attractive to consumers? Google has yet to disclose pricing. And just how committed is Google to Stadia? The company has a history of shuttering or backpedaling on once high-profile products, from Google Fiber to Google+.
Google played down the commitment issue. Google CEO Sundar Pichai presided over the Stadia announcement, a spokesman noted. “Commitment from Google doesn’t get more serious than that,” he said. “We are investing significant funds into the platform ensuring that Stadia will be a great experience for all gamers.”
Google will have competition from deep-pocketed rivals. Both
(NVDA) are developing their own comparable cloud offerings named Project xCloud and GeForce NOW, respectively.
A Nvidia spokesman said that while many serious gamers will likely stick to their high-end gaming PCs, “we see GeForce NOW and other cloud gaming services as a great way to reach new audiences.”
Exclusive games are what really drive gamers to new platforms, and that’s where Stadia will have lots of catching up to do. Microsoft has Halo, Nintendo Mario, and Sony Uncharted. Google says it will develop its own Stadia games, but it only recently hired a lead executive for its internal studio. Big hits generally take years to develop.
Take-Two Interactive Software
(ATVI) declined to say whether they would make their games available on Stadia. Epic Games CEO Tim Sweeney says his company, which makes Fortnite, has nothing to announce about Stadia for now. “But I can say: Epic fully supports cloud streaming platforms in Unreal Engine 4 for all of our engine customers.”
Ubisoft Entertainment (UBSFY), the maker of Assassin’s Creed, was the only publisher willing to publicly support Stadia on the record. “We can’t wait to continue collaborating closely with Google on what’s next for Stadia,” says Ubisoft CEO Yves Guillemot.
The big winner in the streaming wars, oddly enough, may turn out to be a traditional console maker: Microsoft. It has scale in the cloud and already has an extensive lineup of games for its Xbox console. A Microsoft spokesman said the company will give gamers a choice to play their games across devices through its Project xCloud.
(AAPL), one of the world’s largest companies, continues to trade like a small cap. In November we suggested that Apple stock could fall about 15%, to $165, saying the weak iPhone cycle had not been fully reflected in Wall Street models at the time. Apple shares hit $165 a month later.
The stock ultimately slipped to $142 in early January after Apple warned about its fiscal first-quarter sales. Only then did analysts get in line and reduce their estimates.
A few days after the warning, we said the pessimism had gone too far. We wrote that Apple shares could rise 30% to $194, as the company looked for better ways to monetize its installed base and emphasized its story around services. The bullish call proved prescient. Apple stock has soared. It hit $194 on Thursday.
So what to do with the stock now? The momentum has returned, but Apple’s stock now discounts big expectations. That could set the company up to disappoint on Monday, when it unveils its new video service. The latest reports suggest it will be an incremental rollout, not the
(NFLX) clone many had expected. We think it’s prudent for shareholders to take some profits here and wait for a better entry point.
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