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IPG Media Lab

Are Video Games Becoming More Like Netflix? The Answer Is Complicated

Taking stock of the video game industry in early 2021 and what it means for brands

Photo by Afif Kusuma on Unsplash

Video games have become an integral part of mainstream culture. Since the pandemic started, many of us have resorted to video games for comfort, distracting ourselves from the terrifying news and the lockdown boredom. As a result, video games and gaming-related content are commending more audience attention than ever. According to a recent report by YPulse, 94% of 13 to 39 year-olds in the U.S. are playing video games in some capacity.

Moreover, 2020’s most popular games, including Animal Crossing, Fall Guys, and Among Us, have become reliable virtual spaces that millions regularly turn to socialize with friends when we couldn’t get together in person. The frenzy around Roblox’s recent IPO also indicates that Wall Street is also buying into the potential of video games as social spaces.

This week, this positioning got another boost from Epic Games, which now allows Fortnite players to livestream gameplay directly to Houseparty, the video chat app that Epic acquired in 2019. This allows players’ friends, including those who may not be Fortnite gamers themselves, to watch and interact with the player. This new feature is a nice follow-up to Houseparty’s “Fortnite Mode” launched last November, which added a video chat feature, powered by Houseparty, to Fortnite where players could see live feeds from their friends while gaming.

The deepening integration with Houseparty makes Fortnite even more of a social space than it already is. In Epic’s quest to build Fortnite into a future metaverse, Houseparty is being positioned as a key portal for people to drop into the world of Fortnite without committing to the full attention needed to participate in the gameplay. It should also help boost the live events that Epic is hosting in Fortnite by making those in-game experiences more easily accessible to non-players who would otherwise be watching on Twitch or YouTube.

After all, video games’ strong command of consumer attention is not just limited to the games themselves. People don’t just like to play games; we also really like to watch other people play games. According to the Verge:

Twitch, YouTube, and Facebook all experienced major jumps in viewership traffic, which includes Twitch hitting 3 back-to-back milestones from October to December to end with a record high of 1.7 billion hours watched in that final month.

This is great news for brands looking to get into the gaming space, as the live-streaming sites for gaming content are easier to activate than seeking direct integrations into the gameplay. Consequently, this means that brands need to closely follow how the video game market is developing to understand the emerging gaming platforms that they can activate on.

The Netflix-fication of Video Games

Over the past few years, the video game industry has more or less agreed upon a subscription-based future similar to what Netflix did for TV, suggesting we’d be streaming video games on any device of choice, with graphic processing mostly powered by cloud computing. From Xbox Game Pass to Playstation Now, all major gaming companies seem to have embraced this vision.

When Amazon Luna launched in October, I was cautiously optimistic about the burgeoning development of cloud-based gaming platforms that promise to revolutionize the way people buy and play games, bringing video games into the Netflix age with all-you-can-play monthly subscriptions. Although cloud-based game streaming services usually follow an ad-free subscription model, the shift from console-based gaming to cloud-based gaming should theoretically make 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 and create more ad inventory.

Six months later, however, this shift has not taken off in any meaningful way. If anything, one could even argue that the momentum around cloud-based gaming has somewhat deflated. In February, Google announced it is shutting down its in-house Stadia game development division, in an effort to “refocus Stadia to be a home for streaming games from existing developers instead of developing its own games for the service.” The move indicates Google might be looking to turn Stadia into a white-label cloud-streaming service for game publishers. It also deviates from Google’s initial plan for Stadia to own the full stack and signifies a lack of overall gaming strategy in Stadia’s market positioning, which does not bode well for its long-term prospects.

Later that month, Marc Whitten, who oversaw the development of many generations of Xbox at Microsoft, left his position as Amazon’s head of Fire TV and Luna for a new job with cross-platform game engine Unity. Not to mention that Amazon has a less-than-stellar record with developing their own video games as well.

Of course, in the past six months, companies other than Google and Amazon have also made moves to advance the development of cloud-based gaming. Microsoft plans to bring xCloud Gaming to PC and iOS devices imminently, and Facebook rolled out a free cloud-based gaming service filled with smaller mobile titles that have limited appeal to serious gamers. The interesting thing about Google and Amazon not being able to figure out how to develop a good cloud-based gaming service, despite their market-leading advantages in cloud computing and machine learning, as well as being owners of YouTube and Twitch, respectively, is that it pretty much guarantees that the market won’t take off any time soon.

One of the reasons why cloud-based gaming has yet to take off is that the services are simply not compelling enough for gamers to make the switch. The serious gamers are happy with their game consoles, which still offer far smoother gameplay and less latency, and do not seem to seek cross-platform play, and the casual gamers are often unwilling to commit to a monthly subscription cost. In short, cloud-based gaming has not found the right product-market fit. Thus, the Netflix-fication of video games seems to be off the table for now.

That being said, for these cloud-based game subscription services, just because the “cloud-based” part isn’t working out well due to technical constraints and gamer behavior, it doesn’t mean the subscription part won’t work. In fact, recent developments in download-based game subscription services seem to indicate that video games may become a subscription-based business before it becomes a cloud-based streaming business.

Subscription Now, Streaming Later?

Download-based game subscription services are gaining new momentum in the past few months. Plex is launching a game subscription service filled with classic Atari games, and services like Steam and Playstation Now continue to grow their user bases. Last week, two announcements further catapulted the game subscription services into the conversation as Microsoft announced that Sony’s prestige exclusive title MLB The Show 21 will be available for no added cost to Xbox Game Pass subscribers on launch day, and Apple unveiled major updates to Apple Arcade, which added a lot of beloved classics and popular iOS games to its game subscription service with no extra charge.

