How carriers can grab a piece of the billion-dollar mobile-gaming pie

Telecoms.com periodically invites third parties to share their views on the industry’s most pressing issues. In this piece John-Paul Burke, Country Manager UK, Ireland and the Nordics for Gameloft, has some tips for how operators can grab a bigger piece of the mobile gaming action.

You only have to look around your train or bus home from work to see how many of your fellow commuters are playing a game on their smartphone, to know that mobile gaming is absolutely huge.

The global mobile games market was estimated at $63.2 billion in November 2018 (according to Newzoo’s 2018 Global Games Market Report). It’s clear that what was once a niche hobby reserved for hardcore gamers is now mass market. Every smartphone is a console, meaning that everyone, everywhere, can be a gamer. Even within the gaming industry, mobile gaming makes up 42% of worldwide revenue.

This has let companies across a number of sectors diversify their revenue streams, providing the scope for them to reach existing (and prospective) customers through mobile gaming. Yet arguably, carriers have been slow to embrace the opportunity, and have largely overlooked gaming as part of a broader package of benefits.

As competition for customers looks set to intensify even further within the mobile industry, here are three ways carriers could use gaming to differentiate their offering.

All-you-can-eat gaming

The mobile sector has long understood that it can leverage people’s love for entertainment streaming services, to incentivise prospective and existing customers. EE was the first to clock on, announcing a six-month free subscription to Apple Music for its users in 2017. Vodafone soon followed, and now offers a huge range of video and music streaming services to customers across its Red Entertainment plans.

Not dissimilar to services such as Netflix or Spotify, “all-you-can-eat” gaming packages allow customers access to a range of games – either on a complimentary basis, or for a fixed monthly fee billed directly through the carrier. Customers could benefit from, for example, unlimited downloads and play time, with no in-game ads, while carriers can benefit from a proportion of the income, and increased customer loyalty.

These packages are already offered by carriers in the Americas and Europe. Gameloft’s own unlimited gaming platform is used by America Movil, Telefonica LATAM and Tim Italy. However, they are yet to become common in the UK. This is soon set to change. Verizon announced earlier this year that it would be joining big tech companies like Amazon and Microsoft in developing its own games streaming service. We can expect to see increased interest and demand from UK customers in all-you-can-eat gaming – with opportunities for UK carriers to offer this kind of package.

Surprise and delight

Another route carriers could take to engage existing customers is to surprise and delight them in the games they’re already playing.

Services such as O2’s priority scheme demonstrate the power of reaching customers where they already are. For instance, allowing participants to buy tickets for their favourite artist or event up to 48 hours before the tickets are released to anyone else. Offering a huge range of deals and discounts in the stores and restaurants customers visit every day. These are small incentives but help people to experience the things that matter to them. They punch above their weight in terms of the value they add.

A number of publishers work with carriers to offer their customers free in-app credits or power-ups in their most-played, blockbuster games. This is an effective tool to build loyalty, surprising customers with the means to progress in the game they’re playing is a quick win that carries value for the users.

Infrastructure to support mobile gamers

Emerging technologies, which can help boost network performance, will allow carriers to offer packages that fundamentally improve the quality of their customers’ gaming experience. After all, for gamers, network performance is of utmost importance, especially when gaming gets competitive. Good bandwidth, low (or no) latency and packet loss all help ensure that their game runs smoothly, and that they’re on a strong footing when playing against others.

With 5G set to launch this year, there’s a huge opportunity for carriers. Mobile gamers will arguably be the greatest beneficiaries of 5G, which can help make increasingly detailed and bandwidth-heavy mobile games smooth and lag-free. Similarly, Edge computing, which enables data to be processed closer to the user, could also help reduce delays.

Some telecoms companies are already offering packages tailored to the gaming industry’s huge market – such as Virgin Media’s VIVID 350 fibre broadband, promising an ultrafast connection fit for the needs of PC and console gamers. It’s only a matter of time before mobile carriers begin investing in their infrastructure in order to offer similar packages to mobile gamers.

Ofcom’s decision late last year to reform the switching of mobile communication services means it will be easier than ever for consumers to take advantage of competition, and to move to a better deal with a different provider. Yet Ofcom’s decision also presents an opportunity for carriers. There’ll be greater scope than ever to catch the roving eyes of potential new customers. Either way, telcos need to ensure they’re offering customers everything they can – and part of this should be making it their mission to help people more easily play the games they love. Or, they risk missing out on their slice of the $63.2bn mobile gaming pie.

EA’s Fortnite copycat is off to a flier

One week after Electronic Arts launched Apex Legends, a free-to-play online battle royale game, the team is purring over 25 million sign ups and over 2 million concurrent players at peak times.

