(Bloomberg) -- Sony Corp. and Nintendo Co. shares slid after Alphabet Inc.’s Google outlined a major push into video games with a streaming service called Stadia.
Nintendo dropped as much as 4.6 percent and Sony declined 4.5 percent Wednesday, the biggest intraday drop for both stocks in six weeks. Stadia lets developers put games on a streaming platform that will allow players to access the action through the web, skipping expensive consoles or personal computers, Google announced at the Game Developers Conference in San Francisco.
The game industry’s business model of creating a hardware platform, such as Sony’s PlayStation and Nintendo’s Switch, and then charging publishers for the right to access it has come under pressure in recent years. That’s happened as many casual gamers turn to free-to-play mobile titles.
“There is no doubt this service makes life even more difficult for established platforms,” Amir Anvarzadeh, a market strategist at Asymmetric Advisors Pte, said in a note to clients. “Google will help further fragment the gaming market which is already coming under pressure by big games which have adopted the mobile gaming business model of giving the titles away for free in hope of generating in-game content sales.”
The Japanese companies have responded by creating subscription services and offering content other than games, but Google’s push into the $180 billion industry threatens the longstanding hardware model. The search giant however not only has to provide a smooth lag-free experience, it must also convince publishers to bring their marquee titles.
Sony has already rolled out its own streaming service PlayStation Now, which was released in 2014. But its streaming technology and limited investment in data centers has held back the service, with some users complaining about lag times. Asumi Maeda, a spokeswoman for Sony Interactive Entertainment, said “the game industry heating up is something that should make players happy.” A Nintendo spokesman declined to comment.
“Technology should adapt to people, not the other way around,” Google Chief Executive Officer Sundar Pichai said at the event. “We are dead serious about making technology accessible for everyone.”
Google wouldn’t say how much it will charge users, or whether it will be funded through advertising like most of its other businesses. The service will launch later this year, the company said, without announcing partnerships with the top-tier game developers.
Stadia runs through the company’s YouTube video-streaming platform and takes advantage of Google’s extensive network of data centers. With its presentation, Google drove home the point that its technical tools alone would make the future of gaming services work. It repeatedly mentioned the advantage of its cloud-computing power and YouTube, suggesting the service is designed to bring more users to those units -- two areas where investors are looking for sales growth beyond advertising.
“This is only the start,” said Karol Severin, co-founder of MIDiA Research. “The tech majors Microsoft, Google and Amazon will be the real winners creating synergies with their existing entertainment ecosystems and leveraging cloud infrastructure and high content budgets.”
(Updates with analysts’ comments from fourth paragraph.)
--With assistance from Gerrit De Vynck and Mark Bergen.
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