Netflix's Next Big Move: Entering the Gaming Industry
By Anders Bylund – July 4, 2024 at 11:33 AM
Key Points:
- Netflix is exploring innovative strategies for growth, with video games potentially being its next significant venture.
- This move could more than double Netflix's global target market.
- The company’s CFO indicates a long-term gaming strategy but might not be fully transparent with investors.
Netflix’s Growth Strategy:
Despite its dominance in video streaming, Netflix (NFLX) is not resting on its laurels. After revolutionizing video rentals and digital streaming, the company refocused in 2022 on profitable growth over sheer subscriber numbers. This pivot initially unsettled investors, but with Netflix stock approaching all-time highs again, the strategy seems to be working.
However, Netflix isn't content with slow, steady growth. Instead, it appears ready to explore new business territories.
Game Changers for Netflix’s Future:
Netflix is currently experimenting with several potentially transformative ideas:
- Ad-supported subscriptions.have proven effective and profitable.
- Locally produced content** has driven significant growth in international markets, exemplified by global hits like South Korea’s *Squid Game* and Spain’s *Money Heist*.
- Live content initiatives** include partnerships with the NFL and WWE, adding new dimensions to Netflix's offerings.
These strategies should enhance shareholder value over time. Yet, the most significant potential game-changer could be Netflix's foray into gaming.
Comparing Media and Gaming Markets:
The video-based media market is substantial, with the top five companies generating $168 billion in revenue over the past year, including $35 billion from Netflix. However, the gaming market, estimated at $250 billion annually by Statista, presents an even more lucrative opportunity.
Netflix began its gaming journey in November 2021 with five mobile games and has since expanded its library to around 100 titles. These range from casual games like *Teeter (Up)* and *Exploding Kittens* to more serious titles such as *Into the Breach* and *Oxenfree*. Additionally, Netflix offers games based on its popular shows, including *Stranger Things* and *The Queen's Gambit*.
Currently, these games are available for free to Netflix subscribers, with no additional fees, in-game purchases, or advertisements. However, this might not remain the case for long.
Netflix’s Long-term Gaming Strategy:
Netflix might eventually monetize its gaming portfolio. Similar to its video streaming evolution, which started with a small selection of free digital streams, Netflix could transform its free game offerings into a profitable business.
Historically, Netflix faced significant backlash during the Qwikster crisis when it separated its DVD and streaming services, leading to a stock price plunge. Yet, those who invested during the downturn were richly rewarded as Netflix's stock rebounded dramatically.
Applying Qwikster Lessons to Gaming:
Netflix might replicate this strategy by creating a separate subscription service for its games. Although a negative market reaction is expected initially, it could be followed by substantial growth in gaming service sales and stock recovery. CFO Adam Neumann mentioned that Netflix’s gaming plans are long-term and still in their early stages, aiming for significant engagement growth over the next decade.
Conclusion:
Netflix's entry into the gaming market represents a bold move that could significantly enhance its growth prospects. By leveraging its existing subscriber base and content library, Netflix is well-positioned to become a major player in the gaming industry, potentially transforming it into a multi-faceted entertainment powerhouse.
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