On 16^th September 2020 SK Telecom announced the launch of 5GX Cloud Game, a cloud gaming service launched in partnership between the operator and Microsoft’s Xbox game console division.

5GX Cloud Game is powered by Microsoft’s Xbox Game Pass Ultimate, and enables gamers to download and play around 100 Xbox titles on consoles and PCs, or to stream those titles to Android OS smartphones and tablets over the mobile network (5G and LTE) and Wi-Fi. 5GX Cloud Game costs 16,700 WON (US$14.39) per month or 22,000 WON (US$18.95) per month as a bundle which includes a purchase plan for a dedicated Xbox controller. The controller clips onto smartphones to enable smartphone gameplay, as shown below. 5GX Cloud Game is not limited to subscribers of SKT and is also available to subscribers of rival operators, KT and LG Uplus, both of which have launched  cloud game services, Game Box (powered by Ubitus) and Nvidia’s GeoForce NOW, respectively.

Source: SK Telecom

The partnership extends beyond reselling the subscription to Xbox Game Pass Ultimate, with Microsoft and SK Telecom sharing the marketing, and SK Telecom managing subscriptions and customer service. Importantly, SK Telecom’s involvement has already increased the availability of game titles localized for the Korean language according to some reports.

Strategy Analytics Take:

Microsoft’s launch of Xbox Ultimate Pass in Korea, the only Asian country it has launched cloud gaming in so far, is smart. PC games are big in Korea and gamers are used to paying subscription fees to play massively multiplayer online games (MMOs). Also, not only are mobile games are also hugely popular, but Korea has seen strong early 5G adoption:

• Piracy of boxed games is a major issue in Korea and therefore game publishers have focused on Massively Multiplayer Online (MMOs) games which are monetized by subscriptions.
• Strategy Analytics estimates consumer spending on mobile games in Korea through downloads and in-app purchases will exceed $ 1.7 Billion in 2020. Microsoft has indicated that during its cloud beta users were connected to the server from outside their home 45% of the time – presumably on smartphones or tablets.

Partnering with SK Telekom is also smart – cloud-based games have become an important component of a number of operators’ 5G go-to-market strategies, and operators like SK Telecom are actively looking at ways to promote services which rely on 5G to deliver an optimal experience. SK Telecom can also deliver significant marketing and distribution clout for cloud games and is well placed to attract Korean games publishers to boost Xbox’s catalogue of local language game titles.

Reports state SK Telekom is targeting 100,000 5GX by the end of 2020 and around 1 Million users by 2023. At current price points Strategy Analytics estimates this will equate to annual revenue of between $140 Million and $190 Million in 2023 for SK Telecom and Microsoft. While SK Telecom will benefit from this additional revenue, it is the ability to encourage 5G subscriber adoption that is the real benefit.

Furthermore, as discussed in Mike Goodman’s excellent report, “Microsoft’s Xbox Game Pass is One Step Closer to Becoming the Netflix of Gaming with Bethesda Acquisition,” Microsoft continues to enhance both the quantity and quality of the Xbox games catalogue which is essential for attracting gamers to its service.  

While cloud gaming presents an opportunity for companies like Xbox, Google, Gamestream, Antstream to change the competitive dynamics of the game sector, these companies need to understand how gamers (hardcore, mid-core and casual) will respond to cloud game capabilities and address the following questions:

1. How do different segments of gamers (casual, mid, and hard-core) respond to cloud gaming?
2. Which segments of gamers want to play rich console titles on smartphones and tablets?
3. How large is the opportunity?
4. At what point does it become viable for third party publishers to release new AAA games on Xbox Game Pass and at retail simultaneously?
5. How important are new releases to a streaming game service?
6. What types of games (i.e., console, PC, mobile) are they interested in?
7. What will motivate gamers to subscriber to a cloud gaming service?
8. What needs to change to make the economics work for publishers?