'Apple will be next:' Google's big plan to upend the video game industry could be a 'preemptive strike' against Apple, analyst says (AAPL)

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Analysts believe gaming could be Apple's next big push into services following its expected video streaming announcement on Monday.
Now that Google has unveiled its Stadia gaming platform, Apple is one of the few major tech companies without a significant stake in the gaming market.
One analyst believes Apple's video service could set the stage for a push into gaming.

Just days before Apple is expected to introduce a dramatic shift in its digital entertainment strategy, Google made a splashy announcement of its own: a new video game platform called Stadia. It represents a major leap for Google into an industry that’s expected to be worth $174 billion by 2021 — and Apple likely isn’t far behind, according to analysts.

“We believe Apple will be next,” Daniel Ives, managing director of equity research at Wedbush Securities, told Business Insider when asked about Apple’s potential in the video game market. “It’s really the early innings of what could be a massive next-generation growth opportunity as more gaming moves to the cloud and streaming.”

With or without Google’s Stadia launch, the pressure has long been on Apple to delve into the gaming market. That’s because gaming could serve as an important building block in Apple’s overall services strategy moving forward, according to Gene Munster, managing partner at Loup Ventures and a longtime Apple analyst. Revenue from services like Apple Music and the App Store is more important than ever for the company as it seeks to offset slowing iPhone sales.

The company is expected to further fuel its fast-growing services business through the debut of two new products on March 25: a video-streaming subscription offering and a subscription news service, the former of which could set the stage for Apple’s gaming ambitions according to Ives. “We believe gaming is front and center,” he said, adding that if Apple were to launch its own gaming service it could attract tens of millions of subscribers in the next three years. Google's Stadia launch could have been a "preemptive strike" against Apple's plans to get into the gaming market, Ives said.

The notion that Apple could be getting into gaming surfaced in January when Cheddar reported that Apple is developing a video game subscription service that would allow access to a bundle of titles for one price. Apple is in the early stages of development according to the report, and is said to have been discussing the concept with developers since the second half of 2018.

Google’s decision to launch Stadia leaves Apple as one of the few large tech companies without a major stake in the gaming market, which games and esports analytics firm Newzoo estimates will jump from being worth $134.9 billion in 2018 to $174 billion in 2021. Microsoft and Sony have long dominated the console space, and Facebook entered the gaming industry in more recent years through its Oculus headsets. Amazon also acquired Twitch in 2014, the video game viewing platform that has made new age celebrities out of gamers like Tyler Blevins, better known as Ninja, who stream their gameplay sessions of games like "Fortnite" to tens of thousands of viewers.

A gaming service is not expected to be announced at Apple’s upcoming event, according to multiple reports from Bloomberg and The Wall Street Journal among other outlets. But Ives predicts Apple could leave “breadcrumbs” about a gaming service on Monday by hinting that there are more announcements in store over the coming months. Munster, meanwhile, believes Apple could announce a gaming service in the fall when it traditionally unveils its new iPhone models.

If Apple does decide to dive more deeply into the video game market, it would have an edge in its hardware business, which has yielded an installed base of 1.4 billion devices. A push into gaming would give the company another means of generating revenue from the billions of Apple devices already in use. And since Apple manages the hardware experience, the software that runs on its devices, and the App Store that its customers download games and apps from, it’s in a unique position to best optimize its devices for gaming down the road, says Munster.

That’s unlike Google’s Android operating system, which powers devices made by many different electronics manufacturers from around the globe. “I don’t know what the exact linkage between those three is, but it is an inherent advantage to have all three of them together,” Munster said.

Apple may not be a major console platform holder like Microsoft and Sony, but the iPhone did play a pivotal role in the rise of mobile gaming. Still, Munster believes Apple would target avid gamers that are interested in more than just casual games like “Candy Crush” and “Angry Birds” with a new service. Although Apple has an advantage in the iPhone, Google’s Stadia is better positioned to cater to players that want to watch games and stream their gameplay to broad audiences thanks to YouTube. “[Apple and Google] each bring something a little bit different, but with the same end goal,” said Munster.

Advancements in cloud-computing technology combined with the meteoric rise of Epic Games’ "Fortnite" — which can be played on smartphones, consoles, and computers — makes this an ideal time for newer entrants like Google (and perhaps Apple eventually) to compete against established console platform holders Microsoft and Sony. Ives referred to "Fortnite" as the “silver bullet” that pushed the market toward cloud gaming and streaming. “It’s kind of disenfranchised the whole gaming world,” he said.

Of course, Apple’s rumored gaming service wouldn’t be able to thrive without games. To that end, Ives believes the company will acquire game publishers in an effort to get content onto its platform. That aligns with comments that J.P. Morgan’s Samik Chatterjee made earlier this year in a note obtained by MarketWatch, in which he wrote that investors are hopeful that Apple will explore acquisitions to boost its services. “We believe the video gaming industry stands out to us as a potential sector of interest for Apple, particularly given the industry is rapidly transitioning to mobile,” he wrote. Chatterjee also previously suggested Activision Blizzard could be an ideal acquisition target for Apple.

But ultimately Apple’s success in the gaming market will depend on the company’s commitment to the product and the approach it takes in broadening its streaming offerings beyond video, according to Ive. “I think it’s been their Achilles heel,” he said. “They’ve waited too long and they’ve put one toe in the water instead of jumping into the lake.”

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