Intelligence Brief: Are 5G consumer games an opportunity for operators?

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We knew it wasn’t if, but when: As with music and video in the past, digital transformation is now disrupting the video game industry. Changing consumer behavior is a major driving force, as are recent advancements in enabling technologies such as cloud, 5G and immersive reality. Here we take a look at the transformation of the gaming industry in different areas and analyze what this means for mobile gamers.

Player behavior is changing
Gambling is a popular pastime for people of all ages. GSMA Intelligence’s Consumers in Focus research shows that 60% of the adult population in the top 20 countries we analyzed play digital games on consoles, PCs or mobile devices at least once a week. It is a large user base. Our research also shows that player behavior is changing. First, there is a shift in gaming time from consoles to mobile devices, especially smartphones. This brings greater reach and greater consumer engagement, due to the ubiquitous adoption of smartphones and the plethora of games available on mobile app stores.

Second, as with music and video, a subscription model is emerging for games as consumers are interested. Today gamers have a wide array of options to choose from: these include console subscriptions (e.g. PlayStation Now, Nintendo Switch Online, Xbox Game Pass), cloud gaming subscriptions (Google Stadia, Tencent Start, GeForce Now), subscriptions designed for mobile (Apple Arcade, Google Play Pass) and subscriptions offered by game publishers (Uplay +, Origin Access).

What does this mean for the gaming industry?
It means breakthrough and innovation. The advent of mobile as a gaming platform and the rise of cloud-based gaming has revolutionized the position of consoles as a dominant platform, opening up the market to new competitors. Console sales have been hit in recent years, as some OEMs have upgraded the gaming capabilities of their smartphones. Flagship mobile devices (Samsung Galaxy S21, Razer Phone 2, or Asus ROG Phone 5) are marketed specifically for gaming, with aftermarket accessories that can turn those devices into dedicated mobile game consoles.

It also means a new business opportunity. Let’s do the math: 15% of players in the countries we analyzed already have a gaming subscription; half are not interested in a gaming subscription (as of yet), leaving an additional market of at least 35% of gamers. If subscription games are to function as a mass commercial product, game companies will need to attract non-paying players and turn them into paid players.

The main cloud gaming services in service are managed by large companies with established cloud and content delivery network infrastructure (e.g. Microsoft, Google and Tencent), but mobile players, including Apple and various operators, are also progressing here. Additionally, Netflix recently confirmed its intention to enter the gaming market, which is definitely a big development.

Why are operators turning to gambling, and why now?
So far, operators have mainly benefited from the game indirectly through upselling, as the big players need larger mobile data allowances. However, the shift from games to mobile devices, coupled with technological innovation that heavily involves (or is led by) operators (e.g. cloud, edge, 5G) is leading to new thinking.

The 5G element is important for at least two main reasons. First, streaming requires cloud-based access, delivery and consumption of content, which in turn requires high-speed connectivity and low latencies: this is 5G territory. Deploying 5G networks allows smartphone gamers to have faster, lower latency connections to enjoy uninterrupted and better gaming sessions in the cloud.

Second, 5G users are more involved in 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% interest higher). In addition, almost half of people playing games on their smartphones frequently find the enhanced gaming experience enabled by 5G appealing, especially among the younger generations (see graph below, click to enlarge). This is something operators should take into account when designing their 5G and multiplay offerings and tariffs.

What are the strategic avenues of the game for operators?
More and more operators are aiming to monetize the transformation of the game through a more direct role. We have identified four possible routes for operators. Two of them are B2C-focused, selling third-party game services or developing own-brand services, often associated with mobile or quad-play offerings. The other two are B2B focused, providing high end network capabilities including cutting edge technology, network slicing and private networks to game / media companies or eSports development. These paths are not mutually exclusive: a complete game strategy may well involve a combination of these options.

Selling third party game services bundled with mobile is the fastest and most common approach for operators, but it is largely a customer acquisition / retention strategy. The development of own-brand gaming services offers greater revenue potential. As with video streaming, operators will struggle to have a globally competitive cloud gaming service, but it is within their reach to launch competitive proposals for local markets. A range of operators have already launched local cloud gaming proposals, 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 two to three years: this would equal around 10% of their 5G subscriber bases, assuming most gaming subscribers will be users. 5G.

What is the additional income opportunity for operators?
Our revenue opportunity model takes into account several factors, such as the current adoption of subscription games, the likelihood that major players will adopt a subscription in the future, the 5G effect (a function of the 5G penetration of the behavior of 5G players) and price dynamics. We assessed both the direct (game subscription revenue) and indirect (base ARPU increase) contribution of games. The indirect contribution is significant, as the average mobile spend of 5G paid gamers is 20% higher than that of 4G, which means that 5G games are attracting premium mobile subscribers.

Taking 2020 mobile revenues as a 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. With annual mobile revenue expected to rise to single digits in three of the four markets (and decline in Italy), the gaming opportunity, which adds to those numbers, can be remarkable. Additionally, operators are exploring gaming opportunities at a time when traditional pay TV revenues are under pressure and declining in some markets, which is just one more reason to try to be successful in gaming.

As mobile increasingly shapes the future of gaming, we will continue to monitor and assess technological developments, game adoption, and business opportunities.

You can read more about this in our latest report The Game Makes Sense: Capitalizing on Changing Consumer Behaviors.

– Pablo Iacopino – Head of Research and Business Content, GSMA Intelligence

The editorial views expressed in this article are solely those of the author and do not necessarily reflect the views of the GSMA or its members or associate members.

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