Amazon Luna & Other Important Things Marketers Need to Know about the Shifting Gaming Landscape
With Amazon Luna’s arrival, the shift towards cloud-based gaming has started in earnest, but the console giants are still holding court
Last Thursday, during its annual press event for launching new smart home products, Amazon snuck in a surprise announcement of Luna, a cloud gaming service that puts Amazon in direct competition with Google Stadia and Microsoft’s xCloud, both launched last year, in the increasingly crowded cloud gaming space. Meanwhile, as Microsoft and Sony are set to release next-gen gaming consoles during the imminent holiday shopping season, gaming is likely to sustain its quarantine boost in audience reach and media time that it has received well into next year. Therefore, it is time to re-examine the gaming industry and the various players clamoring for audience attention, as well as the brand opportunities they enable.
The Shift Towards Cloud Gaming
More than any other media format, the gaming industry still sells a lot of physical and digital copies on a per-purchase basis. By comparison, it is late to the streaming era due to the constraints of file size and network connectivity on the gaming experience. In recent years, however, there has been a concerted effort to shift video game distribution from downloading digital copies to play on local devices to a more device-agnostic, cloud-based gaming that runs games on remote servers and streams them directly to an end device. Besides the aforementioned Google Stadia, Microsoft’s xCloud, and Amazon Luna, there are also Sony’s PlayStation Now, Valve’s Steam Link, and smaller services like Nvidia’s GeForce Now, Vortex, and Shadow, all charging a monthly subscription fee ranging from $4.99 (GeForce Now) to $15 (Xbox Game Pass Ultimate for Microsoft xCloud).
The main selling point for cloud-based game streaming services is that it will democratize access to premium video games without requiring players to buy pricey hardware (gaming PCs or consoles). For example, the Stadia Founder’s Pack, which includes a Stadia controller and Google Chromecast Ultra, costs $129, which is substantially less expensive than any of the next-generation devices that are set to release later this year. But the real draw is being able to play games on hardware you already own, like phones, tablets, or connected TVs. That being said, so far the quality of experience that existing cloud-based gaming services can deliver has decidedly not been close to the gaming experience that gaming PCs and consoles can deliver. Therefore, for non-casual gamers, gaming devices still remain a must-have.
What makes Amazon’s entry into the cloud-based gaming space interesting is that Luna differs from the existing game streaming services by offering not just one “all-you-can-play” subscription; rather, Luna will allow gamers to subscribe to different “channels” of video game publishers to access all the games they have to offer for a flat monthly subscription fee, similar to its Amazon Channel approach towards bundling OTT streaming services. Luna will launch with two channels in early access: Amazon’s Luna Plus variety channel and the Ubisoft channel.
With advertising dollars continuing to flow into the gaming ecosystem, this shift towards cloud-based gaming will open up new ways for advertisers to engage with the fast-growing audience. Although cloud-based game streaming services usually follow an ad-free subscription model, switching from console-based gaming to cloud-based gaming makes it easier for players to turn their gameplay into media content, either streamed live or achieved as catalog content, that will help reach more gaming audiences. Democratized access to premium games theoretically means more gamers on mobile devices, and the promise of leveraging gaming content to funnel players directly into games would increase the chance of engaging more casual gamers via in-game content and special offers.
In practice, however, the full marketing potential of cloud gaming is still far from being realized, mostly because the platform owners have yet to figure out how to tie cloud-gaming services to a content platform. Of course, being an Amazon entity means that Luna will also be integrated with Twitch. Details are scarce at the moment in terms of how the integration will be implemented, but it’s expected to work similarly to how Google intended to funnel audiences watching YouTube Gaming directly into Stadia to play the same titles themselves.
Twitch has been the clear winner of gameplay-streaming services, and Amazon will certainly play it to their advantages. Following the abrupt shutdown of Microsoft’s Mixer this summer, Microsoft encouraged Mixer streamers to migrate to Facebook Gaming, a distant third in the gameplay-streaming space after Twitch and YouTube Gaming. Still, within months, most Mixer streamers, including the ones that Microsoft spent good money to poach, ended up back on Twitch. While shutting down Mixer may be the right move given the lack of traction, it does hinder Microsoft from fully exploring the media potential of integrating its cloud-based gaming services into an owned streaming platform.
In contrast, Google’s commitment to gaming seems half-hearted, as evidenced by the fact that Google’s latest Chromecast with Google TV won’t support Stadia at launch. It is no surprise that despite nearly a year in beta testing and reportedly making improvements on Android TV, Stadia is still nowhere near ready being released publicly. Part of the reason why Google seems ambivalent about Stadia and its gaming initiatives could be traced back to its primary motivations of getting into the gaming business in the first place — to test and improve its cloud service capabilities. After all, the quality of cloud-based gaming services depends on the processing power of the cloud services they are built on.
It is no surprise that the top three cloud service providers — Amazon with AWS, Microsoft with Azure, and Google with Google Cloud — have all launched their respective cloud-based gaming service, regardless of the varying strength of their existing ties to the video game industry. While it is clear Microsoft has some big advantages thanks to its Xbox ecosystem and its existing relationships with game developers, the technical performance powered by the industry-leading AWS, plus the dominance of Twitch in the gaming community, should give Luna an edge over Stadia.
