We knew it was not a matter of if, but when; like with music and video in the past, digital transformation is now disrupting the gaming industry. Shifting consumer behaviour is a major driving force, as is recent progress with enabling technologies such as cloud, 5G and immersive reality. Here we look at the transformation of the gaming industry across different areas, and analyse what it means for mobile players.
Gamer behaviour is changing
Gaming is a popular pastime for people of all ages. GSMA Intelligence Consumers in Focus research shows that 60% of the adult population across the 20 major countries we analysed plays digital games on consoles, PCs or mobile devices at least once a week. That is a significant user base. Our research also shows that gamer behaviour is changing. First, there is a shift of gaming time from consoles to mobile devices, especially smartphones. This brings greater reach and higher consumer engagement, owing to the ubiquitous adoption of smartphones and the plethora of games available on mobile app stores.
Second, like with music and video, a subscription model is now emerging for gaming, as consumers show interest in it. Today, gamers have a broad and diverse range of options to choose: these include subscriptions for consoles (e.g. PlayStation Now, Nintendo Switch Online, Xbox Game Pass), cloud gaming subscriptions (e.g. Google Stadia, Tencent Start, GeForce Now), subscriptions designed for mobile (e.g. Apple Arcade, Google Play Pass) and subscriptions provided by game publishers (e.g. Uplay+, Origin Access).
What does this mean for the gaming industry?
It means disruption and innovation. The advent of mobile as a gaming platform and the rise of cloud-based gaming have disrupted the position of consoles as the dominant platform, opening up the market to new competitors. Console sales have been hit in recent years, while some OEMs have enhanced the gaming capabilities of their smartphones. Flagship mobile devices (e.g. the Samsung Galaxy S21, Razer Phone 2 or Asus ROG Phone 5) are marketed specifically for gaming, with aftermarket accessories that can turn these devices into dedicated mobile gaming consoles.
It also means a new business opportunity. Let’s do the math; 15% of gamers (in the 20 countries we analysed) already have a gaming subscription; half of gamers are not interested in a gaming subscription (for now); that leaves an incremental market of at least 35% of gamers. If subscription gaming is to work as a mass-market commercial product, gaming companies will need to attract non-paying gamers and turn them into paying gamers.
The prominent cloud gaming services in operation are run by the big companies with established cloud and content delivery network infrastructure footprints (e.g. Microsoft, Google and Tencent), but mobile players, such as Apple and a range of operators, are making progress here too. Also, last week, Netflix confirmed its intention to enter the gaming market (certainly a big development).
Why are operators looking at gaming, and why now?
So far, operators have mostly benefited from gaming indirectly through upselling, as heavy gamers need larger mobile data allowances. However, the shift of gaming to mobile devices, coupled with technology innovation that heavily involves (or is led by) operators (e.g. cloud, edge, 5G) are driving new thinking.
5G is important for (at least) two big reasons. First, streaming requires cloud-based content access, delivery and consumption, which in turn requires high-speed connectivity and low latencies – this is 5G territory. The rollout of 5G networks enables the faster and low-latency connections that smartphone gamers need to have higher-quality, uninterrupted cloud-based gaming sessions.
Second, 5G users are more engaged with gaming than 4G users (twice as much to be precise) and are more interested in having gaming services bundled with their mobile connectivity contracts (40% higher interest). Also, nearly half of people playing games on their smartphones frequently find the enhanced gaming experience enabled by 5G appealing – especially among younger generations (see chart). This is something for operators to consider when designing their 5G and multi-play offerings and tariffs.
Figure: Appeal of enhanced gaming as a new 5G use case
Percentage of respondents*
* Of those who play games on their smartphones frequently (at least once a week) Question: “5G is expected to create new ways to deliver services to consumers. To what extent does gaming appeal to you?”
Source: GSMA Intelligence Consumers in Focus Survey
What are the strategic routes to gaming for operators?
An increasing number of operators are aiming to monetise the transformation of gaming via a more direct role. We have identified four possible routes for operators. Two of them are B2C-focused: selling third-party gaming services or developing own-branded services, often bundled with mobile or quad-play offerings. The other two are B2B-focused: offering premium network capabilities (e.g. edge technology, network slicing and private networks) to gaming/media companies or developing e-sports. These routes are not mutually exclusive – a complete gaming strategy may well involve a combination of these options.
Selling third-party gaming services (bundled with mobile) represents the fastest and most common approach for operators, but it is largely a customer acquisition/retention strategy. Developing own-branded gaming services offers greater monetisation. As with video streaming, operators will find it challenging to have a cloud gaming service that is competitive globally; however, it is within their reach to launch competitive propositions for local markets. A range of operators have already launched local cloud gaming propositions, including Deutsche Telekom, TIM, Vodafone Italy, China Mobile and the three South Korean operators. KT and SK Telecom each aim to reach 1 million gaming subscribers over the next 2–3 years; this would correspond to around 10% of their 5G subscriber bases (assuming that most gaming subscribers will be 5G users).
What is the incremental revenue opportunity for operators?
Our revenue opportunity model considers multiple factors, such as the current adoption of subscription gaming, the probability that core gamers will adopt a subscription in the future, the 5G effect (a function of 5G penetration and 5G gamer behaviour) and pricing dynamics. We sized both the direct (gaming subscription revenue) and indirect contribution (core ARPU uplift) of gaming. The indirect contribution is important, as the average mobile spend of 5G paying-gamers is 20% higher than that of 4G paying-gamers, meaning 5G gaming attracts premium mobile subscribers.
Taking 2020 mobile revenue as the base, gaming subscriptions could generate up to 4% of new revenues for operators in 2025. This ranges from 3% in the UK, Italy and the US to 4% in South Korea. Given that annual mobile revenue is set to grow low single-digits in three of the four markets (and declining in Italy), the gaming opportunity, which comes on top of these figures, can be remarkable. In addition, operators are exploring the gaming opportunity in a period when traditional pay-TV revenue is under pressure and falling in some markets, providing one more reason to try and do well in gaming.
As mobile increasingly shapes the future of gaming, we will continue to track and assess technology developments, gaming adoption, and business opportunities. You can read more on this topic in our latest report Gaming comes into its own: capitalising on shifting consumer behaviours.
By Pablo Iacopino, Head of Research and Commercial Content, GSMA Intelligence