Netflix goes for gaming.
- Netflix’s move into gaming looks to be more about increasing loyalty to keep competition at bay as opposed to another way to make more money for now.
- Netflix has cemented its rumoured move into gaming with the hiring of Mike Verdu from Facebook who was in charge of encouraging developers to write games for the Oculus VR platform.
- Consequently, this is different from the investments that Amazon has made over the last few years where it has pumped millions and lost millions by going into developing the games themselves.
- This hire implies that at least initially, the focus will be on encouraging developers to make their games available on the Netflix platform rather than creating them itself.
- This is typical of Netflix as it started life as a distributor of other people’s content and then moved into creating its own as its network hit critical mass.
- The big question here is what sort of games will it be targeting and I suspect that it will be going for games that are played on mobile devices.
- This is because:
- First, hardware: Netflix has no hardware available upon which to play games in contrast to Amazon, Google, Microsoft, or Sony.
- This means that further investments would be required in a set-top box and a controller if it was aiming to offer games for users to play on their TVs.
- Console quality games are also much more expensive and so Netflix would probably have to charge an extra fee to its users in order not to lose a lot of money on the service.
- There is no sign of Netflix hardware or an extra charge which leads me to think that Netflix will be going for casual gaming on mobile devices.
- Second, ecosystem: Netflix is facing greater competition these days especially from Disney+ which is effectively leveraging its franchises to offer exclusive content to subscribers.
- One way it can push back against this competition is to expand its offering to cover more of what users do with their devices.
- Gaming is one of the big four Digital Life services and as such it is an obvious place to start when looking for a companion for Media Consumption.
- Going into podcasting like Spotify has would be another potential avenue for Netflix to explore further down the road.
- Third, open door: Despite numerous attempts by the digital ecosystems to capture gaming on mobile devices, the segment remains wide open.
- Only Tencent has managed to dominate this segment, but it has only done so in China.
- This means that gaming in developed markets is the only segment of the Digital Life pie where there is no dominant player.
- Hence, from an opportunity standpoint, gaming represents a much easier proposition as opposed to trying to dislodge Facebook from social networking.
- Consequently, I think that this push into gaming will be focused on casual gaming in mobile devices and will be targeted at building loyalty initially.
- If successful, there is also the opportunity for monetisation of gaming further down the road but this would be a new avenue for Netflix as I suspect that the only effective way to monetise casual games other than selling games directly is through advertising.
- This move also highlights the possibility for Netflix to move into other areas and entice users to spend more of their time engaged with its services.
- This has proven to be pretty tricky to pull off in practice but there are some examples where it has been successful.
- Either way, there is unlikely to be any financial impact in the medium term, and Netflix’s valuation which at 51.9x 2021 PER remains too high in my opinion.
- Hence Netflix remains in the category where good news gives a small rally but a slip-up is punished with a large correction.
- I am happy to stay away.