Console Giants Building Moats
As the shift towards cloud-based gaming starts in earnest with Amazon entering the market, the console giants — Sony, Microsoft, Nintendo — are all building a moat around their content. For the time being, their main challenge right now is to defend their console businesses while also preparing for cloud-based gaming, and it could be a tricky balance to walk.
Right now, the game console market is usually seen as a duopoly of Sony’s PlayStation and Microsoft Xbox, with Nintendo consoles being the wild card that seems to have a big hit in every other generation of hardware products. All three players are incredibly IP-driven, with exclusive content being a key differentiator between consoles and their respective gaming platforms. While Nintendo tends to own its IP, PlayStation and Xbox have historically been far less exclusionary, especially when it comes to triple-A titles that need to reach the widest audience possible to make a profit.
However, the possibility of cloud-based gaming subscriptions replacing the current per-purchase model for console gaming means that each gaming platform will need to own differentiated content in order to remain competitive. So, it is no surprise that Microsoft announced last week that it is acquiring ZeniMax, the parent company of Bethesda Softworks, one of the largest privately held game developers and publishers in the world, for a whopping $7.5 billion. Bethesda publishes hit games like Doom, The Elder Scrolls, and Fallout, all of which will be added to Xbox Game Pass, which has already amassed over 15 million subscribers. For comparison, PlayStation Now, despite being one of the oldest game streaming services around, lags at 2.2 million subscribers worldwide as of May 2020.
Although Microsoft says it will honor the existing deals that some Bethesda games have with PlayStation for exclusive windows, and the economics of developing triple-A games will require Microsoft to still release these Bethesda titles on other non-subscription gaming platforms like Steam, having those popular titles included in its cloud gaming subscription is undoubtedly a huge, albeit costly, win for Microsoft.
For now, the consoles still offer the best gaming experiences outside gaming PCs, and the living room experience they enable is clearly still paramount to gaming enthusiasts. For brands, this means leveraging in-game content and broader partnerships to organically integrate into those hugely popular video games and reach their audiences.
Gaming as Lead Generation for Ecosystems
Lastly, it is also important to consider relative newcomers like Apple Arcade, Epic Games Store, and Amazon Luna as a broader ecosystem play that extends far beyond gaming itself. On those services, brand opportunities vary depending on what the ecosystem each service belongs to and what business models they deploy.
With Apple Arcade being bundled into all tiers of Apple One, Apple is leveraging the zero marginal cost and distribution cost of the indie mobile games, whose developments Apple has already paid for upfront, to sweeten its service bundle deal and compete for the attention of casual gamers. While some Arcade games are beautifully crafted and deserve to be played on a big screen via Apple TV or AirPlay, they are inherently a different genre than the kind of dominant triple-A titles that one would find on Xbox or Playstation. True to its business model, Apple has shown no intention to monetize Apple Arcade, or any of its own services, through advertising, so Apple Arcade will remain its role as part of Apple’s larger bundle. For what it’s worth though, Apple worked with Amazon to make Luna accessible via progressive web apps in the Safari browser, indicating that it may find a way to make iPhones more friendly to game streaming.
Epic, maker of the smash hit Fortnite, is ambitiously trying to change the business model of video games with its Epic Games Store and Unreal Engine, which provide infrastructure services for video game developers to create, distribute, and manage their games. Epic Games typically charges a 12% revenue cut for titles published through the store, much lower than competitor Steam Store’s 20% to 30% cut. In addition, Epic also recently dropped the licensing fees for games built on their Unreal Engine, normally 5% of the revenue, and will only collect royalties from titles that earned over $1 million in sales.
Both measures make Epic a rather compelling one-stop platform for game developers, which is an important part of Epic founder Tim Sweeney’s grand plan of building the metaverse. Fortnite has been a pretty brand-friendly game, thanks to Epic’s commitment to exploring its non-gaming potentials (e.g. Party Royale island for virtual events) and digital goods (e.g. Nike-branded in-game digital goods). And the same commitment should apply to other games developed on Epic’s platform as well.
Circling back to Luna, it will be interesting to see whether Amazon would choose to bundle Luna Plus as part of the Prime subscription to increase its user base. In August, Amazon rebranded Twitch Prime, which gives Amazon Prime subscribers perks on Twitch, into Prime Gaming. Luna’s channel-based approach means that Amazon won’t have control over all the games available on it, but it could certainly bundle its owned Luna Plus channel as a Prime membership perk to entice sampling and drive conversion for other Luna channels. Amazon Prime is already a formidable super bundle that covers everything from ecommerce perks to e-books; adding a game streaming subscription on top would truly be a cherry on top.
With the arrival of highly-anticipated next-gen gaming consoles, Amazon Luna, and the new Oculus Quest 2, which emphasizes VR gaming as its main use case, this holiday season is shaping up to be a busy time for gaming. The shift towards cloud-based gaming won’t be doing away with consumer hardware, but enabling new kinds of games and experiences that aren’t possible outside the cloud (for example, the “Crowd Choice” feature in Stadia that allows streamers to get real-time feedback from their audience on in-game decisions).
We already know that gaming is one of the media categories that have received a pandemic boost — Deloitte reported 34% of U.S. consumers had tried a new gaming activity during lockdowns — and these new highly-anticipated new consoles and services will likely keep the growth momentum going well into next year. If your brand has not considered game-streaming platforms as a marketing channel, it may be time to reconsider.