The game itself, developed by Respawn Entertainment and published by EA, is nothing that original. While the look of the game might have a different feel to Fortnite, the idea and gameplay is effectively the same and users are seemingly loving it. Just a point of comparison, it took Fortnite three months to hit the 25 million sign-up milestone.

“What a week,” said Vince Zampella of Respawn Entertainment. “Since we launched Apex Legends last week on Monday we’ve seen the creation of an Apex Legends community that is excited, thriving, and full of great feedback and ideas. Our goal is to build this game with you, our community, so keep giving us your feedback because we really are listening.”

Gaming might well be a niche in the telecommunications world right now, but it is growing at a staggering rate. It won’t be too long before the telcos have to pay attention to this segment of the digital world, factoring in gaming as a major conversation in the connectivity mix.

What Fortnite has done over the last couple of months is take a niche segment of the gaming world out to the masses. Online multiplayer formats are of course not new, but the free-to-play idea, with revenues being sourced entirely through in-game purchases, has been taken to a new level. The accessibility of a relatively limited experience has captured the imagination and interest of new users, opening the door for other developers to follow.

Of course, as the popularity of these games increase, the demands on the network will do as well. These are games which are reliant on real-time experiences, marrying interactions between users all over the world. For avid gamers, or those with children, purchasing decisions might well be impacted on the performance of these experiences. Now it might not seem like a massive deal, but these trends have a tendency to snowball; just look at the explosion of video content over the last couple of years.

It’s just another factor for the telcos to consider over the coming years. Gone are the days where gamers are satisfied with a linear, story-mode experience, something which would have been easy for the telcos to deal with. These games require downloads and updates, but this is nothing compared to the demand of real-time interactions with 20+ other users in countries all over the world.

Gaming has largely been ignored to date, but with the segment creeping out of its niche corner offering new and in-depth experiences for the mass market, it is increasingly becoming a burden on the network.

Microsoft to make the gaming experience device-agnostic

Microsoft is about to launch a cross-platform developer kit which will allow the Xbox service, and content on the platform, to be integrated Android, iOS and Switch devices.

Although the firm has not announced the developer kit just yet, an overview of its keynote session at the Game Developers Conference in San Francisco next month details the plans. There have been rumours of Microsoft making such a move to broaden and deepen the gaming experience, though this seems to have made the reports official.

“Now Xbox Live is about to get much bigger,” the conference blurb states. “Xbox Live is expanding from 400M gaming devices and a reach to over 68M active players to over 2B devices with the release of our new cross-platform XDK.

“Get a first look at the SDK to enable game developers to connect players between iOS, Android, and Switch in addition to Xbox and any game in the Microsoft Store on Windows PCs.”

Back in October, Microsoft launched Project xCloud, an initiative to extend the reach of the Xbox platform on more devices and screens. This would appear to be the first step towards delivering on the promise of consistent gaming everywhere.

Although gaming has become much more prominent in recent months, this is perhaps more of a plug for the over-arching cloud computing business than it is for the Xbox brand. Taking the Xbox brand onto multiple devices moves the emphasis from hardware into the cloud. Perhaps it would be more accurate to state Microsoft does not care where or what content you are playing, as long as its Microsoft cloud kit which is powering the experience.

Another interesting factor to this snippet of information is it is yet another incremental step towards linking up all the various siloes in the digital world.

With saved passwords, using social media for online authentication and the free flow of personal data through intermediaries, all the internet giants are very keen to ensure each of the siloes throughout the digital economy are linked together. Google is starting to get very good at it, while others are certainly spreading their influence. There is money to be made in connecting the mobile experience to the same laptop user.

Perhaps this also demonstrates another step towards making the smartphone redundant?

Although restricted to gaming for the moment, Microsoft is demonstrating an online profile can follow a user around anywhere. Maybe this could be extended to the entirety of the smartphone and then onto the user’s whole digital profile. With biometric authentication improving, screens could soon become ‘universal interfaces’, with any user loading up his profile in a fraction of a second.

Of course, the communications aspect of the devices would have to be embedded elsewhere, perhaps in connected earphones, and AR glasses would have to take off on-the-go entertainment, but who knows what the digital world will look like in a few years’ time.

British parents are increasingly worried about the Internet – Ofcom

Research into children’s media consumption published by UK telecoms regulator Ofcom revealed that only 54% of parents agreed the benefits of the internet outweighed its risks, the lowest level since 2011.

The report, “Children and parents: Media use and attitudes report 2018” (and its Annex) and “Life on the small screen: What children are watching and why” were made by Ofcom with analysis of 2,000 British children aged 3-15 years and their parents. Less than half of the parents of 3-4-years agreed that the internet is doing more good than bad.

When prompted with the major concerns parents have about their children’s online life, “companies collecting information about what their child is doing online” came the top with 50% of parents expressing concern. Three other issues have increased in their level of concern from the similar research a year ago: the child damaging their reputation (42% vs. 37%), the pressure on the child to spend money online (41% vs. 35%), and the possibility of the child being radicalised online (29% vs. 25%).

