Netflix is going beyond films and series, creating games for its most popular franchises. Why it’s the streaming platform so eager to enter the gaming industry?
In 2019, Netflix revealed its plans to roll-out games for its members. The announcement got the ball rolling and the hype for cloud gaming was born. Eversince Netflix has been acquiring developers, releasing games and even struck a deal with Rockstar to deliver Grand Theft Auto games on its platform. Why did Netflix venture into the gaming market and how does it plan to compete with existing, well-established brands in the industry?
Netflix mobile games
In June 2019, Netflix announced it would release its Stranger Things mobile game in 2020. The game, developed by Finnish developer, Next Games, would be the precedent for more video game adaptations of its most popular franchises, CNN highlighted. The announcement of the Stranger Things mobile game displayed the streaming service’s ambitions to enter the cloud gaming market, and precursor for an evolving gaming industry, according to co-editor at YouTube channel Outside Xbox, Mike Channell, who spoke with CNBC about the news.
Channel pointed out that the rise of Netflix has spurred development of games based on its shows, but also marked the beginning of a new cloud based gaming market. Noting that streaming is already established in other entertainment categories like Spotify and Apple for music and Amazon and Netflix for video. Gaming however, has yet to see a strong player enter the market.
At the time, Google caught headlines with its Stadia product, positioning itself as the first true contender to enter the gaming streaming market. Microsoft meanwhile was also testing a cloud gaming service. Both parties, seeing the massive revenues that Netflix was pulling in with streaming video, were eager to bring a subscription based game streaming service to market, skipping expensive hardware development. In July 2021, Netflix ambitions to expand into the gaming market were further solidified when it announced hiring industry veteran Mike Verdu, who previously worked at EA and Facebook.
In September 2021, Netflix announced it would acquire game developer Night School Studio, known for OXENFREE, a game which saw critical acclaim for its artistic style and strong storytelling. Netflix commented the creative capabilities of the team at Night School Studio would be a critical asset to develop its games offering. A few months later, in November 2021, Netflix announced it had appointed Amir Rahimi as Vice President of Game Studios. In his previous role, Rahimi served as president at mobile games publisher Scopely. The studio is known for its popular mobile games such as Monopoly Go!, Stumble Guys and Yahtzee among others. Rahimi would report to Mike Verdu.
In March 2022, Netflix said it would acquire Finish developer Next Games, who had already developed the story-driven puzzle RPG, Stranger Things: Puzzle Tales. In the press release, VP of Games, Mike Verdu, commented that the team at Next Games had been successfully building and operating live service games, garnering a dedicated following throughout the years.
Increasing customer churn
A few months later, in September 2022, Netflix announced it would open its own gaming studio in Helsinki, Finland. The studio would operate alongside Night School Studio, Net Games and Boss Fight Entertainment. In the announcement Amir Rahimi, Vice President of Game Studios, explained that Helsinki was home to some of the most talented gaming talent in the world.
CNN highlighted that the creation of the Netflix own game Studio studio followed shortly after Netflix reporting its first decline in subscribers in more than a decade. Senior research analyst at D.A. Davidson, Tom Forte, explained pivoting into game is a defensive move by Netflix. Adding that the company is fully aware that competitors in the gaming space pose a threat, luring away its customers to rivaling platforms. By making this seemingly out of blue strategic move, it hopes to keep users engaged with its product. Gaming, Forte notes, is a long term strategy for Netflix, fitting its long-term approach to conducting business.
The lead up to the decreasing subscribers number was already starting to show in the second half of 2020 when a sudden spike in customer churn occurred and set a precedent for increased customer cancellations for years to come. In January 2020, the average monthly churn for Netflix customers reached 1.87 percent, peaking in September 2020 to 3.23 percent. The figure, still below every major Netflix competitor, showed that the business of the streaming service wasn’t invincible.
