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Netflix Games Launched On Android and iOS Devices: Why Netflix is Diversifying Its Business

Editor, TRANSFIN.
Nov 10, 2021 1:11 PM 6 min read
Editorial

Squid Game is not the only “game” that Netflix has been focusing on of late.

On November 2nd, the OTT leader launched Netflix Games on its Android application around the world.

It began by offering five mobile games. Two of these were titles related to Stranger Things - Stranger Things 1984 (BonusXP) and Stranger Things 3: The Game (BonusXP). The other three were general-interest casual games: Shooting Hoops (Frosty Pop), Card Blast (Amuzo & Rogue Games), and Teeter Up (Frosty Pop).

As of today, the service has been rolled out for iOS users as well, with the initial line-up being the same as that on Android devices. Another title, Hextech Mayhem: A League of Legends Story, is slated to be released later this month.

Let the Games Begin

Netflix’s tryst with gaming was a long time coming. The most obvious early indication of the company wanting to offer more “interactive” content was probably the 2018 “choose your own adventure”-style film Black Mirror: Bandersnatch, which was a runaway success.

Netflix Games Launched On Android and iOS Devices: Why Netflix is Diversifying Its BusinessBack in May this year, The Information reported that Netflix was looking to build a platform to rival Apple Arcade and Xbox Game Pass, and was hunting for a seasoned executive to guide the process. In July, former Oculus VP Mike Verdu (of Electronic Arts, Zynga and Atari fame) was hired to oversee the company’s expansion into video games. Days later, in a letter to investors, Netflix revealed more details about the project and said “we think the time is right to learn more about how our members value games”.

On August 26th, Netflix kickstarted a test run of its games venture in Poland, with Stranger Things 1984 and Stranger Things 3 on Android devices. Five days later, the latter title was abruptly removed from gaming platforms Steam, Epic Games Store and GOG as Netflix moved to reclaim its IP. Soon, the test run was expanded to the Spanish and Italian markets and Netflix acquired its first game development studio - Night School Studio.

 

Remember, Remember the Tenth of November

Netflix Games has a dedicated section in the main iOS and Android apps. It can be accessed in the same way the shows, movies and originals are. The games will be available to all paying subscribers, with some titles available offline and in regional languages. The company has said it is “in the early days of creating a great gaming experience” and that it wants “to build a library of games that offers something for everyone”.

Given the immense size of its subscriber base, Netflix is already a formidable player in the subscription gaming space, despite being less than a week old and having only five titles to boot.

 

Netflix and Game On

Now, Netflix is by no means your typical corporate dinosaur belatedly embracing new tech out of necessity rather than choice. It was the trendsetter, disrupting the entire entertainment industry and fundamentally altering the way we consume video content.

Why, then, is the company so eager to diversify beyond "traditional" filmed entertainment, its proverbial niche?

One explanation may be the increasingly crowded OTT space. While the company initially ruled the roost, it now has to contend with deep-pocketed rivals like Disney+, HBO Max, Paramount+, AppleTV+, Amazon Prime Video and Hulu and several other domestic operators in international growth markets. These companies have been releasing wildly successful titles and also snapping up IP left, right and centre. Netflix’s place atop the OTT pyramid is no longer a sure bet. Its share of global demand for original programming, while miles ahead of others, has steadily declined over recent quarters. In such a dog-eat-dog market, hatching your wagon to only one business vertical may be foolhardy.

Another factor may be subscriber growth. The 2020 pandemic bump that streaming platforms enjoyed is receding and subscriber growth is slackening. The US and Canadian markets are getting saturated (in Q2FY21, the platform lost overall subscribers in these markets), with Netflix relying more and more on international audiences (especially in APAC) to expand its base. By diversifying into games, the firm hopes to add value to its product catalogue and entice new subscribers and give existing ones more reason to stay. Moreover, the mobile-first approach would particularly help in mobile-first markets like India.

But there’s also audience drag. Netflix executives have long held that their main competitors are “sleep” and social media apps - basically, anything a user may be doing besides “Netflix and chill”. With so many options in the streaming market and so many other ways to pass the time, users have less reason to chill only on Netflix than ever before. An analysis by Ampere Analysis, which polled roughly 50,000 consumers in various markets, found not only stagnation but a slight erosion of subscribers in the 18-to-24-year-old bracket. This segment seems to be more inclined to opt for studio-backed brands or apps like TikTok and Instagram. Netflix hopes that gaming will hook younger demographics. After all, 71% of Millennials game and spend $112 per month on gaming content.

 

Netflix Can Chill

All said and done, a company wanting to diversify doesn’t necessarily mean its financials are unstable or its plans awry. Netflix remains at the heart of the OTT empire and video content remains at the core of its business. And investors remain perfectly happy and sanguine about the company’s prospects - its stock is up 25.46% YTD.

Netflix Games Launched On Android and iOS Devices: Why Netflix is Diversifying Its BusinessGames may be a way to add value, but it might not become as crucial to the company’s business as churning out original content. Rather, Netflix Games is likely to be a complementary vertical. Netflix already has several titles based on popular video games - think Castlevania, Resident Evil and The Witcher. Offering video games based on Netflix shows and movies is a smart way of cross-selling content within the same ecosystem. And the entire game development process can benefit meaningfully from the several data points that Netflix accumulates from its shows - most-watched episode, most-liked character etc. 

Besides, diversification is a tried and tested strategy in the tech world. Apple launched the iPod and then naturally expanded into the music business. Meta dominated social media with Facebook and then bought Instagram and WhatsApp (and now Facebook Gaming) to solidify its foothold. Twitter built on the popularity of its threads feature to expand into the newsletter business with Revue. Spotify spent a fortune to onboard Joe Rogan in its push to dominate the podcast market. The list goes on...

 

The Crux of the Matter  

Netflix’s future prospects depend on (1) how long the subscriber growth can sustain and (2) how much longer Netflix can keep up its meteoric pace of releasing new titles.

Both these factors are interrelated. One of the company’s biggest USPs is its ability to release content at a breathless pace. With the pandemic-induced shooting restrictions past, expect a barrage of new and held-up titles to see light in the near-term - and keep viewers engaged. But with its traditional base in North America and Europe saturated, Netflix’s best chances of subscriber growth lie in Asia, especially India (since 2017, the platform has been adding more paid subscribers outside the US and within it). As such, the company is focusing heavily on regional content in regional languages to cater to regional audiences. Call it hyperlocal (content) delivery!

For its part, Netflix Games can augment subscriber growth and also generate more interest in new titles by way of cross-selling. How important it will be to the company’s bottom line in the long run remains to be seen. But with online gaming going through a secular uptrend, it is perhaps worth a crack - if not for subscriber progression, at least for churn mitigation. 

As of now, it is a free addition with limited titles. Netflix has assured “no ads, no additional fees and no in-app purchases”. But there’s no reason to believe it won’t do a u-turn and roll out some paid games in the future to bring in additional revenue.

After all, stranger things have happened…

FIN.
 

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