Amazon is developing a service for streaming videogames over the internet, joining Microsoft, Google and other companies that are building similar offerings in what could be an important new battleground in online entertainment, two people briefed on the plans said.  

Streaming services represent a potentially significant shift in the games business by, in some cases, eliminating the need for players to purchase expensive hardware, such as consoles or PCs, to run the most elaborate titles. Instead, the games run on powerful computers inside data centers, allowing people to play them on devices with less processing muscle, including smartphones, tablets and smart televisions. Amazon has begun talking to games publishers about distributing their titles through its service, which isn’t likely to be launched until next year at the earliest, said one of the people briefed on the plans.

The Takeaway
• Amazon is developing a service for streaming games over the internet
• The service is unlikely to launch before 2020
• Hulu founding CEO Jason Kilar nearly rejoined Amazon as games exec

The new service comes as Amazon is seeking to strengthen its games division, which has so far failed to make much of a dent in the industry. Last fall, around the time it reorganized the division, Amazon announced internally to staff that Jason Kilar, a former senior Amazon executive and founding CEO of Hulu, would be rejoining the company, said two people briefed on the announcement.

Mr. Kilar didn’t end up coming back to Amazon for reasons that aren’t clear. Mr. Kilar's decision not to join the company was a matter of "personal circumstances," said a person close to Amazon. Mr. Kilar didn’t respond to a request for comment.

Amazon, Microsoft and Google are in especially strong positions to offer game streaming services because they are the three most important providers of cloud computing services, with data centers around the world. With its Amazon Web Services unit, Amazon is by far the leader in the sector, with a 32% share of the cloud services market in the third quarter of last year, compared with 17% for Microsoft and 8% for Google, according to Canalys, a research firm.  

While game streaming has fascinated the industry for years—and some services, including Sony’s PlayStation Now, have actually launched—the services haven’t taken off, in part because top games publishers have been reluctant to allow their latest big-budget titles to be distributed over the services. Instead, the services tend to have older games.

Particularly worrisome to publishers is that some streaming services are seeking to emulate Netflix’s business by charging players a flat subscription fee for unlimited access to games. Some publishers view that as a threat to their business models, which still rely heavily on the sale of $50 to $60 games, whether on physical discs or as digital downloads. One game industry executive said his company’s participation in Amazon’s new service would depend on the financial terms the internet company eventually offers, adding that he would be open to selling titles a la carte, but not as part of a subscription service.

“There are a lot of business model issues to be worked out, such as what are consumers willing to pay for,” said David Cole, an analyst at DFC Intelligence, a game industry research firm. “Many consumers are used to paying $60 for a game disk they install on their system. Getting them to also pay for a subscription service is a huge challenge. Why do you need a subscription service to play games that you can get other ways?”

Still, there is growing interest in game streaming because of the possibility that such services could help expand the audience for the most high-fidelity games by extending them to a vast array of devices. While some game streaming services, such as Sony’s PlayStation Now, still require consoles and PCs to access them, Microsoft last year announced it is working on a service, dubbed Project xCloud, that will allow people to play Xbox console games on mobile devices.

In a video demonstrating the service, Microsoft showed a person playing one game on a smartphone through a wireless Xbox controller. Most of the games played on mobile devices today must be designed specifically for those devices and downloaded to them. While the mobile games business has become huge in its own right, hardcore console and PC games tend to be longer, with better graphics and more immersive storylines.   

'Many consumers are used to paying $60 for a game disk they install on their system,' said David Cole, an analyst at DFC Intelligence, a game industry research firm. 'Getting them to also pay for a subscription service is a huge challenge.'

Similarly, Google last October announced a preview of a game streaming service called Project Stream which runs on PCs and Chromebooks. (The Information reported on the Google streaming service in February). Also in October, the games publisher Electronic Arts announced a new online game development platform and streaming service called Project Atlas, saying that it has 1,000 employees working on the effort.

Startups like OnLive and Gaikai, which Sony acquired, began demonstrating early game streaming services years ago. The chip maker Nvidia also is testing a game streaming service.

One reason game streaming is heating up is that some of the technical obstacles to it are being overcome. Streaming games is more challenging than for music and video because data is constantly being transmitted back and forth to cloud servers that host games. Now, though, internet speeds have reached the point where network delays that can spoil the experience of playing games online are far less of a stumbling block than they used to be.

"The cloud game streaming user experience is getting better every year as video compression, cloud GPUs, cloud latency and home internet quality improves," said Patrick Moorhead, a tech industry analyst. "I believe we are finally at a point where companies can deliver a decent experience for more users."

Amazon’s collection of games businesses is overseen by Andy Jassy, CEO of Amazon Web Services. The company has a motley collection of game initiatives, including a studio developing its own games, development tools for other game developers and Twitch, a video streaming service that has been especially popular for broadcasting online game matches.  

Amazon’s status as the leading online retailer could give it a further advantage in launching a game streaming service. It also makes an array of devices that already can be used to play downloadable games, including its Fire TV set top box and Fire tablets, and could be used to play a streaming service.

—Priya Anand and Nick Wingfield contributed to this article.

Jessica Toonkel is a New York-based reporter for The Information covering media and how the industry is being disrupted by technology. Before that, she spent seven years at Reuters covering a range of topics including media, mergers and acquisitions and financial services. She can be found on Twitter @jtoonkel.
Kevin McLaughlin has been a reporter at The Information since 2016, covering cloud computing, enterprise software and artificial intelligence. He is based in San Francisco and you can find him on Twitter @ KevKubernetes.
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