Netflix’s entry into gaming industry- a Trendsetter or a Misstep? | Full Detailed Report

Around a month ago, we all came to know that Netflix is planning to enter the gaming market for creating video games. This led to widespread discussion about whether this step taken by Netflix is a wise decision or is this going to be a decision that would backfire in the future. Today we have decided to delve deeper in this matter in order to try to forecast whether this venture of Netflix is going to be successful or not. So read this article [Netflix’s Entry into Gaming Industry- a Trendsetter or a Misstep? | Onedroit.com] till the end to have proper insight on this topic.

Game Plan of Netflix

Netflix is planning to develop and offer video games within the next year. According to reports, Netflix is currently not planing to charge extra for its gaming content. The company stated in its shareholder letter (which was released before Netflix’s Q2 earnings call) that it will be “primarily focused on games for mobile devices”. This means that the current plan of Netflix is to develop mobile games (which are relatively easier to develop in comparison to PC & Console games). It is currently unclear whether Netflix would provide its games within/via its existing app or would be creating a separate app for all of its games.

Netflix also informed that the games developed by them would be complementary to their Video Entertainment. The streaming gaint has also emphasised on the fact that video entertainment would still be their core of the business. Speaking about the type of games, Netflix has hinted that their games would be both, based on their established IPs as well as consist of original titles.

With Video Games, Netflix plans to lure more people into subscribing to their streaming service as well as to retain them by offering them free to play games regularly. The Chief Product Officer Greg Peters informed during the Q2 Earnings Call that Netflix won’t be emphasizing on advertising or in-app purchase as a form of revenue for their games. Peters stated that “So we’re finding that many game developers really like that concept [the concept of no advertising & in-app purchase in their games] and that focus and this idea of being able to put all of their creative energy into just great gameplay, and not having to worry about those other considerations that they have typically had to trade off with, just making compelling games.”

Reason behind Netflix’s entry into gaming industry

After experiencing good growth of subscribers for years, Netflix is recently witnessing substantial fall in subscriber’s growth rate. Netflix gained 3.98 million new subscribers in the first quarter of 2021, which is much lower than the estimated increase forecast of over 6.25 million subscribers. Due to the slow subscribers growth rate of Netflix, the streaming gaint is looking forward for new ways to attract more people to subscribe to their streaming service. One of the prominent steps taken by Netflix to address their slow subscribers growth rate is to create video games for their susbscribers.

Steps taken by Netflix to enter Video Game Industry

Hired Mike Verdu

Netflix has hired Mike Verdu as the vice president of game development at Netflix. He will be reporting to Chief Operating Officer- Greg Peters. Mike Verdu was previously the gaming executive of Facebook, where he worked for 2 years. He was the vice president of augmented reality and virtual reality content at Facebook. Verdu has also worked for EA, Kabam, Atari & Zynga before joing Facebook. Till date, Mike Verdu has contributed in the creation of many well known games. Some of the popular games, upon which Verdu has worked, are- Death Gate, Unreal II: The Awakening, Command and Conquer, The Lord of the Rings: Battle for Middle-Earth, Medal of Honor: Above and Beyond and Star Wars: Tales from Galaxy’s Edge.

 

Apart from hiring Verdu, Netflix hasn’t done anything concrete in the field of gaming till date. It is currently in the preliminary stage and has to do a lot of work to start creating video games of its own.

Views of Experts on Netflix’s entry into Gaming Industry

The opinions of experts on Netflix’s decision to enter the Video Game segment has been mixed. Some experts are skeptical about Netflix’s decision while others are hopeful with regards to the success of Netflix in the video game industry.

Michael Pachter, a gaming industry analyst, has stated that Netflix is about to enter an already crowded marketplace, where around 40,000 smartphone games are developed every year. With regards to the hire of Mike Verdu as VP of Game Development in Netflix, Pachter said “Netflix hired a coach. They have no players… I say they have a zero probability of pulling this off, because of the technological hurdles.”

Bloomberg Inteligence media analyst, Geetha Ranganathan has stated the following on Netflix’s gaming endeavour:

“This is a natural extension of its Netflix’s content strategy, allowing it to mine intellectual property from popular shows like ‘Stranger Things.’ Though it may not generate much additional revenue, it will help deepen engagement and increase the service’s appeal and pricing power. Don’t expect this to be a turning point, but it shows that the company will explore new formats to increase time spent on the platform.”

Castlevania producer and Indian flim maker- Adi Shankar thinks that Netflix’s entry into gaming industry makes sense. While speaking with IGN India Adi Shankar said “I think this is a logical move… Games add another vertical of value to the Netflix subscriber base. Also, I would never bet against Netflix’s senior management, they are some of the best and brightest people I’ve met.”

Speaking further Shankar acknowledged the risks associated in the gaming industry by saying “Here is the challenge: competition is stiffer in games. Legacy media executives were asleep at the wheel and handed over the keys to their cars to Netflix… I mean this metaphor literally, legacy media executives literally gave Netflix the content that built Netflix’s subscriber base. Games on the other hand are a hit-driven business, the bar for those hits are very high, the dev cycles are long, and game companies are innovative tech companies who are competing more directly with Netflix for eyeballs.” He suggests that “Netflix’s best bet… would be to acquire a few indie developers who can feed their gaming content pipeline.”

Our Thoughts

The experts in the field have mixed reaction on this topic. Some are in favour of Netflix’s step towards gaming while others are skeptical about Netflix’s decision. We here at Onedroit think that Netflix’s decision to enter the gaming industry has both Advantages as well as associated Risks. Lets have a look at some of the major Advantages and Risks that Netflix will be facing if it enters the video game industry:

Advantages

Enlargement of its Subscribers Base

Netflix will be able to increase its subscribers growth rate by a certain extend by offering gamers with quality games. Offering video games will attract gamers to subscribe to Netflix’s streaming plan, hence, games would help Netflix generate more revenue in the long run.

