Please ensure Javascript is enabled for purposes of website accessibility

3 Threats That Could Hold Back the Cloud Gaming Revolution

By Stephen Lovely – Updated Aug 7, 2019 at 4:34PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Soon, video games may not depend on powerful hardware in your home or physical media you own, but there are issues that must be addressed in order for that future to arrive.

Companies like Alphabet (GOOG -2.63%) (GOOGL -2.63%), AmazonApple, and NVIDIA are betting big on cloud gaming. Meanwhile, video gaming incumbents like Sony and Microsoft are readying themselves for a tectonic shift in the space. The buzz is that cloud solutions are the future of video games, and that physical media is the past.

That may be so, but this revolution won't occur without growing pains -- and a few obstacles to a cloud gaming future loom large.

A man plays a video game

Image source: Getty Images

Broadband infrastructure

Cloud gaming relies on one thing above all else: reliable, fast internet connections. The idea of cloud gaming is that players will be interacting almost entirely with software hosted on distant servers, rather than installed locally on their home video game consoles or computers. There are already plenty of games that require an internet connection, but cloud gaming essentially puts the entire game online; the user's local hardware is responsible for little more than communicating player inputs and rendering on-screen images.

That means that cloud gaming platforms will need to send a lot of information back and forth, which in turn means they require a speedy broadband connections. Those are not ubiquitous in the United States, to say nothing of the world. According to the FCC, 19 million Americans lack access to fixed broadband connections. The good news for the cloud gaming set is that this amounts just 6% of the U.S. population. The bad news is that there's some skepticism about whether typical broadband speeds for the majority who do have access will be enough to properly support cloud gaming. Alphabet's Google has said that Stadia will have a recommended minimum connection speed of 10 Mbps, but the company hasn't yet publicly demonstrated what its games would look like at 10 Mbps. Stadia's 1080p streaming minimum is 20 Mbps, and its 4K will require 30 Mbps to 35 Mbps; the latter is higher than the 25 Mbps threshold speed the FCC used to when deriving the aforementioned 19 million figure.

Data caps

Lack of broadband infrastructure in some areas will be a physical barrier to cloud gaming platforms. There are also virtual obstacles. Major internet service providers like Comcast (CMCSA -2.34%) routinely cap their customers' data use. To an extent, this is an extension of the infrastructure issue -- it gives customers an incentive to reduce their data use, which means less traffic and fewer reasons for Comcast and other ISPs to build out additional expensive infrastructure. But, depending on who you ask, it's also somewhat arbitrary: There's plenty of skepticism toward the idea that ISPs need data caps to match the pace of their infrastructure improvements or to make healthy profits. To hear some tell it, ISPs like Comcast already have the infrastructure they'd need to do away with data caps entirely. 

Consumer habits are already on a collision course with data caps: The arrival of 4K video streaming, among other things, has more consumers hitting data ceilings as high as 1 TB per month. Cloud gaming will have to contend with this issue, too.

Digital rights management

When Microsoft first announced its current-gen Xbox One at E3 in 2013, it faced a significant backlash from consumers. Chief among the issues that landed Microsoft in hot water was its take on digital rights management. Thanks to an emphasis on installation and digital copies, Xbox One users would not be able to sell their used games or even play their games on friends' systems. (Some of these fears may have been overstated; Microsoft's confusing announcement included comments that were contradicted by the company's own Twitter account). Eventually, things worked out: Microsoft walked back some of its plans, and consumers' heads cooled. But the moment was an instructive reminder of the types of hurdles inherent in any attempt to change the business models that have dominated the video game industry for virtually all of its history.

When users buy individual games on platforms like Stadia, they won't quite "own" them in the way that consumers own video games on discs. As with digital media on platforms like Apple's iTunes, the consumer could find their rights to the content revoked at any time (some platforms, including iTunes, do allow you to download the stuff you own and back it up, so there are some gray areas here). These conditions have caused relatively minor furors in the worlds of digital movies and digital music, but it seems likely that customers will view it as a bigger deal when what's at stake is a $60 game instead of a $20 movie. Google has already moved to address these concerns with an announcement that purchased games will still be playable even if their publishers withdraw support for the Stadia platform. Google's haste to clarifying how it will handle that possibility only underscores at its importance.

Even with that reassurance, Alphabet will need to win consumers' trust for this effort to succeed: Gamers will have to believe Stadia itself will be around for the long haul, for instance. The relative stability and immortality of, say, an old Super Nintendo and a compatible game cartridge won't exist in cloud gaming. With cloud gaming, new hardware requirements could appear and old games could disappear based on the whims and fortunes of the companies that offer them.

Cloud gaming will meet its challenges

None of these issues is insurmountable, but neither can any of them be ignored. If companies like Google are going to change the way that we game, they'll have to change a few other things, too. Cloud gaming will have to find ways to keep its data transfers as lean as possible while maximizing quality. Cloud gaming companies will likely find themselves in battles with ISPs, especially given that net neutrality regulations were eliminated, which means ISPs can once again throttle internet content. And digital marketplaces and platforms like Stadia will have to find ways to keep customers happy with game purchases and subscriptions that cannot be "owned" as permanently as games once were.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Stephen Lovely owns shares of Amazon and Apple. The Motley Fool owns shares of and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Microsoft, and NVIDIA. The Motley Fool has the following options: long January 2020 $150 calls on Apple and short January 2020 $155 calls on Apple. The Motley Fool recommends Comcast. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Alphabet Inc. Stock Quote
Alphabet Inc.
GOOGL
$97.42 (-2.63%) $-2.63
Alphabet Inc. Stock Quote
Alphabet Inc.
GOOG
$98.09 (-2.63%) $-2.65
Comcast Corporation Stock Quote
Comcast Corporation
CMCSA
$30.43 (-2.34%) $0.73

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
342%
 
S&P 500 Returns
107%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 09/30/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.