Will Cloud Streaming Kill the Videogame Console?
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How is A I accelerating business transformation and how can leaders seize the new opportunities it's creating? Join IBM at the break to hear the answer from mohamad, a head of IBM consulting.

Okay, here we go. Let's see where is right. It's still has batteries. All right? Let's see if they work.

When I was a kid, my first experience with video games was playing them on an intendo game boy with the iconic plastic cartage and everything. I know you're not supposed to do this, but i've been a tablet. There we go.

Hey, beauty. Fall in intent do still makes cartage for its switch council, and you can still buy video games on desks for microsoft x box in sonny's playstation. But more and more often, people are skipping the physical media and downloading video games straight to their councils or computers over internet.

I think we still works this rules. According to analysts at pwc, digital downloads are rapidly taking over the video game market. Just five years ago, most council owners, the people with x boxes, play stations or switches, spent about four point two billion dollars on physical games and three point three billion on digital downloads.

Fast forward to now, and those numbers have flipped in. P, W, C estimates that by the end of this year, discs and cartridges will have brought in about three point five billion dollars, while consumers will have spent about four point five billion on digital downloads, that gap is likely to only get bigger considering the latest top of the line. X boxes and play stations don't even have describes meaning. For many gamers, digital downloads are the only way to play their games without buying an external device, but in the next few years, even downloading games might fall by the wayside. As video game companies turn to cloud streaming.

instead of asking people to buy the latest and greatest hardware, you can run up in the cloud and then stream IT down.

The pipe used vendor in is the cofounder and CEO of market research firm alda, and he thinks the future of gaming could be in the cloud.

Cloud gaming is a technology that allows triple a high production experiences to be computationally hosted in the cloud so that you can access and enjoy them with a less than standard device locally.

That might not seem like a hugely bit first place. After all, we've been streaming music and movies for years now, but video games are different beasts. The files can be huge. Instead of just passively listening or watching players interact with these programs in online multiple are games that demand great internet connections, add even more complexity. But fender says doing away with expensive hardware could also make the hobby cheaper and easier to get into all of duties.

Got of war. The grant of auto would be another one that was used to be only accessible if you had the best PC or the latest council. And now you could just have a media OK laptop and stream IT directly to that device. So IT IT opens up a much audience.

which could mean even bigger business for the companies behind the games from the wall street journal. This is the future of everything. I'm danny Lewis, how my cloud dreaming transform the video game industry like IT did for movies and television. That's after the break.

We all know artificial intelligence is pushing business forward, but how can organizations truly harness the technologies power? Here's mohamed ali, head of IBM consulting.

The idea is to use technology to enhances our colleagues their expertise, not to replace IT have the people with the skills and we have the raw technology to supercharge two hundred and sixty thousand consult in college with the things so can do their faster, more effectives for our.

Used video streaming kind of hit the mainstream with youtube in two thousand. Five music streaming started to take off around the same time. More or less have we seen a similar moment for cloud gaming.

Cloud games has been around actually for decades that has been happening in the council space in later PC model space over appeared from two thousand five to two thousand and fifteen. IT was very early stage and I didn't quite deliver on the promise at the time the vision was there, but the Robin penetration wasn't sufficient enough.

And so in many ways, the technology is always a large obstacle in getting that technology up and running in order of the unlocked this global audience to get all the people into the pools that to say we need to just load entry beyers on the technical site. One example would be you'd have brazil. Brazil is a country that has a lot of import taxes on consumer electronics, and so consoles would cost way too much money. And so order to unlock the large audience, which that do have, you start to see these different distribution models emerge and the technology, in that sense, this video, about making things easier to access and lowering the Price points for the consumers. And and monocle.

the downs am who? Who do you say are the big players in the sector right now?

Microsoft is really taken the lead. Microsoft has his office in Operating software offering that goes with cloud hosting of all kinds of files and services and so on, to add a consumer focus entertainment type service to its really a no brain for them. And they have the data centres around the world to facilitate that because microsoft can build on this infrastructure. IT can run to the front.

