Cloud gaming services are facing challenges as their business models get off the ground. Analysts expect new entrant GeForce NOW to have a unique set of obstacles to overcome.

GeForce NOW, from chipmaker NVIDIA Corp., launched Feb. 4 after a long-running beta phase that started in 2017. The service does not function like Google LLC's Stadia, which sells games directly to users, or Sony Corp.'s PlayStation Now and Microsoft Corp.'s Project xCloud, which provide à la carte access to a library of games. Instead, GeForce NOW allows users to stream games they have already purchased from third-party storefronts, such as Valve Corp.'s Steam and Epic Games Inc.'s Epic Games Store.

However, since the launch of its live version — which includes a free tier with hour-long gameplay sessions and a "Founders" tier that costs $4.99 per month for priority access and four-hour sessions — many large publishers, including Activision Blizzard Inc. and Take-Two Interactive Software Inc., started pulling their entire catalogs off the service.

NVIDIA declined to comment on the recent exits of those publishers, instead pointing to a company blog post from late February that warned users about some publishers potentially removing their games from the service before the trial period ended.

"Ultimately, they maintain control over their content and decide whether the game you purchase includes streaming on GeForce NOW," the company said. "Others will bring games back as they continue to realize GeForce NOW's value."

Michael Goodman, director of digital media strategies at Strategy Analytics, said NVIDIA likely assumed they would not have to sign deals with publishers because GeForce NOW users were streaming games they had already purchased. But the company learned quickly that was not the case.

"No content owner is going to allow a service to make money off their content without proper licensing deals in place," Goodman said. "There have been a couple of attempts before in the music and film industries, but they never panned out because, in the end, the content owner always wins."

That dependence on popular content could allow publishers like Activision and Take-Two to "drive a hard bargain" when setting pricing for licensing deals, said Neil Barbour, an analyst at Kagan, a research unit of S&P Global Market Intelligence.

"The emergence of cloud gaming is an opportunity for publishers to establish a more favorable revenue split for themselves," said Barbour, noting that storefront Steam, for example, keeps around 30% of software revenue from game sales.

But Ian Hughes, a senior analyst at S&P Global Market Intelligence's 451 Research unit, said publishers would rather maintain direct control over cloud streaming initiatives, rather than "ceding control to a third party."

"They want players to log in to their own servers and use their own services instead of something like NVIDIA's," Hughes said.

Several major game publishers that do not have games on GeForce NOW, including Electronic Arts Inc., Activision and Bethesda Softworks LLC, are all reportedly working on their own cloud streaming initiatives. Analysts noted that these new services could also further pressure Google's Stadia, which launched in late 2019 and is already struggling with a lackluster library.

"Although Stadia's current library does contain titles from a wide range of publishers, the fact that the service barely managed to scrape past the 30 games [mark] this year makes it clear that it is a far cry from what Google was aiming for," Goodman said.

Another major hurdle plaguing all cloud gaming services is the state of broadband infrastructure, Hughes said. He noted that even though the tech behind Stadia and other services has proven that cloud gaming is entirely possible, it will be a while before the services' performance is strong enough to appeal to the masses.

"We have the potential of reaching that stage of mass adoption in the next four to five years when 5G becomes more prevalent and possibly replaces fixed broadband," Hughes said, referring to next-generation wireless technology that promises speeds many times faster than the current 4G LTE wireless networks. "Until then, most people will simply not get much of a playable experience on their existing broadband connections."