Wednesday, 26 September 2012

US Cable Giants Will Launch their Own Cloud Gaming Services Next Year - Will Put the Pressure on Consoles

Bloomberg is reporting that US cable giants AT&T, Verizon and Time Warner Cable are working on their own cloud gaming services. Comcast, Cox Communications and others are also in talks with various cloud gaming technology providers to build their cloud gaming services. Some of the big telecom carriers intend to trial their cloud gaming services later this year to test and tweak the technology before wider deployments that will begin in 2013. Other carriers are aiming for 2014 to launch.

Jan Rasmussen, a spokeswoman for AT&T, said in a statement the company is “exploring unique ways to offer cloud gaming services to our TV and broadband customers.” AT&T had 4.15 million subscribers for its U-verse TV services as of June.

Deidre Hart, a spokeswoman for Verizon, said that while the company has the capability, it doesn’t currently “offer anything regarding HD cloud gaming.” Verizon had 4.47 million TV subscribers as of June.

Shana Keith, a spokeswoman for Cox, said the company is exploring a number of cloud-based broadband services, declining to provide specifics. Cox had 4.66 million TV subscribers as of June.

Jennifer Khoury Newcomb, a spokeswoman for Comcast, which had 22.1 million subscribers, and Alex Dudley, a spokesman for Time Warner Cable, which had 12.4 million subscribers, declined to comment.

Just recently NVIDIA's cloud gaming boss Phil Eisler said that he thinks that a lot will happen in cloud gaming the next year with many products and services arriving, NVIDIA's products are sampling to cloud gaming partners now. Asia is currently leading the charge in cloud gaming, but he expects that a lot will happen in the US the next year. It looks like his predictions are already proving true, of course it's easier to predict the future if you have insider information as it looks like NVIDIA will be a hardware provider for many of the upcoming cloud gaming services with their Geforce GRID cloud gaming technology.

2013 and 2014 are also the years when the next generation Xbox and PlayStation consoles from Microsoft and Sony should arrive, the soon to be launched Wii U from Nintendo could from a very optimistic viewpoint also be counted as a half step to next-gen. To date the large telecom carriers have been nothing more than free networks that enabled the console manufacturers to establish large online gaming communities like Xbox Live and PlayStation Network, with the console guys reaping all the benefits while giving the telecom carriers none of it.

With the advent of cloud gaming this is bound to change, at least when you ask the telcos. The console companies currently hold the majority of the huge games market and the cable giants are now after a large piece of that money pie. They want to sidestep the games consoles and deliver high-end gaming directly to TVs, PCs, Macs, tablets, smartphones and other devices.

“Everybody has a TV,” said Atul Bagga, a video-games analyst at Lazard Capital Markets in San Francisco. Cable and phone companies are “looking for new ways to monetize their users and gaming can be pretty compelling,” he said.

By adding popular games to their TV, Internet and phone packages, carriers can offer another service to their almost 50 million digital TV subscribers.

Though the cable giants have deep pockets and a lot of power, that doesn't mean that entry into the developed games market dominated by the console guys will be easy. The console guys have large followings by gamers, control the opinion of gamers, have their first-party game exclusives, already established online gaming services and online game distribution, and are of course working on their own cloud gaming services. Not long ago Sony purchased cloud gaming company Gaikai for $380 million and Microsoft is also working on their cloud gaming service that should be ready by 2015.

One interesting tidbit is that cloud gaming data centers are currently running PC games and therefore require the Microsoft Windows operating system. One could think that Microsoft would be willing to leverage that position, but I don't think that will be the case as Microsoft would think twice before risking another antitrust case. Regardless of that, the upcoming cloud gaming craze could get very lucrative for Microsoft, if nothing else, they will at least sell a lot of Windows licenses.

But, apart from the deep pockets and power, the cable giants have one immensely dangerous weapon in their arsenal. A weapon that delivered a lot of pain to Netflix and the likes. Of course I'm talking about bandwidth caps and the anti-competitive behaviour of the US cable giants to not include their own traffic into the bandwidth caps. Not only are they putting a damper on the development of streaming video services, now they will also put a bigger damper on other developing cloud gaming services that compete with them, as cloud gaming services consume way more bandwidth because of their real-time video nature.