Netflix would benefit more by emphasizing on growing its subscriber base in Asia and Pacific region which have the highest number of potential customers for its services. The large number of smartphone gamers in Asia must be the target of Netflix if it wants to acheive success by creating smartphone games.

Increase in Subscription Fees

The development and distribution of games will help Netflix to eventually increase their subscription fees in the near future. In this way Netflix will be able to sustain its viability in the near future.

Another Source of Revenue

Netflix’s main source of revenue, till date has been its subscription fees. Apart from its subscription fees, Netflix doesn’t have any major revenue source. In recent times, Netflix is looking forward to find new means for generating revenues. Entering the video game industry will provide Netflix with new ways for generating revenue.
During Netflix’s Q2 Earnings Call, Greg Peters confirmed that the company won’t be emphasizing on advertising or in-app purchases as a form of revenue in their games. This means that Netflix is currently not looking forward to monetize their games.

Although, Netflix is currently not interested in generating revenue via its games, it would still have the option to start using them for generating revenue in the future. In this way, the gaming segment can ensure the financial security of Netflix by providing it with an additional source of revenue, if the need ever arises in future.

Upper hand over competitors

Just like Netflix, Amazon is also working on its own game service called Luna. Since, Amazon is one of the biggest competitors of Netflix, it seems quite logical for Netflix to enter the Video game Industry following Amazon’s trail. If Netflix is able to acheive success in the Video Game industry, then it will be able to do what other big companies have tried to do and failed. In this way, Netflix will be able to create more Goodwill for itself, which may eventually increase the trust of its Shareholders in the Company.

Risks

Previous track records of companies in gaming

When it comes to the performance of video entertainment companies in the field of video games, it has not been that good. Many big companies have tried to make a name for themselves in the field of gaming but most of them have failed miserably in doing so. Disney created the Disney Interactive Studios in the 1988 for developing video games. After trying to win the players over, for around 3 decades, Disney ultimately closed its game development studio in 2016, which resulted in the laying off of 700 employees.

Google launched Stadia in 19th November, 2019, but haven’t acheived much of a success in the video game industry till date. The lackluster response of Google Stadia by the gamers resulted in Google closing down 2 of its internal game studios situated in Los Angeles and Montreal, which reportedly affected around 150 developers. Apple’s Arcade has also failed to leave any significant mark on the gaming industry.

For making its name in the field of gaming, Netflix will require a good strategy and would have to avoid repeating mistakes made by all these companies.

Additional Burden on Netflix

Video Game development is at the least as much difficult as making a movie. For creating a video game large amount of time, money and efforts are required. Even, a game developed for smartphones take a lot of time and efforts to create. By entering the video game industry, Netflix is going to add extra burden on itself.

If the streaming company, is planning to start by creating video games for smartphones then it is going to start its new venture with manageable work burden and can slowly grow as a game developing company. On the contrary, if Netflix jumps directly to start developing video games for consoles/PC, then its would be adding huge work load on its shoulders, as creating AAA video game titles requires both big budget and takes many years for development. In such a scenario Netflix might have to struggle to manage both, its ever growing Movies/TV series production as well as meeting all the requirements to develop AAA video games.

Taste of the subscribers

One of the most significant risk Netflix would face if it enters the video game industry is related to the taste and preference of their subscribers with regards to the type of entertainment they prefer. Not all people who like to watch movies and series on Netflix play video games. Similarly a significant portion of people who enjoy playing video games are not interested in watching movies/TV series by purchasing subscription. Only a small portion of people play both video games and enjoy watching OTT content.

In such a scenario if Netflix would try to cater to both the types of people using the same app then it can yield bad results for the streaming giant. To understand this situation, lets give you an example. Suppose that Netflix is a Youtube channel which post Movies & TV Series, and has large subscriber base of people who enjoy watching their content. After sometime Netflix decides to start uploading gameplay videos on their channel. Now this action of Netflix would slowly start to attract people who like to play games, but will also distract people who susbcribed to their channel for movies/series. In such a situation, a number of people who subscribed for movies/series might to unsubscribe the channel.

Although Netflix isn’t a Youtube channel, it works like a big independent Youtube channel which provides video entertainment to its users by taking a monthly subscription fee from them. Hence, if Netflix would be trying to add video games on its existing platform, then chances are that a significant percentage of its subscribers who don’t like to play games, might unsubscribe the video streaming service of Netflix.

We propose that Netflix should develop a separate app for their games, in order to avoid losing subscribers who are not interested in video games. If Netflix is able to manage this risk properly then it is more than likely to emerge as a winner and would taste success in its video game development venture.

Conclusion

Entering the Video game industry is a logical move on behalf of Netflix. It is one of the most viable ways Netflix can maintain its financial security and increase the growth rate of its subscribers. There are a lot of advantages for Netflix if it able to win over the gaming market. That being said, there is no denying that there are a lot of hurdles in the way of Netflix, which it will have to cross successfully for acheiving its aims.

There are various risks that Netflix will have to properly mitigate for becoming a successful game developing/publishing company. We would say that netflix has more than 50% chance of acheiving success in video game industry. Netflix has all the required resources and (with the hire of Mike verdu) expertise to become a successful game company, the only things it requires for success now are- good strategy and acheivable goals.

The strategy and goals are the main factors, which will make the difference for Netflix. Bad strategy and unrealisable goals would result in substantial loss of money, time and efforts for Netflix. On the contrary, if Netflix is able to good strategy and keeps realistic & acheivable goals, then nothing can stop it from acheiving success in the video game industry.

Read More:

Leave a Reply

Your email address will not be published. Required fields are marked *