The churn rate started to accelerate in 2022, when Netflix started to creep slowly toward Disney+, one of the other stable streaming services. In January 2022, average monthly churn for Netflix set at 2.91 percent, increasing to 3.76 percent in April 2022 and peaking again in July 2022 at 3.88 percent, stabilizing a month later to 3.47 percent. While the numbers would be the envy of many companies, at Netflix this must have set off alarms that a strategy had to be devised to keep customers on board.
Netflix Games
Two years after the first teaser of Netflix Games, it finally happened. In November 2021, Netflix launched Games, starting with five mobile games, including games centered around its most popular franchise, Stranger Things: 1984 and Stranger Things 3: The Game. Netflix CEO Reed Hastings told Business Insider that gaming was an extension to stories, befitting of the company’s product, telling stories. Hence, gaming would be another part of the business.
Hastings softened big expectations, saying that instead of a large hit, the company would have many tries before it would find its fitting in the competitive mobile gaming market, which sees 10,000 game releases each year. Netflix also wants to give its own spin on mobile gaming, not relying on numerous micro-transactions or serving countless ads, which would only hurt the storytelling.
Customers with a Netflix premium membership would have automatic access to all available games without additional fees or in-app purchases. Games would be available in a wide variety of languages, with customers being able to play games across multiple devices. The games can be played without an active internet connection.
The humbling words of Hasting were quickly forgotten as in October 2022, former lead for the popular online game Overwatch, Chacko Sonny, made a transfer to Netflix, where he would oversee the streaming platform’s new development studio. Verdu commented at TechCrunch Disrupt that Sonny could’ve gone to any other studio, but chose Netflix. Adding that people of his caliber don’t make a switch into something they don’t believe in. In May 2023, another high profile industry veteran made the move to Netflix. Art director at Santa Monica Studio, known for the massively popular franchise God of War, Raf Grassetti, switched to the video streaming platform.
Supporting developers
A key factor in ensuring top talents will be able to thrive at Netflix, is giving them the tools and environment that helps them deliver the best games. In July 2023, Game Informer spoke to Netflix’s Vice President of External Games, Leanne Loombe, about how the streaming platform plans create the conditions to rival industry leaders. Loombe has been active in the gaming industry for almost two decades, having worked at publishers like Electronic Arts and Riot Games, the latter known for popular franchises such as League of Legends and Valorant.
Loombe explains Netflix is searching for studio’s who share the same values and whether the partnerships are beneficial to both parties. Senior producer at Snowman, developer of Lucky Luna, Andrew Schimmel, said the team was pleased at the level of autonomy that Netflix gave to the studio. Adding that the feedback was always constructive, with a surprisingly high level of detail, showing that the streaming platform deeply cared about the game and their willingness to understand the development process.
Loombe commented that by not requiring monetization options, developers have more freedom to develop the games they want to make. Co-founder of Kentucky Route Zero developer Cardboard Computer, Jake Elliott, told Game Informer that the mobile games industry is riddled with microtransactions and viral marketing schemes, which are off-putting to the studio. Netflix’s subscription model on the contrary, is more welcoming to developers, he adds.
Turning stories into games
In September 2023, Pocket Gamer spoke with Amir Rahimi about the streaming services gaming portfolio expansion and its goal to deliver a game for every Netflix member. Rahimi explained that gaming at Netflix serves as an extension to its films and series, giving them more time with their favorite franchises. Pocket Gamer zoomed in on the upcoming Love is Blind game, based on one of the most popular series on the streaming platform. Turning the show into an interactive story has been on the wishlist for quite some time, Rahimi noted.
The game, allowing for members to create their own characters, go on interactive pod dates, following the series’ story arcs. Pocket Gamer noted that similar games are oftentimes riddled with micro-transactions, wondering how it will differ from existing franchises. Rahimi highlighted that having no ads or micro-transactions is liberating for developers, as it removes the pressure of monetizing aspects around the game. Developers remain focussed to delivering the best experience.
