The gaming market has evolved in recent years into one of the biggest markets in the world. This has prompted companies such as Facebook, Google, Apple and, most recently, Netflix to involve themselves in the market in a bid to attain some of the revenue stream.
And now telcos have been presented with a similar opportunity – one that cannot be ignored, given the vast potential revenue available for them.
Martin Scott, lead analyst for Analysys Mason’s worldwide media and pay-TV research, notes that the primary reason telcos want to delve into gaming is for growth. Worldwide, telcos generated $1.34 trillion in 2019, according to numbers from Analysys Mason, and while this will grow by around $40 billion by 2025, Scott describes this growth as “minuscule”.
This is because the gaming industry was buoyant throughout 2020 and the Covid-19 pandemic, and numbers from Analysys Mason expect the industry to grow from $147 billion in 2020 to $240 billion in 2025. Naturally, Scott says telcos are looking at adjacent markets for revenue growth.
“Gaming offers as much absolute revenue growth as the whole of TV and video combined, but from a much, much lower base, because it’s doubling in value over the next five or six years,” Scott says.
He adds that telcos will do all they can to insert themselves into the market, given it is growing so rapidly, but they must use aggregation strategies to maximise entertainment revenue from core gamers.
“Core gamers are important to operators because their spending is relatively high and they are open to using updates to improve their gaming experience,” he says.
Swarmio CEO Vijai Karthigesu believes that alongside revenue opportunities, telcos want to get into gaming because it is an entertainment sector they “haven’t yet lost”.
He notes that telcos were the “kings” before they lost most of the entertainment segment to larger players.
“They lost music to Apple and Spotify and movies to Netflix, then they lost voice and conferencing capabilities to Google and WhatsApp,” Karthigesu says.
With Netflix entering the fray with the announcement of five free mobile games on Android devices, Karthigesu believes this should act as a catalyst for telcos to venture into the market.
“Netflix entering the gaming market is a message that shows just how important gaming is to millennials – it is almost a way of life for many,” he says.
Zain Esports
The Middle East is one region that has experienced a booming gaming market in recent years. Games and e-sports analytics and market research company Newzoo estimated that of the $152 billion in revenues generated by online games globally in 2019, $34.7 billion, or 23%, of the global total was generated from Europe, the Middle East, and Africa.
One of the biggest telcos in the area, Zain Group ventured into the gaming industry in December 2020 with the launch of its Zain Esports subsidiary.
The brand hosts a range of competitive gaming tournaments across the Middle East and aims to locate “talent” in the region.
But what made the telco take the plunge into gaming? The Middle East is one of the fastest growing gaming regions in the world and Zain Group’s chief investment and digital officer Malek Hammoud believes that this is an opportunity that will unlock the potential of aspiring regional gamers to compete on a global stage.
“Over time we realised that video gaming accounts for the highest data traffic on our network, and multiple studies were showing that the gamer in the family has the largest influence in choosing the connectivity solution for the household,” Hammoud says.
Hammoud adds that Zain already had the advantage of having a substantial reach as a telco.
“When we launched Zain Esports, there was already significant legitimacy attached to it in the eyes of the audience,” he says.
Thus, according to Hammoud, it made sense to create an ecosystem where Zain can talk directly to the millennial and Generation Z gaming audience, identifying their needs and pitching the right products and services to them.
Across all of its operations, Zain has seen a 300% growth in gaming-related data usage since February 2020 across all its operations. Tje Covid-19 pandemic has increased demand for online connectivity and access to digital content.
“We are confident that the variety of games and attractive prize money offered by Zain to the wider regional community, will act as a catalyst to drive our progress in this domain further,” Hammoud says.
5G opportunities
With the widespread adoption of 5G on the horizon, Hammoud believes there are plenty of opportunities for Zain to capitalise on cloud gaming and extended reality. Cloud gaming refers to a solution where a user can play any game from any device as long as they have a display and input device (controller or keyboard).
This, according to Hammoud, will make gaming and e-sports more accessible and inclusive to users in the Middle Eastern regions and around the world.
The other possible “next big thing” is the arrival of virtual reality (VR) and augmented reality (AR). The popularity of Pokemon Go after it launched in 2016 has paved the way for further exploration into the space.
This has prompted large companies such as Facebook to openly embrace the “metaverse”. This refers to another world where users are replaced by digital avatars, similar to the way it was depicted in Stephen Spielberg’s 2018 movie Ready Player One.
Hammoud says that the high-speed and low-latency connectivity that 5G brings will be a “cornerstone” in bringing gamers closer to that reality.
But Scott notes that while 5G presents such opportunities for telcos, what is even more important to the future of the telco and gaming partnership is how 5G will be implemented alongside mobile edge computing and the evolution of consumer devices.
“5G is absolutely essential when thinking about low-latency experiences but we also need to think about the use case and where these games are being played,” Scott says.
Scott adds that the UK is relatively behind, compared with most Western European, countries in terms of fibre penetration in UK homes – where most of these games will be played.
Findings from Analysys Mason indicated that 5G and VR are fundamentally linked in terms of requirements. The research showed that 4G is unable to support the delivery of VR experiences as soon as edge processing is required, meaning that VR requires either 5G or fibre connectivity, presenting real opportunities for telcos to leverage their services to gaming publishers.
Publisher partnerships
Scott adds that telcos are logical partners for gaming publishers because they are intrinsically involved in the delivery of online gaming experiences and have established billing platforms and existing relationships with consumers.
“Partnering with telcos is a new way to reach a wider audience for games publishers,” he says. “But telcos are also a great partner, if what you want to do is get better at the subscription business.”
He says two types of propositions can be used to target core gamers: casual games and cloud gaming subscriptions that can be used through third-party partnerships.
Casual gamers are important to operators because they represent 25% of all adults and gaming provides opportunities for upselling or improved customer retention, according to the analyst.
“The challenge is getting them to pay,” he says.
Karthigesu, meanwhile, agrees that telcos present very valuable opportunities to gaming publishers and highlights the power that telcos hold in most countries.
“Publishers are in a cut-throat business,” he says.
“They spend lots of money on user acquisition and the success of their game is all based on how fast they can acquire users and how long they can keep them engaged.”
Karthigesu says telcos can ensure that the game is supported by the best connectivity in the country, by providing seamless communication that offers the best overall experience.
But he adds that most of the time 90% of revenue goes to the publishers, meaning a shift in focus is needed by telcos.
“I’m trying to urge telcos to offer more than just connectivity to gaming publishers,” he says.
“Once publishers have the users that telcos have access to through a partnership, the telcos then have even more power because now they become a go-to market agent for game publishers, rather than offering connectivity alone.”
He believes that telcos must be part of the publishers’ revenue stream in order to take something from the profitable gaming ecosystem.
Opportunity
On top of that, Karthigesu says, there are various payment integration opportunities for telcos, given that most publisher revenue stream comes from in-game or in-app purchases.
“Having a telecoms operator in the middle, providing the user acquisition and promotion of the game, building a storefront where people can actually buy those in-game items, means the operator becomes part of the value chain for the publisher,” he says.
“There’s a huge opportunity for these telcos to combine it all into one box – because who is better at the distribution of these services?”
Karthigesu believes it could be only a matter of time before telcos could lose 5G to large corporations such as Amazon and Google, if they do not grasp the opportunity presented to them.
In the future, he says, there will be many private 5G networks, meaning telcos will no longer hold a monopoly over networks – and their revenue streams – as they have done in the past.
He adds that it is vital for telcos to diversify their products and there is no better opportunity at present to do that than gaming.
