Netflix must do this to succeed in video games

Growing competition in the streaming market has led several companies to diversify their offerings. netflix (NFLX -1.54%) did so by switching to games with the launch of Netflix Games in November 2021.

While Netflix is ​​taking a step in the right direction by offering additional services, the company may have bitten off more than it can chew with its games service. Here’s what Netflix needs to succeed in the incredibly competitive world of gaming.

Name recognition is key

Netflix announced that it lost 200,000 subscribers in the first quarter of 2022. The disappointment led to a complete shift in corporate priorities, resulting in content cancellations, a recently announced ad-supported tier, and a greater focus on games. The latter allowed Netflix to acquire three game developers in less than a year: Boss Fight Entertainment, Night School and Next Games. The production of these studios varies widely, from popular mobile games to acclaimed indie titles to ties to familiar franchises such as The Walking Dead.

Netflix head of external games Leanne Loombe told the Tribeca Film Festival on June 13 that the company is “intentionally keeping things a little quiet [about Netflix Games] because we’re still learning and experimenting.” Loombe added that Netflix wants to “make sure games are a really valuable part of our members’ subscription.”

So far, Netflix offers 23 games. titles such as Queen’s Gambit Chess and Stranger Things 1984 Netflix show is trying to entice gamers with links to its popular content. However, this method assumes that fans of these series are also at least partially interested in the games.

Meanwhile, the streaming rival Apple (AAPL -0.50%) has steadily increased its service business, introducing Apple Arcade in September 2019 and also allowing consumers to use the gaming service ad-free alongside other offerings such as Apple TV+.

Rather than focusing its gaming content on its streaming originals like Netflix, Apple went straight to the source by bringing subscribers mobile titles from popular gaming brands. Apple Arcade currently offers games from well-known franchises such as Lego, PAC MAN, Sonic, mom who cooks, and more. Apple’s approach increases the chances that its gamers will already be fans of the games, increasing the chances of subscriber retention. The approach appears to be paying off: JP Morgan has estimated that by 2025, Apple Arcade will see revenue grow 14% to $1.2 billion per year.

The stranger things games

Gaming is a notoriously difficult and competitive industry to break into. If Netflix Games is going to help attract and retain subscribers, Netflix will have to deliver hit games to the level of its mega-popular series. stranger thingswhich scored a record 286.79 million viewing hours in the first weekend of its final season.

Microsoft (MSFT -1.68%) launched its Xbox Game Pass subscription gaming service in 2017, which has become an industry model for gaming subscription services, grossing more than $3 billion a year. It’s home to several Xbox exclusives, with one of its biggest draws being the Halo series. By buying from popular developers such as Ancient Scrolls and To fall Developer Bethesda Softworks, Microsoft has given Game Pass subscribers access to a library of major franchises for the low price of $9.99/month.

Netflix built streaming from the ground up and has experience breaking down barriers. It’s possible the company has a foolproof strategy for its gaming venture. But while Netflix was the first to stream, it’s now trying to break into a well-established, decades-old industry filled with fierce competitors. .

Previous companies with even more financial firepower have tried and failed. Google (GOOGL -5.74%)whose parent company is 18 times larger than Netflix, launched its subscription-based cloud gaming service, Stadia, in November 2019. That same month, Stadia captured just 2.4% of the player base for Destiny 2, one of the biggest and most played games on consoles and PC. Stadia’s share then fell to 0.08% in 2022, as the company struggled to compete with established companies like Microsoft and Sony. Netflix Games will have to convince subscribers that its platform is worth choosing over its competitors.

The Future of Netflix Games

Game-to-movie adaptations are a current trend on almost every streaming platform. Netflix previously had success with its adapted series the witcher and announced several other television game adaptations in development based on resident Evil, Assassin’s Creedand cyberpunk.

If Netflix can work with the studios behind these games to tie the release of an adapted series to a mobile game within the same franchise, the company would be in a better position to connect Netflix Games with the kind of diehard gamers who are more likely to stay subscribed for the long term.

Streaming service investors should keep an eye out for future acquisitions of game developers by Netflix. Studios home to popular game franchises are worth their weight in gold to Netflix because the company can use their intellectual property to attract more players and subscribers.

Fool contributor Dani Cook does not hold a position in any of the stocks mentioned. Suzanne Frey, an executive at Alphabet, is a board member of The Motley Fool. The Motley Fool has positions and recommends Alphabet (A shares), Alphabet (C shares), Apple, Microsoft and Netflix. The Motley Fool recommends the following options: $120 long calls in March 2023 on Apple and short calls $130 in March 2023 on Apple. The Motley Fool has a disclosure policy.

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