Netflix Games is still in its infancy however, Rahimi added. The company is still exploring what games its members like, focussing on delivering games with no ads or in-app purchases. Netflix considers games as a natural extension to its existing business, allowing for a unique opportunity to expand the magic of its existing franchises. In the same month Netflix announced Football Manager Mobile would be coming exclusively to Netflix.
With Netflix saying it’s still exploring what befits its strategy, it made a daring move to venture into cloud gaming. In August 2023, Netflix said it would be rolling out a limited beta to users in Canada and the UK to test cloud gaming on PCs, Macs and TVs. A strong push to move beyond mobile devices and entering a space that Google left after its failed launch of its Stadia streaming gaming product
Growing cloud gaming market
Netflix’s move into cloud gaming isn’t entirely surprising, as it’s expected to be a multi-billion market. Statista expects the market to grow to $6.91 billion by 2024, maintaining a compound annual growth rate (CAGR) of 33.59 percent between 2024 and 2028. This strong growth will result in a projected market volume of $22.01 billion by 2028, the statistics website noted. This translates to 497 million global users by 2028, which generates an average revenue per user of $17.46 per user. The United States will see the fastest growth, with the country having a market value of $1.93 billion in 2024.
The strong growth of the market, Statista highlighted, is fueled by the rapid roll-out of high-speed internet, enabling the streaming of games. In December 2023, Axios spoke with Vice President of Games at Netflix, Mike Verdu, reflecting on the streaming services’ lukewarm ramp up of its games division. Axios pointed out the confusing strategy behind the launch of its gaming service, alongside its video offering. Verdu commented that Netflix isn’t the type of company to make big bets, carefully crafting and adjusting to do it right. Noting that the team is proud of the progress it had made so far with the product.
Shortly after the interview with Verdu, adoption of games started to pick up. Techcrunch, citing figures from Sensor Tower, noted that game downloads had increased 180 percent year-over-year. The app intelligence firm estimated that Netflix games had been downloaded 81.2 million times worldwide across the App Store and Google Play over the course of 2023. The last quarter of 2023, generated 53 percent of the total annual downloads.
Time is of the essence
Netflix executives have framed the story for its gaming division as delivering extended experiences for its members. But when going beyond the words and franchises themselves, the true reasons as to why Netflix went into gaming aren’t difficult to spot. Customer churn was already increasing, but time spent on the platform stalled simultaneously. In 2017, Netflix outperformed its primary competitors, Amazon Video and HBO in terms of monthly time spent on streaming services in the United States.
However, YouTube was the largest video streaming platform by far, seeing more time spent on the platform than Netflix, Amazon and HBO combined. In December 2017, users spent an average of 24 hours on HBO per month, 81 hours on Amazon Video, followed by Netflix with 181 hours. YouTube meanwhile saw users spend an average of 534 hours per month on its platform.
The time spent on Netflix hasn’t changed much over the course of 2021 and 2023. In the United States, out of all hours spent watching television, Netflix’s share has largely remained the same. In August 2021, Netflix represented 7 percent of all hours spent on watching television. This figure increased to 7.6 percent a year later in August 2022, moving up and down slightly as months went on. Share of hours dipped in April to 6.9 percent in April 2023, recovering to 8.2 percent in August 2023. Numbers came down again in October 2023, falling to 7.2 percent.
In the United Kingdom, the average time spent watching on Netflix increased since 2017, but has followed the same trend as observed in the United States in comparison to time spent watching television. In January 2017, Netflix users spent an average of 371.3 minutes on the platform. A year later this number had increased to 440.8 minutes, dipping back 399 minutes in April 2018. In January 2019, Netflix was able to recover and keep users engaged, with users spending on average 518 minutes watching content on the streaming service. In January 2020, figures fell to 490 minutes average weekly time spent on Netflix.
