Why Netflix is moving into gaming
Netflix’s strategy is to develop games based on franchises such as Batman, Lord of the Rings and Spider-Man © Wolfgang Rattay/Reuters
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For years, Netflix has watched as the world’s largest technology companies try to position themselves as the “Netflix of gaming” — and agonised about whether to join them.
Google, Amazon, Microsoft and Sony have all rolled out video game streaming services that use sophisticated cloud technology to bring console-quality video games to any device, just like watching a Netflix show.
“We talked about video games for several years, writing up the pros and cons of the timing of entry,” Reed Hastings, Netflix’s chief executive, said this week.
Hastings, who famously says he likes to make “as few decisions as possible”, has finally decided to push the start button on Netflix’s gaming business. After hiring a former Electronic Arts executive to run its interactive team, the video streaming company announced this week that games would soon be added to its mobile apps as part of customers’ existing subscriptions.
But rather than taking advantage of its streaming technology to go into competition with Google’s Stadia or Microsoft’s xCloud, Netflix’s strategy more closely resembles earlier efforts by Hollywood studios such as Walt Disney and Warner Bros to develop games based on franchises such as Batman, Lord of the Rings and Spider-Man.
“We are in the business of making these amazing worlds and great storylines and incredible characters” in its original movies and TV series, Greg Peters, Netflix’s chief product officer, told investors on this week’s earnings call. “And we know the fans of those stories want to go deeper.”
Viewers of blockbuster shows such as Stranger Things, Money Heist and Black Mirror might be excited by Netflix’s move into gaming but analysts and investors are more divided about the heavily indebted company’s new foray into a vast but intensely competitive part of the entertainment market.
Jesse Plemons in a scene from ‘Black Mirror’ © AP
Despite a carefully choreographed series of announcements about its expansions into retail, podcasts and gaming in the weeks leading up to its earnings report, investors have remained focused on the challenges facing its core business, as economies reopen and streaming competition intensifies.
Sign-ups in North America have ground to a halt in the past six months. From April through June, 430,000 people cancelled their Netflix subscriptions in the US and Canada. Over that same period, HBO Max added 2.4m subscribers, albeit from a much smaller base, while some believe Netflix is reaching saturation point in its largest markets.
After years of heady growth, “middle age appears to be setting in”, said Michael Nathanson, analyst at MoffettNathanson. Its shares have lost 5 per cent this year, while the benchmark S&P 500 gained 16 per cent.
As Netflix looks for new ways to retain its 209m paying subscribers, games could be one way to reduce churn, as Disney, Apple, WarnerMedia, Comcast, Discovery and ViacomCBS all look to lure away its subscribers.
Michael Pachter, analyst at Wedbush Securities, said Netflix also appeared to be using games as a “shiny new object that might distract investors from what we perceive to be [its] slowing growth”.
“Disney tried and failed to start up a games division three times” in the last 20 years, Pachter added. “Very few movies make it as games . . . I don’t see any [Netflix] properties except Stranger Things that would make a good game. Bridgerton? Ozark? Murder Mystery? Puhleeeez.”
Others have struck a more optimistic tone.
Netflix does at least have its own entertainment properties to build on as it pushes into games, said Piers Harding-Rolls, research director of games at Ampere Analysis, unlike Google or Apple.
Compared with the tens of millions of dollars needed to create a blockbuster console game, the stakes are rather lower in mobile gaming, where Netflix has said it plans to focus. Harding-Rolls estimates that a 5-10 per cent increase to its $17bn annual content budget would make a “solid pot for a good number of mobile games”.
Peters said Netflix will look to both develop its own games and license them from others, similar to how it built up its video business over the past decade.
He also sees scope for Netflix to offer games developers and players a better deal through subscriptions. “We don’t have to think about ads. We don’t have to think about in-game purchases or other monetisation,” Peters said.
This is not a new business model for video games. Analysts estimate tens of millions of people subscribe to console-based services such as Xbox Game Pass or PlayStation Plus.
But it is relatively new on mobile devices, where Apple Arcade and Google Play Pass, which each cost $5 a month for unlimited access to a bundle of games, are seen as making slower progress.
Netflix is already “really popular” among gamers, said Karol Severin, analyst at Midia Research. Midia’s surveys show 76 per cent of console gamers and 69 per cent of mobile gamers use Netflix every week, compared to 57 per cent of all consumers.
That “nearly guaranteed engagement” will be a strong lure for developers, he said, alongside the company’s strong record in data-driven user recommendations and content commissioning.
“Entertainment is converging,” Severin said. “Whether you are a video, games, music, sports or a social media proposition, you ultimately compete for the same entertainment time and money.”
Why Doesn’t Netflix Just Hook Up With Stadia?
Netflix has a problem. It’s one of the most popular ways to watch TV and movies on the internet, but watching TV and movies isn’t the only way for people to spend their time. Increasingly, another medium is vying for people’s attention, and increasingly it’s winning:
Video games.
Netflix correctly acknowledged, as far back as 2018, that they aren’t just in the movie and TV business. They’re in the leisure business. When people sit down in their living room to do something with they’re downtime, they’re not just forced to choose between watching the latest Netflix show, or some show on another service. They have a third option that has nothing to do with movies or TV.
Or, as Netflix more succinctly put it: “We compete with (and lose to) Fortnite more than HBO.”
So, it’s no surprise that Netflix (finally) announced that it will start offering video games as part of its subscription. Mike Verdu, formerly of EA and Facebook, will join the company as vice president of game development. A Bloomberg report suggests that the goal will be to create games that will live alongside other shows and movies by next year, but we don’t know for sure yet what that will look like or whether they actually arrive by then.
