The pros and cons of cloud gaming

I’ve got a story in the new issue of Canadian Business magazine about the rise of cloud gaming - or online services that act much like Netflix do in that they sell streaming access to the same sorts of video games you’d find on your Xbox or Playstation. As the story details, game makers are quite enthused about the likes of OnLive because such services allow them to do away with physical discs, which actually cause the industry two big problems: piracy and rentals.

Alas, as is often the problem with print - particularly for those of who write blogs and books - it’s that there’s rarely enough space to tell the story how you really want. Cloud gaming is an intriguing issue and I’m not sure I did it justice in the short space I had. Fortunately, there are blogs where people like me can rattle on incessantly.

But seriously, there were a few additional aspects I wanted to get into, so consider this post a supplement to the CB article.

Why it might be good for consumers: I’ve argued the benefits of storing media in the cloud before - eliminating physical media saves space, maintenance and effort, and it provides access to the content from wherever one may and on whatever device one may be using. Aside from that, some analysts I spoke to believe there are also other benefits. Martin Rae, president of the Academy of Interactive Arts & Sciences, says the overall cost of games will go down on the cloud since it’s cheaper to produce them. Disc versions will always be available, so consumers who still want to own the media and have control of it will have that option. “If you truly want to go to the store and buy it, you’re going to pay more. There’s packaging and production and everything more, but your control over it is [greater],” he said. “They’re different products at that point. That’s not a bad thing for consumers, it just gives them more choice.”

Why console makers might want it: Several observers pointed out that the likes of Sony and Microsoft typically lose money selling consoles, at least for the first few years, because they’re so expensive to develop. “The existing business model really doesn’t work for the hardware manufacturers. That obviously means something has to change,” said David Cole, a video game analyst at DFC Intelligence. “They have to spend billions on R&D and then market it to the consumer, price it at or below cost in order to build an install base. They make it up on delivering products and services but the thing is, many of those are delivered by third parties.” Getting rid of consoles and moving right to the cloud may therefore be more profitable for Sony, Microsoft and Nintendo.

What about the 500 gigabyte gorilla in the room? Vikas Gupta, president of Transgaming - which runs GameTree TV - expressed doubts about OnLive. Such pure streaming services can use up to 5 gigabytes an hour, he said, which is precious data in a country like Canada where usage-based billing threatens to make internet subscribers miserly in their usage. GameTree works a bit differently in that games, which are typically a few hundred megabytes in size, are actually downloaded to the TV provider’s set-top box and stored there, thus avoiding big streaming usage. It’s risky to depend on the whims of ISPs for your business model, Gupta said. Albert Penello, senior director of marketing for Xbox, touched on the same subject - and hinted that cloud gaming could actually lead to higher costs for consumers. “Someone is going to say wait a minute, ‘That’s not free.’ When you get one set of pros you have to look at what the whole ecosystem has to face and those changes and make sure you’re not having an unintended consequence to the customer,” he said.