Amazon Enters Online Gaming Market With New Luna Streaming Service

Published On: September 28, 2020Categories: Stocks & Shares7.6 min read

On Thursday Amazon threw its hat into the ‘gaming wars’ ring with the announcement of Luna, its new cloud gaming platform. The subscription service will cost a basic $5.99 a month, though it’s not yet clear when the platform will be widely available.

That will give gamers access to a ‘games channel’, that will include legacy titles including Control, Resident Evil: Biohazard, Resident Evil Seven and Sonic Mania Metro: Exodus. Over 100 games will be available via the Luna+ channel at launch, with more added through time. Additional channels offering ‘premium’ titles, such as one featuring games produced by Assassins Creed studio Ubisoft, will be available for additional fees.

Luna looks more like Google’s Stadia, another cloud-based games streaming service that doesn’t require a computer or console, just a screen, internet connection and controller, than it does a direct competitor of Microsoft’s Xbox and Sony’s PlayStation. The latter two also recently revealed their new consoles after a 7-year hiatus since the release of the PS4 and Xbox One.

Gaming Is Evolving As A Form Of Entertainment

But industry analysts are confident the latest editions of the PlayStation and Xbox console series will be the last. They are convinced that within a few years, gaming will have moved almost entirely to a streaming, cloud-computing-powered model. It will also look quite different to historical gaming, when most games were linear and players tried to ‘complete’ them by getting to the end.

Over the past decade or so gaming has gradually become more social as a result of online gaming meaning players could compete against each other online, regardless of their location. That’s given rise to competitive gaming, otherwise known as eSports.

But gaming is also now starting to take on social media qualities, with the line between the two gradually blurring. Sarah Hindlian-Bowler, head of software research at Macquarie, describes for the Financial Times how modern gaming is more about players living and socialising in virtual worlds with their own economies, which gamers participate in through in-app purchases.

Neil Campling, a tech analyst at Mirabaud Securities describes the evolving gaming sector as follows:

“Gaming, in many ways, is becoming the newest form of social media. And that’s what people don’t realise . . . If you go back just 10 years, the industry was the same size as Hollywood [by revenue]. Today it’s four times the size and growing at a double-digit rate every single year.”

Gaming Is The New Big Tech Battleground

Earlier this week we looked at the latest round of the 2-decade-old head-to-head between Microsoft and Sony for the console-based gaming market. A focus of the analysis was that with gaming moving online and onto a subscription-model, and Sony relying on the PlayStation for 30% of its revenues and 40% of profits over recent years, the Japanese company’s future will be heavily influenced by the success of the PS5.

How Sony manages to introduce its own hardware-free gaming model, and evolves towards a subscription service over the years immediately following the launch of the PS5, is likely to prove more important to the company than early console and games sales number. For now, Sony is sticking to the tried and tested business model of selling premium and exclusive gaming titles for a one-off charge.

It also does have the $9.99 PlayStation Now subscription which offers gamers access to a catalogue of over 800 legacy titles for the PS2, PS3 and PS4, which can be played either on its console or a PC. But there seems to be a reticence to rip up the old blue print and move newly released premium titles to a Netflix-style model.

Even if Sony does attempt to follow the pack, there has to be big questions over whether the Japanese company will have the resources, both financial and in terms of technological infrastructure, to cope with the new level of competition in the market. Microsoft already remarked a couple of years ago that it saw its future Xbox competition as not its traditional console rivals like Sony and Nintendo.

The U.S. tech giant was instead keeping its eyes on a new challenge it expected to emerge from its big tech rivals such as Apple, Alphabet (Google’s parent company), Netflix and Amazon. With Amazon’s announcement of Luna, which has been rumoured for over a year now, only Netflix has yet to launch its own gaming offering.

The new players in the battle for a gaming sector market intelligence group IDC believes will be worth $200 billion in 2020 revenues, all have on thing in common – their own cloud computing infrastructures. Stadia runs on Google Cloud Platform, Arcade the iCloud, Xbox on Microsoft Azure and, of course, Amazon’s Luna will be powered by AWS.