The figures might not be exciting, with Netflix remaining stable over the years. But between the lines, the numbers show that it’s difficult for Netflix to persuade television viewing audiences to spend more time on its platform. The United States still represented the largest market, with Americans watching over 16 billion hours of content on Netflix as of February 2022.
Netflix decreasing market share
One of the primary reasons for Netflix’s struggle to increase the viewing time on its service and keep subscribers on board, has been increased competition in the video streaming market. In a November 2022, Variety intelligence report, the entertainment magazine showed that time spent on Netflix was decreasing in favor of other platforms, primarily YouTube. In January 2022, Netflix still boasted 22.8 percent of the share of streaming viewing time.
This number started to fall as competitors were starting to ramp up their customer acquisition efforts and content delivery. A few months later, in April 2022, Netflix’s share had already fallen below 22 percent, to 21.7 percent. This in favor of YouTube, who saw its share climb from 19.7 percent to 20.1 percent over the same period. In June 2022, Netflix recovered to 22.8 percent and peaking to 23 percent in July, but the fall would be greater than before.
As Youtube was recovering from a dip in June 2022 to 20.5 percent, it grew to 21.7 percent in September 2022, by then Netflix had fallen to 19.8 percent of the total streaming viewing time. It must be pointed out that other competitors managed to grab some of the market, but were of little significance compared to the fight between YouTube and Netflix. HBO Max was able to grow from 3.3 percent in April 2022 to 3.5 percent in September 2022. Other players saw their shares decline, such as Amazon who started 2022 with 8.3 percent and fell to 7.9 percent. Same for Disney plus who fell from 6.2 percent to 5.1 percent over the same period.
The increased competition leads to spending wars among platforms, where tens of billions of dollars are flowing to production studios to add new, popular content to the platform to keep subscribers on board. In 2022, Amazon Prime spent an estimated $15 billion on content creation, followed by Netflix who was set to spend an astounding $13.6 billion. Third came Disney+, who was estimated to spend $9.5 billion on content. For Disney, who could rely on its existing IPs through sequels and productions from studio’s such as Pixar, the enormous amounts needed just to keep its streaming platform alive, got executives and shareholders worrying about the sustainability of the business behind Disney+.
Accelerate adoption
In order to accelerate the adoption of its games product, Netflix announced its licensing deal with Rockstar in November 2023, where it would bring three Grand Theft Auto to its streaming service. Insider Intelligence analyst Ross Benes, told CNBC that this was by far the most promising game launch for Netflix, showing its dedication to become a viable player in the gaming space. The push is much necessary, because up to this point, games have seen a lukewarm reception with only 1 percent of the Netflix members playing games on the platform daily.
Several years down the line, with Netflix seeing slow adoption of its games, the streaming platform revealed that it had internal discussions to explore avenues to monetize its games. While Netflix has always strongly opposed in-game purchase options since its launch, during an earnings call in 2024, Netflix showed that it’s willing to walk the route of Pixar and step away from its moral high ground to generate more revenue.
TechCrunch commented that the discussion alone isn’t an official announcement toward gaming monetization. However, it’s not the first time the streaming platform has broken a promise, showing its open to exploring and enacting revenue pathways like shutting down password sharing and introducing an ad-support subscription. Whether in-game purchases will become the next revenue boost is unclear, but it shows that the tides can change, with Netflix eager to make a return on its investment.
Betting big at Netflix
Netflix might say it’s making small dips into the gaming pond, but since its announcement in 2019, the streaming platform has been making big moves. It acquired studio’s who deliver popular, artistic story-based games and attracted high profile industry veterans to build and expand its gaming portfolio. Meanwhile, performance has been lackluster with a minority of members venturing into its gaming product. In an attempt to boost adoption, it announced it would bring the massively popular Grand Theft Auto franchise to its platform.
Whether that will move the needle remains to be seen. But the market shows that Netflix has no choice but to push through in order to maintain customers and wade off the ever increasing pressure from platforms like YouTube, who are eating away market share from every other platform.