Ofcom 2019 1 parent concerns

Published by Ofcom today, the reports showed that on average, a 5-15-year old child would spend more than four hours a day in front screens, including 2 hours 11 minutes online (same as a year ago) and 1 hour 52 minutes watching TV on the TV sets (8 minutes shorter than 2017).

“Children have told us in their own words why online content captures most of their attention. These insights can help inform parents and policymakers as they consider the role of the internet in children’s lives,” said Yih-Choung Teh, Strategy and Research Group Director at Ofcom. “This research also sheds light on the challenge for UK broadcasters in competing for kids’ attention. But it’s clear that children today still value original TV programmes that reflect their lives, and those primetime TV moments which remain integral to family life.”

There are differences in media consumption patterns between age-groups and between social groups. For example, the older the age group, the more time the children would spend online, from less than nine hours per week for the 3-4-year olds to 20.5 hours for the 12-15-year olds. Or, children of the 3-4-year old group in C2DE households spend more time going online, playing games and watching TV on a TV set, compared to those in ABC1 households.

Ofcom 2019 2 weekly hours

When it comes to device ownership and the devices used for media consumption, the research found that 1% of 3-4-year olds already have their own smartphones, and 19% have their own tablets. The penetration rates go up to 83% and 50% respectively in the 12-15-year old group. Again, there are differences between sub-groups on the devices used to consume media on their devices. While TV sets are still being used by more than 90% of children across all the sub-groups, the percentage of them also watching TV on other devices increased from 30% in the 3-4-year olds to 62% in the 12-15-year group.

The penetration of streaming services including Netflix, Now TV, and Amazon Video is already fairly high among all the sub-groups, with 32% of 3-4-year olds using at least one of them, going up to 58% in the 12-15-year olds. But YouTube is still leading in popularity. 45% of 3-4-year olds have watched YouTube, the penetration would go up to 89% in the 12-15-year olds.

As well as content consumption, content creation is also on the rise among children, with “making a video” one of the most popular online activities. While on average 40% of 5-15-years have made an online video, nearly half of all 12-15-year olds have done so.

Ofcom 2019 3 making video

Time spent on online gaming has remained largely unchanged from a year ago, ranging from a little over 6 hours per week in the 3-4-year group to nearly 14 hours in the 12-15-year group. But gaming is the online activity that demonstrates the biggest gender disparity. While boys in all age groups spent more time on gaming than girls, the difference went up to over 7 hours in the 12-15-year olds. On average girls in this group spent 9 hours 18 minutes playing online games while boys of this age spent 16 hours 42 minutes.

Social networks are another important type of media consumption by children. Facebook remained to be the most popular social media among the 12-15 years group, but its downward trend has continued to the lowest level of 72% penetration since the high of 97% in 2011. Gaining popularity are Instagram (65%, up from 57% in 2017), Snapchat (62%, up from 58%), and WhatsApp (43%, up from 32%). More significantly, when asked to name their “main site or app”, equal number of 12-15-year olds (31%) named Facebook and Snapchat.

Ofcom 2019 4 social networks

Astoundingly, 1% of 3-4-year olds, 4% of 5-7-year olds, and 18% of 8-11-year olds already have social network accounts, despite that most social networks set their minimum age at 13. WhatsApp raised its minimum age for EU users to 16 prior to GDPR came into effect. At the same time, less than a third of parents were aware of Facebook’s age limit, with even less awareness for the age restrictions of Instagram and Snapchat.

Ofcom 2019 5 parent awareness

Apple turns to gaming to crack subscription conundrum – sources

Apple has been searching far and wide for alternative revenue streams to reduce its reliance on the plateauing devices market, and the latest venture might take it into the world of gaming.

With content being an incredible bust for the business, Apple is reportedly in hot pursuit of the blossoming gaming segment. This is an area which would seemingly tick all the boxes for the iLeader; recurring revenues, a chance to grow organically and in before the segment has become popular and saturated.

According to Cheddar, Apple is in discussions to create a gaming platform which would bundle various titles together behind a paywall. It sounds like it could be a Netflix for gamers and would certainly give the status quo of gaming a bit of a poke.

Looking at the gaming segment, this is an area which is becoming increasing popular with users while profitability is certainly heading in the right direction for the developers and platform owners. There is already a lot of money flowing around this space, but as more games evolve away from single- to multi-player, internet focused experiences, popularity seems to be growing in the mainstream markets.

Recent figures from the Entertainment Retailers Association (ERA) in the UK suggest gaming now accounts for just over 51% of the three segments in the entertainment world (video and music being the other two), doubling in revenues since 2007. Netflix and Amazon have proven the subscription OTT segment has legs, normalised the idea in the mind of the consumer, so why shouldn’t a gaming platform work as well.

