In May 2019, Sony and Microsoft announced the establishment of a partnership focused around streaming technology.  Under the terms of the partnership, the two companies will share technology focused on cloud-computing and artificial intelligence for the purpose of facilitating content-streaming services.  These two giants international gaming market did not explicitly mention their consoles, the Playstation platform (Sony) and the Xbox platform (Microsoft); however, it seems this partnership will be focused on consumer entertainment platforms, which would of course include gaming.  When viewed in the construct of broader industry trends, it’s hard to not see this partnership as a reaction to Google’s announcement earlier in 2019 that it was developing its own gaming platform that will work on multiple types of devices (mobile, computer, Chromecast-supported televisions, etc), Stadia.

Teknos Sony Microsoft Commentary

The console gaming market is dominated by three companies; Microsoft, Sony, and Nintendo. The total console gaming market was estimated at $39.9 billion in 2017 and is expected to grow at a compound annual growth rate of 4% to reach a size of $49.3 billion in 2023 according to ResearchandMarkets.  However, the broader gaming market is comprised of more than just console gaming.  In the past few years, there has been a significant rise in mobile gaming and cross-platform streaming services.  Dominant players in the market have seen new competitors enter this space.  Whereas Steam (Valve) historically has a had a virtual monopoly over personal computer (PC) gaming, new entrants in the space, such as the Epic Games Store, have begun to erode its market share by offering a compelling publishing platform to game developers.  The focus of Sony’s and Microsoft’s partnership on content-streaming might be their way of trying to keep pace with such shifts in gaming trends.  Amazon has already entered the market in a roundabout manner via its 2014 purchase of Twitch, the world’s largest live-streaming platform, and it has subsequently been reported that the Company is also developing its own game streaming platform.

With such a large portion of the console market under their joint control, Sony and Microsoft could use their combined might to influence, or even stifle, emerging competitors.  One of the most extreme actions Sony and Microsoft could take is banning any game that is hosted on their competitors’ platforms from the Xbox or Playstation.  Given that console gaming is currently much larger than PC gaming from a revenue standpoint, it is unlikely that developers would be willing to jeopardize such a significant portion of their business in order to accommodate new and unproven streaming platforms.  For example, GTA 5 sold more than 45 million copies on the Xbox and Playstation consoles in 2013 and 2014 before it was even released for the PC in 2015.  Such an action would not be the first time Microsoft used its position as a market leader to stifle competition.  In 2001, the Company was found to have previously violated the Sherman Antitrust Act of 1890 based on its handling of operating system and web browser integration.  A less extreme and more likely scenario is that Microsoft and Playstation share some of their exclusives with each other, while keeping them away from their competitors.  Microsoft and Sony both have flagship properties such as Microsoft’s Halo which has generated over $5 billion in worldwide sales to date for Microsoft.  While having these exclusive titles will make sure at least some gamers continue to buy their consoles, it is unlikely to stop some from switching to competing game streaming platforms that beat them to market.

Microsoft’s streaming and cloud capabilities are more advanced than either Sony or Nintendo.  This deal ultimately means that Sony will be dependent on Microsoft Azure for its future cloud steaming solutions.  Datacenters are expensive to buildout and operate, and Sony is far behind both Microsoft and Google in this area.  Many at Sony’s Playstation division surprised by the announcement of this new partnership, which was apparently kept close to the chest by Sony’s senior management.  Nintendo’s online streaming capabilities are even less developed than Playstation Plus such as having no voicechat without a smartphone app.  Microsoft’s cloud capabilities give them an edge not just on the new streaming platforms but the other two giants in the console market.

The impact for consumers in the future depends on how Microsoft’s and Sony’s plans play out moving forward. If Microsoft and Sony allow all (or even most) of their games to be played on both consoles, then gamers will gain access to a wider range of titles without having to purchase multiple consoles.  This combined library of games would give Sony and Microsoft a buffer against streaming platforms like Stadia, which is expected to have a substantially smaller catalog of games when it launches.  However, if Microsoft and Sony do not share games across consoles, then consumers will not receive much of a benefit from the partnership.  Microsoft and Sony’s platforms might improve slightly if they incorporate the others technology, but slightly improved graphics or user experience is no substitute for content.  As the streaming wars with Netflix, Hulu, HBO, and Amazon Prime are demonstrating, content is king.  If gamers are lucky then Google will develop its own high-quality intellectual property for the Stadia instead of just offering another way to play the same games already available on consoles.  Google is creating its own first-party gaming studio, but gaming is a hits-driven market.  There is no guarantee that Google’s games will resonate with the gaming community. Microsoft’s and Sony’s partnership and competition with new streaming services might provide gamers easier access to an expanded content universe, or it might lead to further partitioning of content among platforms.

How can we help?

Teknos Associates is uniquely positioned to identify and analyze the current and anticipated trends within the Esports and gaming industry. From our significant knowledge of how the Esports and gaming industries have developed, to our first-hand experience providing advisory services to organizations at all stages of development and growth, our team is ready to help brands capitalize on the myriad of opportunities available in the Esports and gaming industries. Our vast experience includes providing valuations, offering structural guidance, and delivering strategic analyses. To learn more, contact Teknos Associates at info@teknosassociates.com .