Already having a global cloud-computing platform is a huge competitive advantage. Sony doesn’t and has, ironically, partnered with Azure to use Microsoft’s cloud resource. The partnership, which apparently surprised even Sony’s PlayStation management, runs deeper than PlayStation simply paying to use Azure. When the deal was announced last year, Microsoft commented:

“The two companies will explore joint development of future cloud solutions in Microsoft Azure to support their respective game and content-streaming services.”

That Sony turned towards the embrace of its historical rival, rather than Google or Amazon, is telling. The company knows cloud infrastructure is key to the future of gaming and it also knew Google and Amazon had their own ambitions.

How the Microsoft-Sony cloud gaming partnership will evolve is still hard to predict. But it’s not impossible that it could somehow see the companies take on their new big tech rivals together through joint ventures. From Microsoft’s perspective, Sony would bring a valuable games catalogue and stable of studios most analysts consider superior to Microsoft’s (though last week’s $7.5 billion acquisition of ZeniMax, which makes Quake and The Elder Scrolls games series among others, is significant), while Microsoft offers Sony access to a global cloud infrastructure in the form of Azure.

Amazon’s Entry Into Gaming Is Well Planned And Better Informed

Amazon’s Luna offering may take some time to gather pace. A premium subscription offering Ubisoft titles is a good start but the ecommerce and cloud computing giant will need far more premium titles to attract serious gamers. The launch catalogue and offer will more appeal to casual gamers and families with younger children that already have Amazon Prime.

But we can be sure Amazon have a roadmap laid out to become a dominant force in its new market. The company already owns Twitch, the world’s biggest gaming streaming platform. Gamers use Twitch to live stream their own gaming and also watch other gamers, including professional eSports stars and teams, compete against each other.

It’s rumoured Amazon launched Amazon Prime Video after noticing that during evenings, up to 35% of AWS resources were being used by Netflix. Having commented at the launch of Luna that the world is entering “the golden age of gaming”, that opinion is almost certainly heavily informed by traffic patterns on AWS. Perhaps more than anyone not directly involved in the industry, and perhaps even those that are, AWS traffic has given Amazon insight into the trends in online gaming. And it has decided it wants a piece of the action.

Will Luna Do Better Than Google’s Stadia?

There’s no specific launch date yet for Luna going live but it can be presumed it will probably be sometime in early 2021, at least in the USA. Possibly earlier. But with Google’s Stadia launch so far something of a disappointment, can Luna do better?

Most probably. Stadia’s business model has some issues that have held it back. Specifically, the fact that in-game content and add-ons are charged. That’s seen many parents cancel subscriptions after receiving additional and unexpected charges racked up by their kids. Amazon’s Luna should have learned from that and offer a cleaner, more transparent subscription model.

And Stadia should not be written off despite teething problems. Alphabet has more than enough resources to rejig the model, invest in exclusive gaming content that will excite and drive the service forward again.

Luna will also likely start off slowly, with Amazon taking at least some time to feel its way into a new sector. But once it feels it has its business model right, and cloud-streaming technology issues such as latency are solved by 5G wireless networks and other infrastructure and tech upgrades, it will through the might of its huge resources behind Luna’s push into gaming.

What About Netflix?

Netflix is also often mentioned as a likely future player in the battle for market share of the gaming market. But the video-content company has shown little sign of throwing its hat into the ring in the immediate future. Last year CEO Reed Hastings said the company wasn’t interested in making or streaming video games. And Netflix probably isn’t able to spare the investment and focus such a move would make, with its attention firmly on producing its own hit television and film content.

Recently, however, Hastings’s tone had changed, with him recently commenting on new directions:

“You know, it could [make sense] I doubt news, but sports, video gaming, user-generated content — if you think of the other big categories, someday it could make sense. But right now, Ted’s [co-CEO and chief content officer Ted Sarandos] got every billion dollar earmarked for bigger movies, bigger series, animation of course… At least for the next couple of years, every content dollar is spoken for.”

This writer’s personal prediction, is that a possible scenario could be Netflix instead partnering with an Amazon competitor on games streaming. Microsoft/Sony/Netflix anyone?

That would seem to make sense on a number of levels. Netflix offers mass market access through its existing subscriber base. Microsoft could potentially go it alone but there could be enough mutual benefit to warrant discussions. And if mutual ground can be found and the threat of Google and now Amazon seen as significant enough…watch this space!

About the Author: Jonathan Adams

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