Of course the cable guys have other benefits to them. They can prioritize traffic for their own cloud gaming services, they know their infrastructure and can optimize latency and picture quality, they have many data centers located near gamers, and gaming will be just another check box that their customers tick and pay for with their monthly cable bill. And the obvious benefit is of course that the cable giants have a huge number of customers and for them gaming will be just another convenient feature delivered by the cable guy. Seeing all these benefits, one could think that cloud gaming was made for the cable companies.

“It makes perfect sense why they would want to go after this market,” said Mitch Lasky, a partner at venture firm Benchmark Capital, who was previously an executive at Electronic Arts and also an early investor in cloud gaming startup Gaikai. “Streaming games use a ton of bandwidth and really benefit from good networks. But it’s a gnarly execution problem they’re trying to solve.”

For cloud gaming technology the telecom carriers are turning to cloud gaming middleware startups like Playcast, Agawi and CiiNOW which provide software to enable the proliferation of cloud gaming services. Executives at each of those companies acknowledged that they’re in talks with US carriers, declining to say which ones. Playcast has a lot of experience providing cloud gaming services for telecom companies like French Bouygues Telecom, South Korean Cable TV Operator CJ HelloVision and others.

“If there was ever a service that fit network providers, it’s this one,” said Ron Haberman, Co-Founder and CEO of CiiNOW. “2013 is going to be when we see big commercial offerings.” Mountain View, California based CiiNOW is about to begin its fourth European trial, though Ron Haberman declined to name the carriers. US cable and phone companies need to catch up, he said.

There are a surprising number of cloud gaming technology companies either in the pixel streaming, progressive download or nascent compression executions. Any of these companies could be bought by a number of predators such as telcos, console manufacturers, download platforms and games publishers. It's going to come, and interestingly, bandwidth could be the least of the problems.

Of course the hardware for all these cloud gaming services won't come cheap, as evidenced by OnLive's recent problems. But that's what deep pockets and an existing data center infrastructure are good for. NVIDIA is betting big on cloud gaming with their Geforce GRID cloud gaming technology and would love to sell high-end GPUs to the cable giants by the bulk for bulk prices. NVIDIA's archrival AMD has recently also invested into cloud gaming company CiiNOW, so it's highly likely that AMD hardware will find its way into the carrier data centers. And of course Intel also has no problems providing CPUs and other hardware by the bulk.

“It’s a substantial investment of both hardware and software,” said Tony Tamasi, senior vice president of content and technology at NVIDIA, though he declined to name the company’s partners. “We’ve put stuff into our chips specifically to enable this kind of functionality.”

One of the strong points of the console manufacturers are first-party exclusives like Halo, God of War and Mario, such games are currently out of the question for the upcoming cloud gaming services by the telcos. Now that the cable giants want to go beyond social and casual games, if they want to put up a serious fight with the console giants, they will have to secure third-party multi-platform blockbusters like Call of Duty from Activision and Battlefield from Electronic Arts.

I think that the cable giants will have no problems securing the aforementioned titles and more. For game publishers, cloud gaming makes sense because they can develop for a single platform rather than for each of the various consoles, which costs more money. Frank Gibeau, president of Electronic Arts Labels, said games via Web-based TV will eventually be a “big opportunity,” without giving a time frame.

AT&T was a large investor and partner of OnLive before their bankruptcy stunt, they are still listed as a partner on OnLive's web page. They presumably lost a lot of money on OnLive. Other telecom carriers were also entertaining close relationships with OnLive. With AT&T and other telecom carriers entering the cloud gaming arena in the next year, I don't think that OnLive will enjoy such a strong support from them going forward, add to that OnLive's recent problems and it could get very troublesome for OnLive. Though OnLive is still the only fully operating large scale cloud gaming service, this could spell trouble for them like losing support of many games publishers.

Next year could prove very interesting in the cloud gaming space, as it looks like many heavyweights will enter and join the many small startups. This combination promises that we'll be able to spectate some speactacular action in the cloud gaming arena next year.

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