Netflix plays up video game foray amid Q1 subscriber losses

As Netflix this week posted quarterly subscriber losses for the first time in roughly a decade, the streaming giant also highlighted its continued foray into mobile gaming and complementary content as a way to attract new members and revenue.

Speaking on the company’s first quarter earnings call this week, Netflix co-CEO Reed Hastings said he was happy with what the team has built so far in the ability to be able to provide members with interactive and gaming experiences.

“I think we’re building capacity, frankly, faster, than we did when we entered film. So that’s very encouraging,” Hastings said. “You’ve seen we’ve been doing these small acquisitions to build up the know-how and the creative chops to be able to make some really great gains.”

Netflix acquired Finnish gaming studio Next Games in March for about $72 million, after purchasing Night School Studio last September. In November the streaming service officially unveiled Netflix Games, with no ads or in-app purchases. Just last month Netflix released three new mobile games, bringing its library to 17.

Netflix COO Gregory Peters said during the call that the streaming giant is open to both owning and licensing IP but is “very enthusiastic about building internal capacity.”

“We’re doing this both from sort of assembling it organically as well as through acquisition, which is a key part of our strategy to be able to build the capacity to produce the games titles that we think are really gong to unlock value for our members,” Peters said, adding that it’s gaining learnings every day from the licensed titles it already has.

In discussing the framework Netflix is thinking about around games and necessary benchmarks it needs to see to lean in further to the gaming venture, Peters called it “a top-level priority” for Netflix adding that “we’re very focused on it.”

Attracting and retaining customers is part of the aim, as Netflix lost 200,000 net members in the first quarter, with expectations to lose another 2 million in Q2.

Interplay of content and gaming

With its TV and film content library, Netflix sees promise in the interplay between those and mobile gaming.

That could be seen with its first move in the video game arena last July when it debuted an in-app integration of two Stranger Things games based off the highly popular Netflix series. And more recently, just this week an announcement that it would launch both an exclusive mobile game (coming in May) and an adult animated series (coming in 2023) based on IP for popular card game Exploding Kittens – a deal that Peters said reflects “an early glimmer of where we’re trying to head with this” gaming effort.

He said there will be some crossover between those two different modes for fans of Exploding Kittens.

It’s “an initial step on a long roadmap we have around thinking about how do we make the film and series side and then the interactive games experience, sort of the interplay between those, magnify the value that our members are getting from both.”

Results won’t be immediate, as Peters said it’s a multiyear vision where “1 plus 1 equals 3, and then hopefully 4 and then 5 situation.”

To deliver on that, Netflix believes the internal development function is key, he added, as those teams can then specifically zero in on the opportunities the streaming giant sees in that space.

Before Netflix decides it wants to ramp up and scale investment in terms of putting content budget dollars towards gaming and TV/film crossover, it’s working to understand how metrics work together to ensure that investment in any given title is “calibrated to that business value that we’re getting out of it,” Peters said without disclosing specifics on what Netflix has seen so far.

“Bottom line, we think about games and delivering value to members and reflecting that back into the business through both acquisitions,” he noted.

In terms of metrics it’s tracking, retention is key, with Peters saying engagement provides the primary indicator for that as well as value delivered, both of which Netflix is looking at “very, very carefully.”

“We’re aiming to have titles that land, that create conversation and enthusiasm and buzz, that drive more people to sign up for the service and then obviously in retention as well,” he said.

Global Data Principal Technology Analyst Tammy Parker said earlier this week that interactive gaming is outside of Netflix’s typical wheelhouse.

“Netflix’s expansion into mobile video games shifts focus from its core competency in passive entertainment to an active entertainment sector in which it has no experience,” Parker commented. “It remains to be seen whether getting its claws into the ‘Exploding Kittens’ franchise will help Netflix generate significant interest from gaming-focused Generation Z and other age groups.”

From a Netflix standpoint, Peters earlier this year described gaming plans as an extension of the streaming service’s core entertainment offering, saying it’s a similar trajectory as when the company added a new genre like unscripted series, film, or animation.

Netflix co-CEO and Chief Content Officer Theodore Sarandos on Tuesday said that games are a great example of adding something new to the service for customers to enjoy while also creating a large revenue and profit stream.

“We’re doing down the game path because I think it fits us really nicely,” Sarandos said. “Our ability to tell stories and build worlds are very consistent with our existing skill set and culture, and we think that we can build a big revenue and profit stream by adding games.”