Home Consoles Face Extinction as Cloud and AI Boom, BI Research Says
Bloomberg Intelligence forecasts that streamed games will become a $38B market by 2035 and that the dedicated console will stop being a mass-market product.
The Forecast
This prediction is based on the assumption of surplus GPU capacity late this decade and the current upward trend in compute prices.
AI's Role
AI plays a dual role, reducing costs and powering the data centers that support streaming.
Consoles as Niche Products
Naidu, the BI analyst behind the report, compares consoles to record players, kept on by enthusiasts and collectors, and describes their economic role as relatively uneconomic.
The Economics
The economics hinge on a glut that has not yet materialized. While AI demand is currently driving up compute prices, analysts expect a surplus in GPU capacity by the end of the decade.
Rising Prices
In contrast, cloud computing prices are rising. AWS raised GPU prices by 20% in July for reserved capacity, marking the second increase in six months. This is attributed to a memory shortage expected to persist until 2028.
Market Leaders
- Microsoft holds roughly 40% of streaming with Xbox Cloud Gaming, estimated at 220 million hours in the last quarter.
- Nvidia leads with GeForce Now.
- Tencent dominates in China.
Uncertain Moves
The service providers seem less confident. Microsoft recently tested ad-supported streaming and Amazon integrated Luna into Prime Video, suggesting a recognition that cloud gaming has not yet achieved widespread adoption.
Nintendo's Position
Nintendo is seen as most vulnerable because it has treated streaming as peripheral, while Sony fares better with PlayStation Plus and the PlayStation Portal.
Microsoft's Next-Gen Console
Despite these challenges, Microsoft is still building a next-generation console for 2027, as announced by Xbox chief Asha Sharma in July. This comes alongside a restructuring that includes cutting 3,200 roles and five studios, two of them European.
Margin Pressure
The pressure on Microsoft is primarily related to margins, not streaming. Xbox’s profit margin dipped to 3% this financial year, and the company has not ruled out a spinoff or sale.
Legal Considerations
Europe has a legal stake in cloud streaming. Brussels made it a condition of the Activision deal, and Microsoft’s published commitments provide free licenses for games to EEA players and streaming providers.
Timeline
The clock is ticking. The licenses granted by Microsoft last indefinitely, but they run for ten years from October 2023, lapsing two years before BI’s projected $38B market date.
AI in Game Development
Game-making is accelerating with AI. Epic chief Tim Sweeney noted that the company is retooling for maximum AI acceleration, having already integrated AI models Claude and Gemini into Unreal Engine 6. A survey of developers revealed that 52% believe generative AI is harming the industry.