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Daily Reaction: PlayStation Vs Cable Networks, The Great Cloud Gaming War

September 25, 2012 Written by Sebastian Moss

Daily Reaction is a PSLS exclusive feature where Sebastian Moss & Dan Oravasaari discuss today’s most hard-hitting topics every single weekday.

With the news that pretty much all the major US cable companies are gearing up to bring out their own cloud gaming service in 2013 and 2014, Daily Reaction discusses what that means for PlayStation, Gaikai and you.

Seb: So we’ve discussed cloud a lot on DR, and I think that’s a testament to just how much is going on in this sector. Sure, OnLive declared bankruptcy earlier this year, but that was mainly due to the ineptitude of the company’s management – renting far too many servers on fixed contracts, refusing to sell despite needing more capital. Meanwhile, Sony have gotten into the game in a big way by buying Gaikai for $380 million, Microsoft is openly hiring OnLive staff and Gamestop is rolling out their own cloud gaming service. Along with these cable companies, I’m sure we’ll see even more announcements from Samsung, Amazon, Google or even Apple. Gaming is currently a $24 billion market in the US alone, and could be set to grow exponentially in value as internet speeds increase – and they are going to increase.

That leaves the big question as to whether Sony is going to be able to remain competitive in such a crowded market. They have one big advantage on their side – they can hit first, and hit hardest. They own Gaikai, with all its experience, they own SCE, with all its developer relations and they own a money-making games business, they own a huge mindset and fanbase among gamers, they own a huge online gaming ecosystem. That means they can move into the cloud quickly, with experience on their side, and confidence that they’ll have a subscription base. Cable companies, on the other hand, will be entering a new market, with zero experience. They’ll start slowly, and expand. They won’t go big for quite a while, and it’s during that time that Sony needs to push their cloud proposition.

Cloud gaming is a very, very expensive and risky business move for a company – essentially, they have to buy enough gaming PCs to allow people to be able to access it at any time, just as if they owned it. If they buy too many, they’ll lose a ton of money, and if they buy too few, they’ll lose subscribers. Not only that, but because you remove the initial hardware fee that happens when someone buys a $300 console, the margins are squeezed. The cable companies will be cautious, slow and careful, something that’ll cost them a lot of market share… if Sony is there to take it.

Dan: Agreed, as gaming is about as big as it has ever been with over 211.5 million gamers in the US alone, it’s a wonder why some of the biggest companies in other media outlets haven’t entered the market. Well, the main reason is exactly as you said, the risk and cost to buy into the gaming sphere at it’s peak is extremely high, especially if we don’t see a growth in the population as a whole. This would be similar to playing the stock market, you don’t want to buy into something at it’s peak as you won’t see a significant return or gain. So as the industry starts to shift away from home consoles to stream based media, we are entering the cusp of a new generation – and it could be one of the biggest turning points for the industry as a whole.

If companies like AT&T, Verizon, or TWC enter the gaming sphere, we could see a mass exodus from the current standard if they play their cards right – as they already have an established subscriber base. The primary issue for either Sony or anyone else, is simply the difficulty in controlling a market where you can’t lock your user in. If Sony can get Gaikai up and running into a program early enough, they could take the mind share of the market and solidify itself ahead of the competition. Microsoft, AT&T, Verizon, and TWC while all big companies are going to have to start from the ground up, creating a feasible program in a timely manner or lose the war from the gate. This timing pressure will most likely cause a number of partnerships from either Sony or Microsoft, namely due to fear and to subsidize the cost of the service. We have seen Sony work with AT&T for the Vita on it’s 3G program, and if AT&T enters, we will see Comcast follow suit in no time – probably with Microsoft. As things are still very much in the rumormill, it’s exciting and worrisome to think about what will happen in the future.

Seb: It’ll definitely be a tough battle, and as more enter the battle, it’s only natural that Sony’s position will be weakened. The big issue here is that these are not small companies, this isn’t a lame fancy like Ouya. If the next time someone signs up for their cable, or renews a contract, there’s a little box that says [Tick here for Gaming Services - Only $10/month], that’s already a huge number of people that could either move from consoles to cable cloud or even, if they are younger, start off knowing nothing else. Add that to the fact that most of these companies have cloud TV services with a lot of subscribers, and some have their fingers in the phone market, and that all adds up to a hell of a lot of formidable enemies.

Consoles will still be king for at least most of the next gen, during that time Sony needs to ensure that every single PS4 owner with good internet in the US goes to their cloud and no one elses. That is crucial.

Interestingly, Sony has been long rumored to be working on their own internet-based cable TV like service, something that could help chip away at the cable owner’s stranglehold on the market.

It’s going to be a long, tough road, and I do wonder if Sony will ever be able to become the leader of the games industry again, but if they do manage to leverage all their considerable assets, there might just be a chance that they can continue as a major player in the business.

Dan: Cable networks will never view Sony as a threat in its current form, the biggest threat they have to deal with is Google, and their YouTube site, or programs like Netflix. The internet is going to eat cable television alive, and that is going to only feed into the need for those companies venture to new mediums – that is to say Google or Netflix don’t become apart of someone else’s exclusive package.

Sony really will only have a few years at best to decide their fate of it’s stance in the gaming sphere, as technology changes, and new gamers enter the market. As we saw with the Wii, we are going to eventually move out of gaming as we know it, consoles will be around for a generation or two, but it’s the person who controls the tech controls the future. That means patents, and we have seen Sony start making moves to patent new forms of interaction, sensors, and cameras. This could slow others and give control of the market to Sony, depending on how the next few years go – and luckily Sony is already a major contender who can mold the next few years, if they plan accordingly. With VR only a few generations away, cloud gaming around the corner, and some of the richest companies in the world putting their eyes on the industry, we are really in for one of the craziest times in gaming history.

Do you think cable companies entering the cloud gaming market could put PlayStation and Gaikai at risk? Could you see yourself signing up for Verizon Gaming? Share your thoughts in the comments below, and let your mind drift off to the clouds by listening to the soothing sounds of Seb and Dan’s ramblings.