Of course, for this to work Apple would have to convince the developers to join hands behind the paywall. This is where Apple’s venture into the world of content has failed before; it didn’t create good enough content to be considered a realistic player. This will certainly be a big change in the status quo for the developers and it will be interesting to see what the results are. Apple not only needs high quality content, but a broad enough portfolio to make it value for money.

Here is where Apple is swimming against the tide. Single purchases might have been the way developers made money in the past, but the popular route is now free-to-play with in-game purchasing options. It has proven to be very successful and there might be some resistance to move to another business model. Don’t fix what isn’t broken might be a relevant phrase here. What Apple is suggesting in a completely new approach to revenue sharing as the games are bundled together behind a paywall. Theoretically it can work but change scares the majority.

If Apple can balance the equation, it would certainly be a relief for CEO Tim Cook who must be feeling some pressure right now. A less than enthusiastic earnings call demonstrated Apple is floundering in the software and services segment. Yes, it is growing, but not at the rate of knots which Apple investors have come to expect. Apple hasn’t really done anything exciting or applaudable in this segment yet, most of the gains are through iTunes or Apple Care for example; differentiation and diversification are desired above all else.

Apple is certainly stepping out of its comfort zone here, and we strongly suspect it might fail because of this. However, it might just lead the way for a fast follower (Netflix perhaps?) to reap the rewards.

In fairness though, you have to give Apple credit for creative thinking and an interesting idea. Those recurring revenues might not be that far away for the iGiant.

Who’s got the stones to buy Netflix?

Apple, Disney, Microsoft or Apple; one of the biggest questions which has circled the technology industry over the last couple of years is who could possibly acquire Netflix?

The streaming giant, Wall Street’s darling, has almost constantly been talked up as an acquisition target. However, another year has passed and it’s another year where no-one managed to capture the content beast. You have to start to wonder whether it will ever happen, but here we’re going to have a look at who might be in the running.

Netflix numbersWith subscriptions totalling more than 148 million, 2018 revenues exceeding $15.7 billion and operating income up to $1.6 billion, Netflix would certainly be a useful addition to any company. However, with market capitalisation now roughly $143 billion and debt which would make your eyes water, an acquisition would be a scary prospect for almost everyone.

First and foremost, let’s have a look at some of the players who might have been in the equation, but alas, no more.

Disney has been a rumoured acquirer for almost as long as Netflix existed. This is an incredibly successful company, but no-one is immune to the shift tides of the global economy and consumer behaviour. Getting in on the internet craze is something which should be considered critical to Disney, and Netflix would have given them a direct-to-consumer channel. However, there was always a feeling Disney would develop its own proposition organically and this turned out to be the case.

AT&T is another company which might have been in the fray, but its Time Warner acquisition satisfied the content needs of the business. All telcos are searching to get in on the content cash, developing converged offerings, and AT&T is a company which certainly has a big bank account. As mentioned above, the acquisition of Time Warner completes rules this business out.

There are of course others who might have been interested in acquiring the streaming giant, but for various reasons they would not be considered today. Either it would be way too expensive, wouldn’t fit into the company’s objectives or there is already a streaming service present. But now onto the interesting stuff, who could be in the running.

Microsoft logo

Microsoft

From doom to gloom, CEO Satya Nadella has certainly turned fortunes around at Microsoft. Only a few years ago, Microsoft was a shadow of its former self as the declining PC industry hit home hard. A disastrous venture into the world of smartphones was a slight detour but under the cloud-orientated leadership of Nadella, Microsoft is back as a lean, mean tech heavyweight.

Alongside the cloud computing business, Microsoft has also successfully lead the Xbox brand into the digital era. Not only is the platform increasingly evolving into an online gaming landscape, but it also lends itself well to sit alongside the Netflix business. If Microsoft wants to compete with Amazon across the entire digital ecosystem, both consumer and enterprise, it will need to expand the business into more consumer channels.

For Netflix, this might be an interesting tie up as well. Netflix is a business which operates through a single revenue stream at the moment, entertainment, and might be keen to look at new avenues. Gaming and eSports are two segments which align well with Netflix, opening up some interesting synergies with Microsoft’s consumer business.

“Microsoft is at a crossroads,” said independent telco, media and tech analyst Paolo Pescatore. “Its rivals have made big moves in video and it needs to follow suit. The acquisition addresses this and complements its efforts with Xbox. The move also strengthens its growing aspirations in the cloud with Azure, firmly positioning itself against Amazon with AWS and Prime video.”

However, while this is a company which could potentially afford to buy Netflix, you have to wonder whether it actually will. The Netflix culture does not necessarily align with Microsoft, and while diversification into new channels is always attractive, it might be considered too much of a distraction from the cloud computing mission. Nadella has already stated he is targeting the edge computing and AI segments, and considering the bounties on offer there, why bother entertaining an expensive distraction.

