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Gamesindustry.biz broke the news last week that the Netflix executive responsible for the company’s games business would move to a new role within the company:
Netflix’s VP of Games Mike Verdu is taking on a new role as the company ramps up its ambitions in the video games space … A former Facebook and EA exec, Verdu first joined Netflix in 2021 ahead of the streaming firm announcing its push into mobile games … The details of his new position are unclear at this time, but GamesIndustry.biz understands it involves ‘innovation in game development.’ … He will continue to lead Netflix’s video games business until a replacement is found.
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I have previously described Netflix’s gaming business as inscrutable. This executive reshuffle suggests that the company wasn’t operating against a coherent strategy with gaming but rather pursuing a “spaghetti method” of trying things and hoping something might work.
None have. Netflix publishes 100 mobile games, with that number growing at a furious clip (the company announced 14 more titles last month). As of this writing, just one title from Netflix’s games catalog, GTA: San Andreas, is present in the Top Downloaded ranks for the Games chart in the US App Store.
In an interview with the Washington Post, Netflix’s VP of External Games seems to endorse estimates that Netflix’s games delivered 81MM installs in aggregate across the App Store and Google Play in 2023, highlighting the substantial reach of the company’s gaming efforts. This is an impressive number, but analyst projections earlier this year put Netflix’s total investment into games at $1BN, including acquiring four studios and creating two from the ground up. Part of the appeal for developers in working with Netflix, according to the interview, is that, “not having ads or in-app purchases in our games … [is] awesome for our developers, because the free-to-play market can be really challenging now.”
Indeed, Netflix’s position with games from the very beginning of the project has been that its titles would be free of ads and in-app purchases and contribute value to the company through subscription churn reduction. From Netflix’s Q2 2021 earnings call, shortly after its gaming initiative was announced (emphasis mine):
I’m not going to guess it to very, very long term, but we’re really thinking about this as a core part of
our subscription offering. And so we measure it very much like we do around the success of adding
incremental movies or adding incremental series, which is that, ultimately, those are about like being
compelling to members, having them engage and talk about it, having that be part of the social
conversation that’s out there … We see those benefits in retention. Obviously, if we’re delivering more value there, then members stay with us longer. We see those values in acquisition as well because if there’s a great game that lots of people are talking about to their friends, their colleagues, their family, then that’s a source of acquisition for us as well.
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But Netflix’s churn sits far below that of its peers, according to streaming analytics service Antenna. And for games to impact churn, Netflix’s users would need to install and play them. Netflix’s model for games distribution always struck me as peculiar: as I describe in The App Store has a ‘Too Big To Fail’ problem, Netflix gated access to its games behind a Netflix login early in the life of the games initiative, offering no ability to create an account, which I believed to be at odds with App Store policy. And while Netflix now allows for account creation for non-subscribers upon launching a game, because of the account requirement, Netflix’s games portfolio almost certainly contributes very little in terms of new account subscriptions. If churn generally isn’t an acute problem for Netflix and games can’t be used to recruit new subscribers, the value of the initiative — and the $1BN in investment that created it — is curiously vague for a company renowned for operational distinction anchored to thoughtful, considered long-term strategy.
Deconstructor of Fun provides an astute analysis of Netflix’s missteps with content development and acquisition, mostly answering the why of Netflix’s lack of engagement with its games. I’d propose one additional explanatory component: Netflix seems to be employing the same tactic with games that it does with streaming video, which is to aggregate a large pool of filler content that isn’t distinguished artistically or critically yet provides subscribers with ample opportunities to engage with the service. This ignores the qualitative differences between streaming video and games: video can be consumed passively, whereas mobile gaming demands active engagement. Games can’t attract engagement by being just good enough; there simply exists too much costless competition in mobile games to build an audience that way. Whereas streaming users are locked into their subscription services for at least a month, mobile gamers face no content switching costs. There is no viable “volume play” in a mobile gaming aggregation strategy.
Netflix has demonstrably committed missteps with its gaming strategy. But what should the company do to correct course? I propose three suggestions:
- Remove the login gate from the most popular games and make them free-to-play. Use intelligent cross-promotion to grow DAU across the catalog of free games and drive overall engagement within the portfolio;
- Introduce ads to a subset of the games portfolio, expanding the inventory available for its existing ads platform. Netflix has disavowed ads in games, but I view them as inevitable. Netflix’s games initiative predates its advertising business, which has seen mixed success and is starved for inventory. Netflix is building its own technology to power ads; it should insert ads into its most popular game titles, thereby growing the inventory available to its existing brand advertisers and allowing it to serve a new group of customers: mobile gaming advertisers;
- Grow subscriptions by cross-promoting users from its games portfolio into the core Netflix service using contextual relevancy. Once Netflix has expanded the DAU of its freely-downloaded games portfolio, it should use contextual relevancy — even if only informed by IP — to drive subscriptions in the Netflix app through cross-promotion. As I argue in Netflix already operates an ad network. Next stop: Content Fortress., Netflix’s content recommendation service can be used for this purpose. If Netflix can successfully move gaming users into the Netflix app, it can not only generate revenue from games through advertising but also with net subscription additions.
The gaming market is larger than that of streaming, as measured by consumer spend; it’s also larger than those of film and music combined. And mobile is gaming’s largest segment. It’d be remiss of an entertainment company as large as Netflix to not pursue a gaming strategy. But Netflix’s gaming business lacks a coherent commercial vision. Rather than shoehorning games into its content catalog, the company should appreciate the value proposition of the mobile gaming engagement model and use it to augment, not overlap with, its streaming business.