Chinese tech giant Tencent is following Google and Microsoft into cloud gaming by quietly testing a new service called “Start”.
Start is available for test use in Shanghai and Guangdong, according to a recently launched website, promising to put high-quality gaming within reach on any device, at any time. With cloud gaming, all of the action happens on servers in data centres, rather than a player’s own hardware, with images streamed to users’ screens.
Tencent is joining a growing number of players, including Sony, Google, Microsoft and Amazon, who are positioning themselves for what some in the games industry have hailed as the biggest disruption since the arrival of the smartphone more than a decade ago.
Last month, Google unveiled a cloud gaming service called Stadia, which will stream games directly from Google’s data centres to televisions, smartphones and computers. The service is expected to launch later this year, alongside Microsoft’s previously announced rival xCloud.
Tencent’s biggest advantage over Google has historically been its online gaming business, which accounted for more than 40 per cent of its overall revenues before the Chinese government imposed a nine-month ban on new computer games last year. Gaming accounted for just over one-third of revenues in the most recent quarter.
While Google is teaming up with chipmaker AMD for the graphics in Stadia, Tencent said last year it planned to work with Intel on its cloud gaming service.
Piers Harding-Rolls, head of games research at IHS Markit Technology, said cloud was the “new competitive front” in the gaming industry, adding that Tencent may have some advantages over Google when it comes to its games catalogue and market penetration in China.
“Google has a global presence with its cloud services, but no access to China,” Mr Harding-Rolls said. “Tencent has less global presence, but is a gatekeeper to the biggest games market in China.”
“Tencent has a much stronger content offering,” he added. “Google may well acquire to overcome this.”
In addition to its own gaming capabilities, Tencent also owns 88 per cent of Supercell, the Finnish maker of Clash of Clans and Hay Day, as well as stakes in Fortnite developer Epic Games and Riot Games, maker of League of Legends.
Tencent signalled its interest in cloud at its annual results last month.
“It’s something we are naturally very excited about, it’s something we’re looking into, but it will take a few years to fully materialise,” James Mitchell, Tencent’s chief strategy officer, said at the time.
Mr Harding-Rolls said any returns from cloud gaming would probably be incremental for the company.
“It may introduce existing gamers to new ways of consuming games — thus increasing engagement and spend — and may also reach a new audience, but probably slowly over time,” he said.
Bao Rencheng, analyst at ICBC International, was ambivalent about Tencent’s latest move, saying Chinese gaming had “entered a mature phase”.
“The demographic dividend has been used up,” he said. “Those who play games already play games. It is very difficult now to get new players.”
IHS Markit estimates the cloud gaming content subscription market will grow from $234m last year to $1.5bn by 2023, and has flagged Tencent and Microsoft as potential winners in the new market.
Alongside existing services from Sony and chipmaker Nvidia, Amazon is expected to launch its own cloud gaming platform, capitalising on its investments in data centres and connectivity around the world.
Critics, however, have questioned how profitable the market will be.
“Five companies have announced they want to be the Netflix of games,” Owen Mahoney, chief executive and president of South Korean game developer Nexon, said at a Credit Suisse conference in Hong Kong last week.
But he added Netflix’s operating margins were below those of games developers, saying: “No one is getting a head start now.”
Additional reporting by Nian Liu in Beijing and Tim Bradshaw in London
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