How big of a market here is there, right? Cloud gaming.

it's not super large, right? Initial estimates now some between five, eight billion annually being spent by consumers out of a two and fifty billion dollar market. So it's okay IT, i'll take five billion, but it's it's not enough it's not enough to justify you know the billion's necessarily to invest in that many ways.

The cost that are necessary to do IT or prohibitive IT makes you a very small group of companies that can afford to do IT is a high stakes poker game. At the same time, you have to kind of wonder, are we looking at a consumer question? Or is this a corporate interest? And IT seems to lead more in the last bucket.

What does that have to do with the hardware business?

So if you recall, twenty, twenty, twenty, twenty, on the beginning of the pandemic supply change were a mess, right? So for a console maker to ship millions of units around the world in the middle of this is very expensive.

But and in the business of making hardware sticky councils, your first batch is the most expensive one because you haven't figured out efficiencies, you don't have demand certainty so that you can put in a bigger order and get lower Prices from your manufacturer. And then exacerbated by shipping costs and all these things, they were looked at this thing of who is a lot of cheese to deal with this. They were incentivize monetary to figure out a solution that maybe we can lead more into digital strip tion.

So you don't if you go to the store and offsetting the cost and the investment of the hardware with software purchases allowed him to get out of that whole immediately falling a release. And I think from there, the jump is very easy to make that. okay. What we need to do more digital.

So cloud gaming could change the video game industry y's business model, but this technology change the games themselves. That's after the break.

So used with digital distribution as IT is now, people are still downloading the files onto their local systems on a basic level. What's the difference between that versus streaming a similar game over the internet, not downloading anything at .

all for single player narrative games? I would say it's the same experience roughly. There is only one major on boarding obstacle. When you do digital downloads, you just sit there for an hour waiting for eighty giggs to install itself onto your hard drive and your council.

Or streaming, you're up and running faster for the single player people I meet this perfect because I can count a shop around. I can download remotely while i'm at home and until my office console to download. And by the time I get there, it's done multiplayer, a much higher bar.

If I think that that's part of why cloud gaming hasn't really taken after degreed IT wood because it's incredibly difficult to facilitate flowers multiplayer game play from the club. If you don't have at low enough paying, if your lencs interrupt you, if you makes you just a fraction of a second slower IT ruins. The experience is a bit like a page missing in a book, but that's fortnight or call studio, any of them.

It's all about reaction time and being able to compete with all the people. And so so that's the harder part to sob izis in a different way. Content is king, that people are much more willing to deal with technology if the content is amazing. The case in point, there was google stadium that came out of the gate swinging, but left us with no incentive or anything inspiring to to commit to their service over anything else.

right? Stadio was google attempt at making a cloud gaming platform. What happened there?

And I was the first mover. They have the CEO presented like this very prominent games conference to give the impression of, like, we're serious about this. And they walked away from IT. They weren't getting enough traction.

We asked google about this and the company did not respond to request for comment in a twenty twenty two blog post announcing that radio would be shut down. The company said IT did not gain the users that expected. IT later refunded players for all status hardware and software purchases made on the platform.

At the time I made this metaphor of, hey, we're starting a new restaurant and we have the best furniture in the business, like no one goes to restaurants for the furniture. Tell me about the chef, what's on the menu, what kind of ingredients is IT formed a table.

And so google emphasize the furniture over everything else, because IT was all about the infrastructure and how you could watch youtube and then click in the middle of video, go straight, point in the game somewhere and the box was dead. And the really amounted to none of that. And so in order to get customers, you need to have distribution, yes, but most of you need to have creatives.

If google could make this word, what makes microsoft think that xbox? Can microsoft .

spent two decades proving itself? Look, they're gonna invest in developers and studios and indeed and large triple productions. And I think that that's a big difference, right?

I've won the trust and have carved out a strategy that's where they could be strong, not just for the consumer but also for the companies that make IT so that dare investment make sense. This is a premium consumer base they're willing to spend on hundreds of dollars every year on product and services. If we can offer the content and get people to subscribe, that would work really well against the infrastructure costs of vary incurred.