Apple Store on 5th Avenue, New York City

Apple

Apple is another company which has billions floating in free cash and assets which could be used to leverage any transaction. It is also a company which has struggled to make any effective mark on the content world, excluding iTunes success. With Netflix, Apple could purchase a very successful brand, broadening the horizons of the business.

The last couple of months have shown Apple is not immune to the dampened smartphone trends. Sales are not roaring the same way they were during yesteryear, perhaps because there has been so little innovation in the segment for years. The last genuine disruption for devices probably came from Apple a decade ago when it ditched the keyboard. Arguably everything else has just been incremental change, while prices are sky-rocketing; the consumer feels abused.

To compensate for the slowdown, CEO Tim Cook has been talking up the software and services business unit. While this has been successful, it seems not enough for investors. Netflix would offer a perfect opportunity for Apple to diversify and tap into the recurring revenues pot which everyone wants to grab.

However, Netflix is a service for anyone and everyone. Apple has traditionally tied services into Apple devices. At CES, we saw the firm expand into openness with new partnerships, but this might be a step too far. Another condemning argument is Apple generally likes to build business organically, or at least acquire to bolster existing products. This would stomp all over this concept.

Alibaba Logo

Alibaba

A Chinese company which has been tearing up trees in the domestic market but struggled to impose itself on the international space, Alibaba has been hoping to replicate the Huawei playbook to dominate the world, but no-where near as successfully.

Perhaps an internationally renowned business is exactly what Alibaba needs to establish itself on the international space. But what is worth noting is this relationship could head the other direction as well; Netflix wouldn’t mind capitalising on the Chinese market.

As with any international business a local business partner is needed to trade in China. Alibaba, with its broad reach across the vast country, could prove to be a very interesting playmate. With Netflix’s Eastern ambitions and Alibaba’s Western dreams, there certainly is dovetail potential.

However, it is very difficult to believe the current US political administration would entertain this idea. Aside from aggression and antagonistic actions, the White House has form in blocking acquisitions which would benefit China, see Broadcom’s attempted acquisition of Qualcomm. This is a completely different argument and segment but considering the escalating trade war between the US and China, it is hard to see any tie up between these two internet giants.

Google Logo

Google

If you’re going to talk about a monstrous acquisition in Silicon Valley, it’s difficult not to mention Google. This is one of the most influential and successful businesses on the planet with cash to burn. And there might just be interest in acquiring Netflix.

Time and time again, Google has shown it is not scared of spending money, a prime example of this is the acquisition of YouTube for $1.65 billion. This might seem like pocket change today, but back in 2006 this was big cash. It seemed like a ridiculous bet for years, but who is laughing now?

The issue with YouTube is the business model. Its advertiser led, open to all and recently there have been some PR blunders with the advert/content alignment. Some content companies have actively avoided the platform, while attempts to create a subscription business have been unsuccessful. This is where Netflix could fit in.

“Google has made numerous failed attempts to crack the paid online video landscape,” said Pescatore. “Content and media owners no longer want to devalue their prized assets by giving it away on YouTube. Acquiring Netflix gives Google a sizeable subscriber base and greater credibility with content and media owners.”

Where there is an opportunity to make money, Google is not scared about big cash outlays. Yes, Netflix is a massive purchase, and there is a lot of debt to consider, but Google is an adventurous and bold enough company to make this work.

However, you have to question whether the US competition authorities would allow two of the largest content platforms to be owned by the same company. There might not necessarily be any direct overlap, but this is a lot of influence to have in one place. Authorities don’t generally like this idea.

Verizon Logo

Verizon

Could Verizon borrow a page from the AT&T playbook and go big on a content acquisition? Perhaps it will struggle to justify the expense to investors, but this one might make sense.

Verizon has been attempting to force its way into the diversification game and so far, it has been a disaster. While AT&T bought Game of Thrones, Verizon went after Yahoo to challenge the likes of Google and Facebook for advertising dollars. A couple of data breaches later, the content and media vision looks like a shambles. Hindsight is always 20/20 but this was a terrible decision.

However, with a 5G rollout to consider, fixed broadband ambitions and burnt fingers from the last content acquisition, you have to wonder whether the team has the stomach to take on such a massive task. Verizon as a business is nothing like Netflix and despite the attractive recurring revenues and value-add opportunities, the integration would be a nightmare. The headache might not be worth the reward.

You also have to wonder whether the telco would be scared off by some of the bold decisions made from a content perspective. Telcos on the whole are quite risk-adverse organizations, something which Netflix certainly isn’t. How many people would have taken a risk and funded content like Stranger Things? And with the release of Bandersnatch, Netflix is entering the new domain of interactive content. You have to be brave and accept considerable risk to make such bets work; we can’t see Verizon adopting this mentality.

