It seems only one thing isn’t changing in the gaming industry — disruption. “Companies… know they need to evolve,” ran across the top of EY’s gaming survey this week. 

Constant disruption is sparking growth and consolidation, with cloud-based streaming becoming the standard over consoles and other hardware, the survey of gaming industry CEOs concluded. Two out of three respondents expected M&A to increase in the next five years as part of a scramble for talent.

Similar to people switching to Netflix or Hulu from buying DVDs at Best Buy or Walmart, players are moving to cloud gaming instead of buying video games at retailers like GameStop. The inevitable expansion of 5G internet will further that trend by enabling games to be stored on remote servers and streamed to players on demand.

“As competition continues to intensify, cloud-based streaming is poised to be the next major video gaming disruptor.”

Sales of consoles, components and hardware are mostly unchanged as a result of the switch. U.S. consumers’ spending on video game products was $9.1 billion in the third quarter, only a 1% increase from a year earlier, according to NPD Group’s recent survey. 

“As competition continues to intensify, cloud-based streaming is poised to be the next major video gaming disruptor,” said Scott Porter, partner of advisory services for EY, in a statement. “The advent of cloud gaming, especially when combined with the rollout of technologies such as 5G, represents more than just an opportunity for the industry – it’s a strategic imperative.”

Several tech giants have already moved into gaming industry. While Google’s cloud gaming service Stadia got underwhelming reviews, Microsoft’s xCloud and Apple’s Arcade subscription service have been well received. 

Smaller cloud gaming companies are staying comfortably in the private sector. PitchBook identifies 37 companies working in the field, which received $68 million in private investments so far this year, almost three-fold of five years ago. Most of these companies received funding from venture capital, compared to only six mergers and acquisitions and only one IPO, according to PitchBook Data. 

  • The most active cloud gaming investors are Intel’s investing arm Intel Capital, with five deals in the past 10 years, and San Francisco-based VC firm Benchmark, with three. Paris-based Thai businessman Nopporn Suppipat is the most prominent cloud gaming angel investor, according to PitchBook.
  • Led by Serena Capital, Paris-based company Blade received $37 million in early stage funding last month, according to PitchBook data, bringing its total raised to $109 million. Super League Gaming went public on the Nasdaq in February after raising $31 million in private, and the stock has dropped about 80% since then. 
  • “Following a decade of jackpot earnings, growth is set to be slower at a time when companies face rising risk, escalating content costs and new, disruptive business models,” said John Harrison, EY’s global media and entertainment sector leader, in a statement. “Executives are therefore feeling the pressure to evolve and find game-changing opportunities that will set them apart from the competition.”