And so this is a place where I can actually make some headway. Ke, microsoft is tapping into the fact that consumers are ready, comfortable with signing up for things and just taking a page out of everybody else's book, right? I mean, we've been doing this for years with spotify.

We've been doing this for years with netflix and disney plus in H B O max and all these other services. Its for them a matter of what of the appropriate Price tears and how can we now moitie that in an effective way? And so they started doing tear subscription offering what it's twenty books a months, I believe, for the VIP service.

You get call of duty. The second IT comes out as suppose to sort of your basic tear. As you gonna wait longer, you're get less access or fewer titles. People rent more than their own and and purchase outright across the economy. I think that that sort of empac of how a new generation is coming up, as opposed to building some incredible collection of intendo cartridges at home in your basement.

A spokesperson for microsoft x box said, quote, the recent changes to x box scheme pass allows to bring more value and more great games to game pass members around the world. So used how my cloud gaming open up some more of these markets in parts of the developing world where, you know, there's a lot of people and more, more internet connections every day. Is that part of the calculation that some of these companies are making?

yes. Part of the growth that you see on the agenda for microsoft and tony is how do we get to those markets? Brazil, an example. Do you see them beef up their presence in africa, india? Another one, right?

You see them take position saying, hey, we have the technology to get content to these audiences even if it's a small percentage or even if it's a lower Price point that still hundreds of thousands abuses. The fundamental problem that soly microsoft and the council maker's face is that for the last decade, very static audience base, if they can add two million, five million, ten million people, that is a huge win for them. And so with distribution technologies developing into areas that they couldn't before, all of the sunday could start adding people to IT. And I think that that's going to be a meaningful growth driver for them in the in the next few years.

A spokesperson for microsoft x box says cloud gaming is, quote, one of the many ways for players to access the games they want, where they want. But how about reaching people who are not hardcore gamers? You know, if you just need an internet connection, maybe a cheap controller, if you don't have a touch screen, what kinds of markets is cod gaming open up? The big .

transition in gaming is that we've moved away from a very marginal target audience of the same few hundred million people that are borrow less, the same profile demographic. And they all want sports and things that go fast or you blow up all the time.

Hey, actually, everybody likes to play games that facilitated a larger audience and a broader, more diverse demographic, making IT accessibility be the main thing in that the fidelity of IT is really less important than the offering itself. But for the same reason that a, the introduction of M P, three was not welcome by a lot of musicians and consumers because I said that was inferior quality of audio. Nobody cares.

That is, empty series gives two sense for that. So if your game doesn't have to be this bleeding at spectacle, IT could just be really fun and shared with others. That's a far more important to mention. Then having the latest and greatest on the texts .

in the future where cloud gaming is the main way people are playing their games, who are the winners and who are the losers.

Most of the existing institutional stay the same for the foreseeable future with maybe in addition of like one or two, the tech companies of the next ari, in my mind, is games as a platform.

So the fourth nights and robots, as they are the precursor, a generation of people spending time online, hanging out, sharing with others, playing goofy games, wanted to build something inside that, and companies figure out how to facilitate that, be part of that cultural context. That's an erratically different model that they've i've seen before. And I think that that's where you're gonna see the most growth .

outdoor CEO used rendering. And thanks for joining us.

Thank you. The future of .

everything is a production of the wall street journal. This episode was produced by me, dani luis. Our fact checker is a party ATM sound designed by Michael val. Like the show, tell your friends and leave us a five star review on your favorite platform. Thanks for listening.

Earlier, we discussed how the current moment in artificial intelligence Marks a great leap forward for business. Here's mohamad lee from IBM consulting again on what that means for leaders.

No one has a Crystal ball, but this is a case where if your competition is thirty, forty, fifty present more efficiently, you are make ja business. We have a lot of expertise. M change management.

One great example is one of the largest health care companies. In the next days, they came to us and ask for some help with the call centers, and we were able to reduce call volume by over thirty person by using turns. Faction actually went up because when people call them, the agents were able to give them information quicker or more. Hacker, later i've use. This is a very exciting moment.

Learn more about IBM artificial intelligence consulting services and IBM dot com flash consulting.