Softbank Logo

Softbank Vision Fund

Another with telco heritage, but this is a completely different story.

A couple of years back, Softbank CEO Masayoshi Son had a ridiculous idea which was mocked by many. The creation of a $100 billion investment fund which he would manage seemed unimaginable, but he found the backers, made it profitable and then started up a second-one.

Son is a man to knows how to make money and has the right connections to raise funds for future wonderful ideas. Buying Netflix might sound like an absurd idea, but this is one place we could really see it working.

However, the issue here is the business itself. While Son might be interested in digital ventures which are capable of making profits, the aim of the funds have mainly been directed towards artificial intelligence. Even if Son and his team have bought into other business segments, they are more enterprise orientated. There are smaller bets which have been directed towards the consumer market, but would require an investment on another level.

Tencent Logo

Tencent

Another Chinese company which has big ambitions on the global stage.

This is a business which has been incredibly successful in the Chinese market and used assets effectively in the international markets as well. The purchase of both Epic Games and Supercell have spread the influence of the business further across the world and numerous quarterly results have shown just how strong Tencent’s credentials are in the digital economy.

Tencent would most likely be able to raise the funds to purchase the monster Netflix, while the gaming and entertainment portfolio would work well alongside the streaming brand. Cross selling would be an option, as would embedding more varied content on different platforms. It could be a match made in heaven.

However, you have to bear in mind this is a Chinese company and the political climate is not necessarily in the frame to consider such as transaction. Like Alibaba, Tencent might be viewed as too close to the Chinese government.

No-one

This is an option which is looking increasingly likely. Not only will the business cost a huge amount of money, perhaps a 30-40% premium on market capitalisation, the acquirer will also have to swallow all the debt built-up over the years. There will also have to be enough cash to fuel the content ambitions of Netflix, it reportedly spend $7.5 billion on content last year.

Finally, the acquirer would also have to convince Netflix CEO Reed Hastings, as well as the shareholders, that selling up is the best option.

“If I was a shareholder or Reed Hastings, I’d be wondering whether it is better to be owned by someone else or just carry on what we’re doing now,” said Ed Barton, Practise Lead at Ovum.

“These guys are going down in business school history for what they have done with Netflix already, do they need to sell out to someone else?”

Netflix is growing very quickly and now bringing in some notable profits. The most interesting thing about this business is the potential as well. The US market might be highly saturated, but the international potential is massive. Many countries around the world, most notably in Asia, are just beginning to experience the Netflix euphoria meaning the growth ceiling is still years away.

What this international potential offers Netflix is time, time to explore new opportunities, convergence and diversification. Any business with a single revenue stream, Netflix is solely reliant on subscriptions, sits in a precarious position, but with international growth filling the coffers the team have time to organically create new business streams.

Ultimately, Hastings and his management team have to ask themselves a simple question; is it better to control our own fate or answer to someone else for a bumper payday? We suspect Hastings’ bank account is already bursting and this is a man who is driven by ambition, the need to be the biggest and best, breaking boundaries and creating the unthinkable.

Most of these suitors will probably be thinking they should have acquired Netflix years ago, when the price was a bit more palatable, but would they have been able to drive the same success as Hastings has done flying solo? We suspect not.

We’re all excited about VR but don’t forget about normal gaming

The gaming segment of the entertainment industry is one which is often overlooked, but it is quickly turning into an incredibly profitable one which could be a pain for the telcos.

The Entertainment Retailers Association (ERA) has compiled the figures for the various segments across the last 12 months in the UK, and to say than digital is taking over would be the understatement of the year (albeit we’re only three days in).

Driven by the adoption of services such as Netflix and Amazon, as well as streaming games through mobile and PC devices, digital accounted for roughly 76% of entertainment sales value in 2018. Looking at the broader segments, digital generated 80.1% of games revenues, 72.3% of video and 71.3% of music.

“On a market level these figures are a stunning testament to the investment and innovation of digital services who have transformed the fortunes of an entertainment industry many had thought was doomed by the internet and piracy,” said ERA CEO Kim Bayley.

Starting with music, streaming subscription revenues accounted for £829.1 million, an increase of 37%, compared to the £383.2 million generated in physical sales and £122.6 million in downloads. For video, streaming revenues increased by 26% to £1.6 billion, while both the physical rental and purchase market unsurprisingly declined.

Looking at the gaming side of things, digital sales grew an impressive 12.5% to £3.8 billion, while the physical gaming market declining 11.4% to £1.8 billion. Gaming now accounts for just over 51% of the three segments in the entertainment world, doubling in revenues since 2007.

