No matter how you slice it, 2020 has been a banner year for the video game industry. Look at the titles – Call of Duty: Warzone, Animal Crossing, Last of Us Part II, with Cyberpunk 2077, Halo Infinite, and a new Assassin’s Creed still to come.  Look at the money - $10.46B in global digital gaming revenue in June alone (an all-time record-breaking month second only to April’s $10.54B).  Look at the engagement - 82% of global consumers played video games and/or watched video game content during the height of the COVID-19 pandemic lockdowns. 2020 has seen hit after hit, win after win.
 
But things are about to change, this year the industry is going to kick off its own front of the “streaming wars.”
 
Starting on September 15th, Project xCloud, Microsoft’s cloud gaming service, will be added to Xbox Game Pass Ultimate in 22 countries. Let’s define some terms:
 
Cloud gaming (Technology) – Streaming tech that shifts processing power to a cloud connected server, enabling devices of all sizes and types to play games once reserved for consoles and high-end desktops.
 
Xbox Game Pass (Service) - An all you can eat game subscription with 10M active subs as of April. To use a terrible cliché, it’s Netflix for Xbox games.
 
Bundling the two together (Strategy) - 100+ Xbox titles will now be playable on non-Xbox hardware – specifically Android phones and tablets with PCs coming in the near future. (Due to App Store policies – iOS appears out of reach for the time being.)
 
For obvious reasons, Microsoft is positioning their Game Pass + xCloud bundle as a gamechanger. It’s not. xCloud won’t be the first cloud gaming service to market (G Cloud first demonstrated similar tech at E3 all the way back in 2000), nor is Xbox the first major console to pair a gaming subscription with a service such as this (PlayStation Now won that title). That said, September 15th will see an incentivized and well capitalized player in Microsoft enter the game in a major way. We at illum have a good sense of what comes next.

• Despite the Hype, New Subscribers Won’t Show Up for xCloud Alone – We are still 10 years+ away from widespread adoption of any cloud gaming service. There are plenty of technical reasons for this and Matthew Ball has an excellent breakdown for those who want to get wonky. The TLDR takeaway, however, is that the internet infrastructure simply isn’t there yet. xCloud will remain an intriguing feature with limited usage until the user experience is supported by consistent, cheap high-speed internet.

• The Content Arms Race – Microsoft, Sony, Nintendo, and Google are going to lean into all you can eat gaming subscription services – jockeying for position now to prepare for a future without hardware sales.  This will kick off a content arms race that will make the “console wars” look like a game of Pong. Competitive bids will be made for service exclusive games AND in-game features that go beyond cosmetics (see Spider Man in Avengers). Only the largest publishers (EA, Epic, Activision / Blizzard) will be able to stay completely agnostic.

• The “Ultimate” Entertainment Bundle in 2021 – Spotify and Xbox Game Pass have already partnered on free trial bundles for their premium tiers. That will almost certainly evolve into a more formal tie up. We believe that by 2021, Spotify, Hulu (who already has an existing bundle in place with the music streamer), and Microsoft will roll out an “ultimate entertainment” bundle priced between $20-$25 a month.

• Accelerated Acquisitions – Skunkworks development of a title that showcases the mobility and power of cloud gaming at its fullest potential will become a priority objective. However, developing this killer app will require game creators who can imagine what Jeff Bezos has called “computationally ridiculous” gameplay and major players will acquihire talent to fuel this work. In the past five years alone, Microsoft has bought six game studios. Sony and Google have both bought one and invested heavily in internal divisions. Expect to see that investment trend accelerate significantly in 2H20 and 2021.

All in all, we are looking at a highly competitive environment in the years to come, but this competition will drive innovation and a decade of truly wonderful games. 2020 has been a banner year. The 2020s will be the golden age of video games.