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Netflix thinks games matter more than buying movie studios

While Netflix’s streaming competitors, such as Amazon’s Prime Video and HBO Max’s WarnerMedia, are concentrating on consolidation and studio acquisitions, Netflix is prioritising its own service and investment in games over acquiring any available studio intellectual property. A welcome change from purchasing bankrupt movie studios or long-forgotten catalogues, as well as other distressed assets. Will it, however, be successful?

Netflix’s streaming strategy was laid out in a letter to shareholders sent out during the company’s second quarter. Citing recent mergers between WarnerMedia and Discovery, as well as acquisitions and mergers between major media properties over the last decade — such as those between Disney and Fox or Viacom and CBS — the company stated that it does not “believe that this consolidation has had a significant impact on our growth, if at all.” (If I’m a streaming service right now, I’m sure that one will hurt a little bit.)

Furthermore, Netflix is not looking to acquire studios in the same way that its competitors have. Netflix’s strategy, on the other hand, continues to be simple: make themselves better. Another way of putting it is that Netflix aspires to be more like social media apps than it does other streaming services. According to Netflix, it is the company itself that is its primary competitor in the space.

As stated in the company’s shareholders letter, “While we are constantly evaluating opportunities, we do not consider any assets to be a “must-have,” and we have not yet identified any large-scale opportunities that are sufficiently compelling to warrant our attention.” We continue to compete for screen time with a diverse group of companies, including YouTube, Epic Games, and TikTok, in the race to entertain consumers around the world,” says CEO Mark Zuckerberg (to name just a few). However, we are primarily competing with ourselves in order to improve our service as quickly as possible.”

Despite the fact that Netflix appears to be uninterested in shopping for movie studios, executives from the company spoke about the acquisition and consolidation race on a number of occasions during the company’s earnings call on Tuesday. While Netflix is open to any opportunity that presents itself, the company’s top executives have stated that the company is “picky” when it comes to assets and intellectual property.

“While we are constantly evaluating opportunities, there are no assets that we consider to be a’must-have.’”

To be clear, Netflix continues to be the leader in the ongoing competition for our attention (and our money). Netflix, which has approximately 209 million paid subscribers, is closely followed by Disney Plus, which has approximately half that number of paid memberships. Netflix has a decade-plus head start on the competition, giving it more leeway to experiment with its product and take risks that smaller streaming services simply cannot afford.

This brings us to the subject of games. While Netflix hasn’t provided a specific release date for games, other than to say that the project would be a multi-year undertaking, the company has stated that it believes “the time is right” to investigate the possibility of expanding the service. Netflix has stated on numerous occasions that it believes its primary competitors are high-engagement platforms such as TikTok and Fortnite, among others. In contrast to one-off experiments such as a Stranger Things game or even Bandersnatch, Netflix’s entry into gaming in earnest comes at a pivotal time for the streaming giant as the world begins to reopen and streaming faces new challenges in terms of attracting and retaining subscribers.

The company reported that it increased paid memberships by 1.5 million in the second quarter of 2021, exceeding its 1 million guidance forecast, despite losing approximately 400,000 paid net additions. Netflix said its business is healthy and that its churn rate — the number of members who leave the service — is down when compared to a more “comparable” quarter from 2019, but CFO Spencer Neumann said during the company’s earnings interview that Netflix is still experiencing “a little bit of that drag in terms of our acquisition growth as we’re kind of working through what we hope is — and we can’t promise — a temporary hiccup in our operations.

When the company’s future challenges are viewed in this light, Netflix’s big bet on gaming tracks becomes clear. It develops innovative ways to extend the shelf life of content and characters that are already popular with viewers. But what would Netflix games look like in the first place?

Netflix believes that games will assist it in increasing engagement with its content.

In response to a question about the company’s future gaming strategy, Netflix COO and chief product officer Greg Peters stated on the conference call that the company viewed gaming as “an extension of the core entertainment offering that we’ve been focusing on for the last 20 years.” It intends to first develop games for mobile devices, with the possibility of developing games for other platforms in the future. Netflix plans to experiment with its approach to gaming, and according to CEO Reed Hastings, this will include licencing opportunities, games that build on Netflix’s existing IP, and standalone games. In the opinion of Peters, this could even include a video game that generates enough interest to be turned into a film or television series.

The company believes it has an opportunity to add games to its lineup and provide more entertainment value to its members. “Just as we have continuously expanded our offering by adding new genres such as unscripted, film, local-language programming, animation, and so on, we believe we have an opportunity to add games to our lineup and provide more entertainment value for our members,” Peters said. He went on to say that Netflix intended to “start relatively small” and that the company’s entry into the gaming space would be a “multi-year endeavour.”

It is impossible to predict whether or not the gamification of Netflix content will aid the company’s ability to scale in any meaningful way at this time. However, Netflix’s preference for content and product development over IP acquisitions and mergers — which is the preferred strategy of most of its streaming competitors at the moment — indicates that the company is still very much in a league of its own.

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