Netflix continues to play games; Spoiler alert: it’s gonna win

netflix ( NFLX -2.60% ) isn’t just acquiring filmed content these days. The main premium streaming service also brings together game companies, and it probably won’t be long before investors see all the pieces come together.

The company turned heads last summer when it hired video game director Mike Verdu to lead its new effort to bring new distractions to its subscribers. It didn’t take long for Verdu to get going. In November, Netflix officially entered the mobile games market, and by the end of 2021, it had 10 different apps based on its properties available for Android and iOS devices.

Netflix is ​​just getting started. This month alone, it has now acquired two small developers. He kicked off March by announcing the purchase of Finnish mobile game maker Next Games. This week it revealed it was snapping up Boss Media Entertainment, the company behind the popular strategy role-playing game. Dungeon Boss. Why is Netflix getting into the game when it serves the filmed content streaming market so well? It’s a smarter move than you probably think, but let’s play this development.

Image source: Getty Images.

Like a boss

It’s become pretty clear that Netflix is ​​the kingmaker for content, and it’s only natural that it finds new ways to cash in on blockbuster properties. It’s not really a bet for now. He focused on small developers with thin but high-quality portfolios that he can acquire cheaply. You don’t have to guess the endgame for Netflix. Just check out the last paragraph of Thursday’s official blog entry announcing the acquisition of Boss Media Entertainment: “We’re still in the early days of creating great gaming experiences as part of your Netflix subscription. Through partnerships with developers around the world, we hire the best talent, and acquisitions like this, we hope to build a world-class games studio capable of bringing a wide variety of delicious and deeply engaging original games. – without ads or in-app purchases – to our hundreds of millions of members around the world.”

The first sentence confirms what Netflix has been saying for the past few months. This isn’t a new direct revenue stream, as Netflix plans to include these gaming experiences as part of its Netflix membership. He acquires the talent that can create games based on his hit shows that lend themselves to gameplay – think squid game or stranger things — so it hires these developers primarily for their abilities to make games rather than the value of their existing content libraries.

It’s important to point out that these games will have “no ads or in-app purchases”. When Netflix announced the acquisition of Next Games, it mentioned that 95% of the mobile game developer’s revenue comes from in-app purchases. Many gaming apps fall under Next Games’ “freemium” model, where they offer games for free and then monetize them by purchasing in-app virtual goodies that enhance gameplay. Netflix wants none of that, just as it has resisted ads on the platform’s video streams as many of its smaller rivals have used them to offer customers a lower-cost subscription option.

Netflix isn’t playing that game. It’d rather raise prices — including an 11% price increase for domestic users earlier this year — than let its subscribers watch ads. It’s hard to argue with logic. Netflix expects to have over 224.3 million streaming subscribers worldwide for the current quarter which ends next week.

The majority of those subscribers probably don’t care about mobile games, but this is a game to increase retention rates for those who play, as well as to make its platform more appealing to younger audiences who launches into digital diversions. It may even spawn new players. You may not like casual games, but if you are a fan of ozark or Bridgerton Don’t you think you would have entertained at least a free app download of a game that takes you deeper into the cinematic experience with characters you already know and care about?

Netflix knows exactly what it’s doing. It spends more on content than any other platform and has more years of consumer data than anyone else. Just because no one else is adding mobile diversions based on their hit shows and movies doesn’t mean Netflix is ​​fighting an uphill battle as a trailblazer. As a class player among streaming service stocks, it knows exactly what it stands to gain here in terms of attracting and retaining its premium-priced platform. He’s playing with you, but only because he already knows he’s going to win.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end consulting service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.

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