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Cloud gaming will determine the new master of digital distribution

Nearly 15 years ago most video games were sold in stationary stores. Valve was about to launch Steam, and people might assume that digital sales is the future of the gaming industry. "But it will take time," said most industry experts. Nobody could predict exactly how fast the transition from physical to digital games would be made.

Several years later, many in the physical market for PC games were out of the market.

Several industrial companies quickly responded to this transition by moving to digital, but the real winners were the distributors. Electronic Arts was one of the first to respond to this new reality with its own digital business: Origin. One of the first, yes, but still too late. Origin was launched eight years after Steam, but struggled to make a difference outside EA's own games. Today, however, we are seeing publishers fleeing Steam and developing their own solutions: Blizzard had the Battle.net launcher, which recently added more Activision games, to add Destiny 2 and Call of Duty to an existing, successful platform; Epic has just founded the Epic Games Store.

None of these steps have stopped Steam from controlling the distribution of PC games ̵

1; not yet. In 2019, Steam still dominates digital distribution in the West. Steam distributes millions of video games every year. Sales of Steam's games sales in 2017 totaled $ 4.3 billion, which represents a significant portion of the video game retail profit margin for publishers.

Steam has 70/30 sales for the first $ 10 million. Once the revenue exceeds $ 10 million, the revenue split is 75/25 and over $ 50 million is 80/20. This revenue share problem has meant that Steam competitors have offered publishers better terms to convince them to move away from Steam. The Epic Games Store offers an unbelievable 88/12, but other players, like Discord, have a hard-to-believe 90/10.

These Steam competitors are responding with exclusive content: Deep Silver and Epic Games announced that Metro: Exodus will launch exclusively at the Epic Games Store. Many Steam users felt betrayed because the game was pre-ordered for a long time in Steam. Another example is Tom Clancy's The Division 2 by Ubisoft, which will be available at Epic Games Store and at Ubisoft's own store: Uplay.

With all these changes in place, barely half of Steam users can run the latest blockbuster games on their computers. According to Steam's hardware and software survey on Fallout 76 and Assassin's Creed Odyssey minimum requirements, 53 percent of Steam users do not have the minimum GPU or processor requirements to run the latest Triple A games. These results are amazing.

In addition to revenue sharing, there is another strategic issue that publishers face with digital distributors: customer control. This is just as important as the revenue gap, and mega publishers are now exploring how cloud gaming could address both issues.

Cloud gaming, the game changer

In terms of market expansion, cloud gaming is significantly reducing market entry barriers to gaming, multiplying market reach, and improving the viability of digital commerce. There is a general understanding that there is a gap between today's 150 million PC and console players and the 2 billion players playing in lower specification devices.

EA understood before any other publisher that cloud gaming is the future. They've been trying to build the technology themselves and bought Gamefly in 2018 to speed up the process. This move from EA has accelerated the game distribution transformation, and now most mega-publishers are deciding how to respond: Build the technology yourself, work with existing players who have technology proven in the marketplace , or earn. [19659002] At the same time, big players like Google, Microsoft and, more recently, Amazon have announced their own streaming solutions for games. All of these steps are putting pressure on other players who desperately need a neutral or proprietary technology. If publishers do not integrate streaming technology into their platforms, disintermediation will continue from Steam to Internet giants.

Even digital businesses need to change radically if they want to stay in this rapidly changing ecosystem. The process of disintermediation between game developers and users is not slowing down, but specialized e-stores have the advantage that they already "own" a large community of gamers and have a wealth of knowledge about the desires and needs of users feature . Transforming these digital stores from downloads into streaming is also a possible way to tackle Internet giants like Google, Amazon, and Alibaba, which are already taking positions in the cloud gaming market and threatening the current hegemony of digital stores. [19659009] 5G, Another Cloud Gaming Accelerator

5G – the next generation of mobile networks – opens up new opportunities for cloud gaming as telecoms companies have to offer their subscribers 5G. Due to the latency characteristics, there are few applications for telecommunications companies in the housing market, including cloud gaming.

Although 5G is being introduced more slowly in Europe, markets such as the US and South Korea are moving much faster, and telecom operators have begun deploying their networks and commercializing their offerings.

The impact of 5G on cloud gaming will be reflected in two different approaches. First, for 5G-connected households, family catalog subscriptions are offered for TV or PC gaming, which is already happening on the US market. Second, if enough mobile coverage is supported (South Korea has announced that 30 percent of mobile users will have coverage by 2020), a whole new blockbuster gaming market will emerge for the hardcore gamers segment. Playing on mobile phones was previously limited to occasional games with low performance requirements. With 5G, this will change radically so that a new installed base of millions of mobile devices can be Triple A gaming capable.

5G has the potential to transform telcos into another important new gaming channel, and independent cloud gaming players can become partners and make this great opportunity possible.

Indeed, several telecommunications companies like Verizon are already testing new cloud gaming formats in their 5G networks and are expected to introduce new revenue models within a year. With the advent of 5G, the game industry will move from hardware to software-based technology that will mimic the success of Netflix and Spotify. The question now is who can benefit from it.

Javier Polo is the CEO of PlayGiga, a Madrid-based cloud gaming company offering commercial services in four countries.

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