“The games industry has been incredibly effective in taking advantage of the potential of digital technology to offer new and compelling forms of entertainment,” said Bayley. “Despite being the youngest of our three sectors, it is now by far the biggest.”

While this is a niche in the world of telecommunications, it is certainly one which is worth keeping an eye on. On the traditional gaming side, the content is becoming much larger and more immersive, with more of a focus on real-time online gaming against other players around the world. This in itself has the potential to cause stress to the network, but also grounds for irritated customers; buffering will not be accepted here.

The other growing sub-segment here is mobile gaming. The launch of Niantic’s Pokémon Go demonstrated the potential of mobile gaming when done correctly, and with data becoming cheaper every single day, more consumers will be encouraged to play these games on the go. Just to emphasise this point, research from Tappable last September claims 42% of gamers now consider smartphones to be their first choice for gaming, mostly down to the convenience of the devices.

Gaming is often an aspect of the connectivity ecosystem which is overlooked, but it is increasingly becoming more prominent in the lives of consumers. It is certainly an area which should be taken into consideration moving forward.

Microsoft looks to take Xbox experience onto mobile

Microsoft has announced the launch of Project xCloud to take the world of Xbox gaming onto mobile.

The idea is a relatively simple one. Gaming is traditionally a better experience on consoles which are specifically designed for gaming, but Microsoft wants to take this experience into the mobile world of tablets and smartphones. Trials will start next year and will allow gamers to take the same content from games built for the Xbox console and PC onto their smartphones, using a Bluetooth enabled handset or an under-development touch overlay.

“The future of gaming is a world where you are empowered to play the games you want, with the people you want, whenever you want, wherever you are, and on any device of your choosing,” said Kareem Choudhry, Corporate VP of Gaming Cloud at Microsoft. “Our vision for the evolution of gaming is similar to music and movies – entertainment should be available on demand and accessible from any screen. Today, I’m excited to share with you one of our key projects that will take us on an accelerated journey to that future world: Project xCloud.”

Compatibility with existing and future Xbox games has been enabled by building out custom hardware in Microsoft data centres. The team have architected a new customizable blade that can host the component parts of multiple Xbox One consoles, as well as the associated infrastructure supporting it. The custom blades will be scaled out through the Azure cloud regions over time.

Currently, the test experience is running at 10 Mbps, though the team are keen to bring this down while still maintaining the same experience for gamers through advances in networking topology, and video encoding and decoding. The idea is to ensure these games can be played on 4G networks, though getting the bitrate down might be a tough ask considering the depth and interactivity of the content on consoles such as Xbox.

One thing is very clear; gaming is just another aspect of the mobile world which is pressing the case for 5G.

Microsoft has an ambition to ensure this content will be able to meet consumer experience demands on 4G networks, though this is a selfish view on networking. These games are incredibly immersive and will place additional strain on the network. For the telcos, the issue is not the singular demands of browsing, video or gaming, but the sum of all the parts. Gaming is just another item which has been thrown on top of the teetering pile of network strain. The efficiency gains of 5G will soon become a necessity, not the buffering-free cat video gains of today.

Looking at the gaming industry, growth is gaining momentum fast. Research from Newzoo suggests mobile gaming will generate $70.3 billion across 2018, accounting for roughly 51% of the industry total. This equates to 25% year-on-year growth, compared to 4.1% growth on consoles, such as Xbox, which is expected to account for $34.6 billion. Mobile’s share of gaming is expected to increase to 59% by 2021, taking $106.4 billion. Asia will account for the majority of this spend, though the gains will be experienced in every region.

An excellent example of the surge of mobile of gaming is Fortnite. While this might be a title most play through consoles or on PC, the most recent update for the game saw 60% surge in data traffic over normal peak traffic levels on Verizon’s broadband network, as well as a 5-8% jump on mobile.

The tsunami of mobile gaming titles over the last 4-5 years has improved the accessibility of gaming for the general public, though the complexity of these games in also growing. While this segment of mobile content might have been simplistic to start with, think of Candy Crush, more in-depth games are becoming increasingly popular with the general public. The proportion of games which require constant connectivity is also increasing. Should the Microsoft project prove to be successful, both in terms of operation and adoption, these trends will only be accelerated.

Gaming is no longer a niche, and pretty soon it will start to weigh heavily on the network.

Netflix dominates the internet, but keep an eye on gaming geeks – Sandvine

Netflix currently accounts for an incredible proportion of global internet traffic, though the gaming segment is starting to throw its weight around.

According to research unveiled by Sandvine, The Global Internet Phenomena Report, Netflix now accounts for 15% of the total downstream volume of traffic across the entire internet. This is an astronomical number when you consider the service only has 130 million subscribers, a large number but some would perhaps has thought higher, while there are roughly 1.7 billion websites on the internet. Video on the whole accounted for 58% of the traffic meandering along the digital pavements.