For the non-gamers, Microsoft getting the previously Sony-exclusive MLB game would be like if Netflix somehow added Amazon’s The Boys or Hulu’s The Handmaid’s Tale on its service for viewers as part of their subscription. Meanwhile, Apple’s renovation of Apple Arcade is the equivalent of Apple TV+ suddenly getting a sizable amount of popular and prestige TV and movies as part of its library, despite Apple’s previous stance to focus on the quality of its original content and not the back catalog to retain users. Both are significant moves that redraw the competitive landscape of video games and boost consumer consideration to sign up for game subscription services.

Interestingly, Apple’s move could also be seen as a strategic shift in Apple Arcade’s positioning. In terms of Apple’s suite of subscription services, Apple Arcade is far from the most popular one; according to analyst Neil Cybart’s estimates, Apple Arcade probably sits between Apple TV+ and Apple News+ in terms of the number of users. Seeing the growing audience attention that video games are commanding, Apple is clearly eager to make its own game subscription more competitive. Still, at the end of the day, the games available through Apple Arcade are very different from the kind of AAA games that thrive on game consoles. Rather than being a direct competitor to the likes of PlayStation Now or Xbox Pass, Apple Arcade is expanding in hope to become a more valuable component of the Apple One bundle.

As part of Apple One, Apple Arcade has a better opportunity to reach non-gamers who would not have otherwise considered subscribing to a gaming service. But since it is already included in Apple’s service bundle, and now that there are more popular iOS games included for free, Apple Arcade may just be the thing that could convince more casual gamers that a game subscription service is worth paying for. It also puts Apple Arcade on a similar footing as Google Play Pass, by fixing the games in the App Store by allowing Arcade subscribers to play them without worrying about in-app purchases.

Moreover, it is also interesting to consider how Microsoft is positioning its cloud-based game streaming feature Xbox Cloud Gaming as part of Xbox Game Pass Ultimate, which is a premium tier of its download-based game subscription service Xbox Game Pass, rather than a standalone service like Google Stadia or Amazon Luna. What Microsoft gets right is that people will need to get comfortable with paying for video games via subscription rather than the current pay-per-title model. To boost its strategy, Microsoft also recently completed its acquisition of game studio Bethesda, which should grant Xbox Game Pass more exclusive triple-A titles that should help attract new subscribers and retain existing ones.

Moreover, the market needs to adjust to this subscription-based business model first before it could jump into the cloud gaming era. Without triple-A games available in game subscription services it would be like if Disney+ didn’t include any of the Marvel movies and classic Disney cartoons, which makes it a much harder sale. Therefore, getting the game market to embrace the subscription-based business model may be a more realistic goal that will ultimately contribute to the eventual shift towards cloud gaming.

More Than Just Games

While the video game market is not going to become more like Netflix and unlock new media opportunities any time soon, it doesn’t mean that brands can afford to ignore the game space now. What brand marketers need to understand is that video games are far more than just games these days. As mentioned in the introduction, online games are now reliable social spaces that people congregate in to socialize, entertain, and share experiences with each other.

Communal social spaces are often the breeding ground for culture, and video games are no exception. In fact, we expect to see more gaming communities spring up around popular titles and redefine social context online. Pokémon GO creator Niantic recently acquired a gaming startup building a league and tournament organization platform called Mayhem, which can help gamers create their own communities around popular titles and is worth watching out for.

The growing cultural influence of video games is perhaps most evident in how it impacts the rest of the entertainment industry. For example, Sony announced last week it is making a movie based on its hit game Ghost of Tsushima, which was released last summer. While it is not a new thing for Hollywood to turn popular video games into movies, the speed of these adaptations getting greenlit is accelerating, which underscores the increasingly central role of video games in pop culture. Even the latest edition of The Game Awards, which some dubbed “the Oscars of video games,” hit a record of over 83 million livestream views in December, up 84% from 45.2 million views a year earlier.

Beyond entertainment, video games are also emerging as the next frontier for political campaigns. During the presidential election last year, the Biden campaign designed virtual yard signs in Animal Crossing for players to proudly display as part of their online identity and encourage voting. Superstar congresswoman Alexandria Ocasio-Cortez also turned Twitch into a campaign platform when she joined some popular streamers to play Among Us while encouraging 435,000 captive viewers to go out and vote.

Successful brands strive to be part of the cultural conversation, so it is unsurprising that more brands than ever are finding ways to tap into the gaming space as it emerges as a new center of culture. Fashion brands got into the likes of Fortnite and Roblox via digital goods sold on those platforms, and Nintendo announced that it’s collaborating with cosmetics brand ColourPop on a makeup collection inspired by Animal Crossing. Even IKEA has launched a new lineup of furniture and accessories made for gamers.

For brands seeking to tap into the cultural epicenter that video games now occupy, it is important to remember that gamers are just people, and it is the collective communities around video games that create culture. For example, one of the primary reasons that Amazon and Google are interested in developing cloud gaming services is to get their cloud computing services in front of more IT professionals, who tend to be gamers themselves. So in a way, developing cloud gaming also doubles as a B2B marketing strategy for these tech companies looking to reach the right people.

If your brand needs help in reaching the right audience via the right games or gaming platforms, the Lab is here to help. As the creative arm of UM, we’ve always kept a close eye on the gaming space and charted its growth in brand opportunities. To start a conversation on how your brand can best tap into the cultural power of video games, please reach out to Josh Mallalieu at josh@ipglab.com.

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Richard Yao

Richard Yao

Manager of Strategy & Content, IPG Media Lab