Cloud gaming isn't as good as people think, physical consoles will still be the winner

Daniel Loeb, founder of the Third Point hedge fund and a senior investor, recently published a report analyzing the current gaming industry and future trends. Part of the purpose of this report is to convince Sony to split into companies according to their business, but it also contains many insights. He insists that cloud gaming is not as good as people think.

The report seemed to cater to shareholders' tastes and called for Sony to reorganize the company. He called Sony "the most undervalued high-value company in the world." He suggested that Sony focus entirely on the entertainment sector, reduce investment in TV and camera businesses, and focus on investing in entertainment media such as games, music, movies, and TV series.

The report noted that Sony's PlayStation division accounts for a major portion of Sony Entertainment's overall revenue, and that gaming will continue to be successful.

The report also explains why the "threat" of cloud streaming services to traditional game consoles is actually not a big concern. He cited the competition between Google Stadia and Microsoft xCloud, revealing their shortcomings.

Here are the key takeaways from the report:

- Recent academic studies have shown that when players encounter high input delay, the "fun" and "feedback" of playing games are lower, and the time value of input delay is linearly proportional to the negative impact.

- In a recent consumer survey, only 10% of non-gamers said hardware costs were the main reason they didn’t play console or PC games.

- He used a chart to illustrate that comparing cloud gaming to Netflix is ​​actually very superficial:

Netflix vs. traditional cable TV:

Key Indicators Traditional Cable TV Netflix

Monthly Price: $10 for $100

Average daily viewing time 4.5 hours 2.0 hours

Price per hour $0.74 $0.17

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Consumption mode carousel on demand

Cloud gaming versus traditional console gaming:

Key Indicators Console Games Cloud Games

Monthly hardware cost $11.67 ?

Each game costs $60?

Better experience quality Poor

Input delay 70ms 200ms

Huge game library?

- Cloud gaming is different from Netflix. The quality of cloud gaming is actually inferior to existing console games.

- The price and game library of cloud games are currently uncertain, but there will not be a huge difference in cost performance.

- The price of console games is actually affordable enough for many consumers.

Leob also evaluated and analyzed the main competitors in the current game market and listed six major competitors.

- The most advantageous model should be a hybrid of physical host + streaming service.

- Sony has an advantage in most evaluation indicators.

- Google's challenger status lacks developer relationships, must-play games, and no installed base.

It should be pointed out that in March this year, when Google announced Stadia, Sony's stock price fell. At this time, Third Point Fund immediately took action to buy at the bottom. Obviously, Third Point is full of confidence in Sony's future.

Sony acknowledged Loeb's explosive report but declined to comment on the company's restructuring.