Netflix, and video on the whole, dominating trends is not a new idea. This is something the telcos have been preparing for, though the gaming segment has been rarely discussed. Gaming has traditionally been reserved for very niche demographics, though with more content providers targeting mobile applications, the target audience has been increasing substantially, as has the depth and scale of the games themselves.

Looking at the contributions to the bottleneck, in Europe two of the top ten owners of downstream traffic volume are relating to gaming; PlayStation and Steam (focused on PC-based gaming). PC games can be as much as 100 GB in size, owning to consumer demands to make more larger and more immersive environments, though telcos would be wary of the continuing momentum for mobile games. With data becoming cheaper for the consumer and devices becoming more powerful, content developers are being encouraged to introduce mobile games which are more on par with those on other platforms. The sheer breadth, depth and variety of these titles on the app stores is quite staggering.

This of course will stress networks, especially considering many users of these games will use them when out and about, not connected to home broadband or public wifi. Ensuring these mobile games meet the demands of the consumer will be critical, as it may well soon become another stick to hit connectivity providers with.

Another interesting statistic to emerge from the data is the level of encryption. Sandvine estimates 50% of internet traffic is now encrypted, though this might be a conservative guess. The estimate only accounts for sources which are encrypted consistently, the number might well be higher, and it is certainly increasing. For consumers, this is a promising trend set against a backdrop of data privacy scandals and breaches, though it is an added complication for the telcos.

Encryption of course protects the consumer from wandering eyes with nefarious intentions, but it also prevents the telcos from keeping an eye on what is going on. Without visibility into what type of traffic is traversing the algorithmic piste, the telcos cannot tailor the delivery and enhance the experience for the consumer. The blame of poor experience might be thrown towards the telcos, but with encryption trends heading northwards, they are relatively helpless.

Microsoft’s cloud gaming ambitions set to further test network capacity

Microsoft has been talking up its cloud-gaming ambitions ahead of the E3 conference in Los Angeles adding another headache to the plethora of migraines network engineers are facing on a daily basis.

While most have been focusing on the rise of video, gaming is proving it could be as much as a thorn in the side of networking engineers, and possibly even a sharper one should current trends continue to grow. Although many games are relatively simple right now, more are requiring constant access to the internet and are also becoming more interactive; today’s simplicity might be short-lived.

But keep the paracetamol in the drawer, as fortunately it is not a massive problem as it stands. The data required to power single player games such as Candy Crush is minimal, content can be cached on the edge to improve performance. Even turn-based online multi-player games are only a minor concern, as latency does not have to too low to deliver a decent experience. However, Microsoft has some big ambitions.

“Our cloud engineers are building a game streaming network to unlock console gaming on any device,” said Phil Spencer, during a pre-show briefing, Executive President of Gaming at Microsoft.

The aim here is to deliver the console experience, what gamers are used to on the Xbox for example, to every device. That includes mobile, which will be a massive headache for the telcos.

This is where data intensity becomes a problem. Even on broadband, gamers need to have a very stable and powerful connection to the internet. Graphics have advanced quickly over the last few years, as has the tendency for gamers to prefer online multi-player environments. When playing other gamers locally, this might not be a massive issue as advancements in edge computing can help, but when playing against someone in Australia it becomes more an issue. The data requirements for these games are often huge as uplink and downlink will have to be synced with unnoticeable latency to ensure appropriate performance. The demand on the network could be much more intense than 4K video.

This is little more than a projection for the moment, gaming is still small-fry but growing quickly, though it is clearly an area which Microsoft is pinning some hopes to.

Though few of the acquisitions have hit the headlines, Microsoft has been gradually snapping up some interesting gaming companies over the last few years. Intel sold software company Havok to Microsoft in 2015, Simplygon, which produces a 3D computer graphics software for automatic 3D optimization, was bought last year, while the PlayFab purchase was announced back in January. All of these acquisitions are helping Microsoft build out its cloud-connected games proposition.

“We’re mobilizing to pursue our extensive opportunity in a 100-plus-billion gaming market,” CEO Satya Nadella said at the annual shareholders meeting in 2017, outlining ambitions in the gaming space. “This means broadening our approach to how we think about gaming end to end, about starting with games and how they’re creating and distributed, and how they’re played and viewed.”

Part of redefining the gaming experience is to create a platform which allows developers to build content efficiently, but then, perhaps more importantly, have the opportunity to scale. Scaling up rapidly is critically important as it could be make or break for a title; consumers are demanding, poor performance could lead to an immediate uninstall. Azure for Gaming is Microsoft’s answer to these demands, creating a gaming-as-a-service platform into the product offering, which features products from virtual machines to scalable cloud storage and a machine learning studio.

Gaming is one of the fastest growing pastimes on the planet, and likely to pose much more a network headache than we are giving it credit for right now.