What we do know is that Netflix has a technical challenge ahead of it. Namely…Netflix isn’t a gaming platform?
The closest Netflix has gotten to offering a “game” is the 2018 special episode of Black Mirror: Bandersnatch. In this title, viewers could use the d-pad on their remote to select one of two choices on screen at certain points of the episode to select a different branching narrative. This was essentially a choose-your-own-adventure style story, which was perhaps made more interesting by the fact that it was also a metanarrative about the branching narrative that the character in the show was also creating.
It was a neat concept, but it would be a stretch to call it a true “video game.” It was more of an interactive storytelling experience, and not one that lends itself very well to many more adaptations. One could conceivably imagine a Stranger Things-themed branching narrative story, but you can’t pull the metanarrative trick again before it gets stale. At that point, all your left with are non-canon, external stories where the viewer might end up with multiple unsatisfying endings trying to “win.” It’s a concept that’s easy to do poorly.
But what else can Netflix do? This branching story was already stretching the extent of what Netflix is capable of doing with the platform it has. There’s no Netflix controller, no console, and as far as we know, Netflix doesn’t have a platform to stream full-bodied AAA video games. Or even smaller indie games! Netflix’s distribution is limited to a number of smart TV and set top box apps, all of which have a fairly standardized directional pad interface, as well as a browser-based web app.
If only there were someone out there who had the ability to stream games to TVs, set top boxes, and computers, and was interested in providing that infrastructure to other compani —
You’re capable of reading headlines, it’s Stadia.
In February of this year, Google announced that it would be shuttering Stadia Games & Entertainment, after only two years of working to develop games internally. Instead, the company said, Stadia would be focused on “work[ing] with partners seeking a gaming solution all built on Stadia’s advanced technical infrastructure and platform tools.”
Which is boring corporate speak for “Our streaming tech works, but we don’t have anything people want to play on it.”
This was always the problem with Stadia. There was a time, not that long ago, that the very idea of streaming video games online was so pie-in-the-sky that it was basically written off as an impossibility. Stadia did not launch to universal fanfare, but an interesting thing happened when it did: virtually overnight, the criteria for success changed from “does it work?” to “does anyone want to play games on it?”
Stadia hasn’t managed to answer that question for most players. While the company has at least managed to get the platform accessible on devices like the latest Chromecast with Google TV (a bit late, frankly) it doesn’t have much in the way of unique games that would draw people to play on Stadia instead of a PS5, Xbox Series X|S, Nintendo Switch, their phone, their laptop, or any of the other many ways to play games.
But the tech works. And that’s no small achievement. Offering 4K game streaming has been out of reach for competing services like Xbox’s cloud streaming, and Google is famous for excelling at cloud infrastructure. Even if Stadia as a dedicated console aimed directly at gamers doesn’t catch on, the underlying technology is unlikely to go anywhere.
Even Google recognizes that it makes sense to sell this tech to third-parties. Meanwhile, Netflix needs a way to deliver games to customers who, so far, have only a d-pad and whatever crummy Netflix wrapper came on their Vizio TV or whathaveyou.
A partnership between Netflix and Stadia could offer Netflix the opportunity to develop its own games on a fully-featured console platform, but embed those games within the Netflix app in a way that consumers would never even know they’re using Stadia.
People who watch Netflix on their computers could use their mouse and keyboard to control those games without any real changes to how they interact with the service. It may even be possible to let customers use their existing Stadia or (much more likely) Xbox/PlayStation controllers when paired with certain set top boxes.
There would undoubtedly be hardware limitations, and not every Netflix customer would have the option of playing every game, but that’s a hurdle Netflix will have to get over anyway. And Stadia’s already been working on tackling these problems for years now.
It’s not a guaranteed win, but a partnership between these two companies would at least let them fill the gaps in each other’s product lines. Netflix needs games as part of its library, so it doesn’t keep losing customers to Fortnite, and Stadia could really use the reach of a 200+ million subscriber platform to prove that game streaming really is worthwhile.
The alternative for Netflix is that it stays content with pouring money into the content tube, while trying desperately to resist copying HBO and Disney’s move to more slowly dole out content in order to retain subscribers, which probably wouldn’t go over very well with Netflix’s current binge-happy customers.
And the alternative for Stadia is, well, more dire than that.
Google slashes Stadia’s revenue share to try to attract developers
A 15 percent cut of sales up to $3 million
Google is revising how much of a cut it takes from Stadia games in a bid to try to attract more developers. Starting on October 1st, Google will take 15 percent of sales up to $3 million through the end of 2023.
With the change, Google seems to be trying to make its cloud gaming platform a more enticing option for developers — a proposition that has likely become much harder since the company shut down its own in-house studios. Google has also tried offering exclusive games to try to bring developers on board (which it presumably paid hefty sums to acquire), but many of those games have since been released on other platforms.
The news comes as revenue shares between developers and platform holders have come under intense scrutiny as of late. Google’s change with Stadia isn’t the first it’s made recently for its stores: the company reduced its Play Store cut to 15 percent for a developer’s first $1 million in annual revenue in March. That move followed a similar one from Apple in November, which announced that developers who earn less than $1 million per year on the App Store would qualify for a program where Apple would take a 15 percent cut of their revenues instead of the standard 30 percent fee.
Tuesday’s news was announced at the Google for Games Developer Summit. As part of the event, on Monday, Google announced that Android 12 will let you play games as you’re downloading them
.