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Morningstar | While Google’s Stadia May Be a Threat, Sony and Nintendo Will Leverage its Resources to Retain Users

We consider that Google’s new cloud gaming service, Stadia, is a revolutionary platform, which will not only become the winner of cloud gaming in the short run, but also may change the existing game console business in the longer run. We believe Google’s massive resources, such as worldwide cloud servers, userbase (Google account and Android smartphone users), browser (Google Chrome), and video-sharing website (YouTube), will enable them to offer a much better gaming experience than other cloud gaming services, which might even threaten existing game console providers such as Sony and Nintendo in the longer run. However, we will not change our five-year earnings forecasts at this point as: 1) we believe both companies will be able to differentiate themselves in the short run; and 2) a detailed business plan has not been disclosed yet.

While we consider that the gaming population has increased significantly over the past decade because of the diffusion of smartphone games and cloud games, existing platform suppliers have retained their user base. Sony has differentiated itself by providing better user experience on hardcore games, and Nintendo has retained fans by leveraging its attractive characters. We acknowledge the huge potential of Stadia platform, but news sources suggest that there is still some latency between the input and the output, which may be critical on playing hardcore games and e-sports. Therefore, at the beginning, we expect that Stadia will be attractive for casual game fans, which may overlap with existing smartphone game players, rather than immediately eroding the user base of existing game consoles. Meanwhile, we will carefully monitor how Stadia may affect existing console providers over the next few years, as the latency will be improved along with the diffusion of 5G, and Google may be able to introduce a different business model to the industry.

We believe Sony and Nintendo can leverage their own game titles to differentiate themselves. From this point of view, while both have attractive first-party titles, we consider Nintendo is less affected by Stadia, as more than 70% of its software revenue is from the first-party games, while Sony is depending more on third-party titles and add-on contents. On the other hand, Sony’s monthly subscription service, PS Plus, has 36.3 million users, which is larger than 8 million of Nintendo Switch Online. We believe that both companies will continue to focus establishing their own ecosystem, in order to prevent users switching to other platforms.