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Why Netflix’s push into video games doesn’t make sense

The announcement that Netflix will begin offering video games on its streaming service is rife with red flags.

Why Netflix’s push into video games doesn’t make sense
[Photo: Glenn Carstens-Peters/Unsplash]
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With subscriber growth hitting headwinds in 2021 after a COVID-19-led surge in 2020, Netflix recently made a splashy announcement that it was hiring a gaming executive, Oculus and EA alumnus Mike Verdu, to build up the company’s newly minted interactive division. Reports soon followed that Netflix would start offering video games on the service within a year. Details are sparse at this point, but the assumption is that Netflix will create games around popular Netflix franchises—think Stranger Things—as a way to “enhance and deepen member engagement,” as a job listing recently put it. 

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The move isn’t all that surprising. There have been rumblings about Netflix looking to hire a top gaming exec within the gaming industry for a year now, and Netflix cofounder and co-CEO Reed Hastings has referenced Fortnite as one of Netflix’s biggest competitors. But it is audacious for a company that has been so disciplined about refraining from sideline businesses, instead keeping its focus on doing just one thing really well: offering movies and TV shows to stream.

That single-mindedness seems to be weakening, however, as the streaming wars rage on: Amazon Prime is now head-to-head with Netflix when it comes to subscribers, with over 200 million worldwide, and it potentially just boosted its content library with the purchase of MGM for $8.5 billion (if regulators permit it). Apple TV Plus is still playing subscriber catch up, but it’s gaining critical acclaim with shows like Ted Lasso, which just scored 20 Emmy nominations, including Outstanding Comedy Series. HBO Max and Disney Plus, meanwhile, are loading up with tentpole offerings, such as, respectively, Space Jam: A New Legacy and Black Widow, from their parent companies.

With pressure from all sides, and an unspectacular outlook ahead as COVID-19 (potentially) begins to subside—in advance of Netflix reporting second-quarter earnings after the market close on July 20, the company projected that it would add just 1 million subscribers in the quarter—Netflix is looking for new ways to boost subscribers, its one and only revenue stream, and justify future price hikes. 

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But venturing into games has many observers scratching their heads, given the technical and financial challenges of the games industry. “When I say it’s impossible and Netflix is going to fail miserably, I’m not saying that because I’m a Netflix hater,” says Wedbush Securities analyst Michael Pachter. “I’m saying it because to me this is like Starbucks saying, ‘We’ve decided to get into the FedEx business because people come to our store already. They can pick up their package when they get their coffee.’ It’s like, ‘Are you crazy? Why do you think you can do that?‘” 

Pachter pointed out the cost of building up a games business, recalling how Disney abruptly shut down its Infinity gaming division in 2013, even after it had generated $1 billion in revenue. “They couldn’t make any money,” Pachter says. “Their games were awesome, but they couldn’t scale it. Their overhead was so great, the cost of games was so great, even with a billion dollars in revenue.”

Google, meanwhile, has been struggling with its game-streaming service, Stadia, which has failed to meet growth targets. 

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Netflix has said its games will be available to subscribers on its platform, alongside TV and movie offerings. But questions abound: How would people play them? With a remote? That would limit actions to up, down, left, and right. So perhaps Netflix would produce a controller and get it to its 200 million subscribers. But that would mean creating one that’s compatible with multiple smart TV platforms. 

Furthermore, “Netflix doesn’t own any console platforms,” one insider remarked. “They also don’t own mobile distribution. More than 70% of mobile game distribution is on iPhones, so they’d have to go through the app store, and Apple would take 30%.”

This person said Netflix’s news felt more like an announcement than anything else. “If they were really serious, they would have announced a big acquisition”—of a gaming studio or publisher—a strategy the company has pursued on the entertainment front, making enormous deals with showrunners; or its one acquisition in its history, buying the comic-book company Millarworld. “Something that would get them either distribution or content. Hiring people doesn’t feel serious.” 

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Yet even if all technical questions are eventually answered, just how potent is Netflix’s content from a gaming perspective? Beyond Stranger Things, the company has struggled to churn out the kind of global franchises that would lend themselves to game expansion. “I don’t think Bridgerton: The Game sounds that interesting,” Pachter says. Not to mention the track record for TV show-to-video game adaptations is highly mixed, the biggest standout being The Walking Dead game. The transition from movies is even less impressive, with the exception of Star Wars games. 

The idea has been floated that perhaps all this is an extravagant marketing ploy. That maybe Netflix isn’t going to try to make the next Call of Duty but instead will focus on interactive “experiences” along the lines of Black Mirror: Bandersnatch. This would certainly be more feasible, but would fail to capture what Netflix seems most interested in: the enormous gaming audience, the one that accounts for 840 billion minutes’ worth of viewership on Twitch so far this year. 

If Netflix is just going to pour money into cooler marketing, then, as Pachter says, “Who cares? Are you jonesing to make another decision in Bandersnatch? Gamers don’t need that. That’s great for marketing the show, but I just don’t think it matters at all.”

About the author

Nicole LaPorte is an LA-based senior writer for Fast Company who writes about where technology and entertainment intersect. She previously was a columnist for The New York Times and a staff writer for Newsweek/The Daily Beast and Variety

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