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Netflix Inc.’s expansion into video games offers a tantalizing edge for the streaming pioneer, but also creates a potential showdown with Apple Inc.
“We see games as another new category of content for us, similar to our expansion into original films, animation and unscripted television,” Netflix executives said in a letter to shareholders on Tuesday. “Games will be included in members’ Netflix subscription at no additional cost similar to movies and series.”
In a discussion related to its second quarter earnings report on Tuesday, executives including co-CEO Reed Hastings described the effort as part of Netflix’s core efforts.
“We’re a one-product company with a bunch of support services,” said Netflix co-CEO Reed Hastings, adding that video games are part of the product, not a support service. .
“We really see this as an extension of our core product offering,” said Greg Peters, COO of Netflix. added. He described the game’s push as a multi-year effort that will start out “relatively small” and “continually improve, depending on what members tell us it’s working.”
Netflix sees a chance to differentiate its gaming experience, Peters added, around its vast library of intellectual property and will focus on mobile devices and TV set-top boxes.
“There is a rich opportunity to improve the quality of the gaming experience,” an opportunity that allows fans of original Netflix content “to go one step further and put their [gaming] energies there.
Diversification into games seemed inevitable, given Netflix’s sudden brutal competition with media giants such as Walt Disney Co. DIS,
Apple Inc. AAPL,
AT&T Inc. T,
as well as slowing growth in new subscribers for Netflix, which missed second-quarter earnings estimates on Tuesday and was disappointed with its forecast.
Read More: Netflix Says Subscriber Gains Won’t Bounce As Fast As Wall Street Wishes, Stocks Fall
“We think mobile is a great platform – it’s mature, with great tools and a developer community,” Peters said during the 40-minute video call. “He ticks all of those boxes. Peters also indicated that Netflix will license its gaming offerings.
However, the decision to create a new unit dedicated to the creation and distribution of games is fraught with pitfalls. Main of them: this could lead to a showdown with Apple. Netflix may need Apple’s approval to stream games in its mobile app on iPhone and iPad – Apple has demanded competitors like Microsoft Corp. Corp. MSFT,
and Facebook Inc. FB,
so that each game on a streaming platform is individually approved.
In fact, a major element of Epic Games Inc.’s recent high-profile antitrust lawsuit against Apple is that the App Store has restrictions that are not tenable for some developers, creating an unbalanced competitive landscape for Apple Arcade, a service of subscription to video games. available on iOS. Apple allows services that stream movies to have them all in one app, but requires services that stream games to separate each game for individual listing and review.
Read more: Apple vs. Epic: Why cloud gaming has become a hot topic in landmark antitrust lawsuit
“I can use Netflix with a native app and I can see a lot of different movies or TV shows or whatever. Didn’t you want to use a subscription model? Confused Judge Yvonne Gonzalez Rogers asked at one point during the three-week Apple-Epic trial in May.
Executives of Microsoft and Nvidia Corp. NVDA,
testified to the technological hurdles they had to overcome, at the request of Apple. Lori Wright, vice president of business development at Microsoft, said the software giant spent four months discussing with Apple how to launch its xCloud service as a native app, only to say Apple demanded that Microsoft, Nvidia, and others list cloud games as separate apps.
Submitting Xbox games one by one was too onerous, Wright said, forcing Microsoft to resort to building a web app. This was not only a technological hurdle for Microsoft, she said, but also a downside for consumers. Users are not used to installing apps from the web on their iPhones.
An Nvidia executive, meanwhile, explained how he tried to integrate his cloud gaming service GeForce Now into the App Store, but faced the same restrictions as Microsoft. “There are fewer controls over streaming, so you could say it’s worse in some ways” than a native app, said Aashish Patel, director of product management at Nvidia.
With games arriving on the Netflix service in addition to episodic movies and series, the same restrictive scenario could unfold, putting the two streaming rivals on a collision course. Netflix won’t charge for games and won’t have microtransactions – the bane of many gamers.
“We don’t have to think about the ads, we don’t have to think about in-game purchases or other monetizations,” Peters said during the video call. “We don’t have to think about title buying. Really, we can do what we’ve done on the movies and series side, which is just hyper laser-focused to deliver the best gaming experiences possible.
Apple and Epic did not respond to emails seeking comment on Netflix’s foray into gaming.
Netflix’s entry into the game over the next year would also have a ripple effect on its overall business structure, calling into question how it distributes content and how much it charges to subscribers, at least two financial analysts say. .
“One option / solution / path that Netflix could take would be to separate video games into premium service levels,” AB Bernstein analyst Todd Juenger said in a July 15 memo. “For example, if you want video games, you may need to purchase the Premium package (4S). If you don’t want one, you can subscribe to the Basic (1S) or Standard (2S) package. This pricing strategy would force Netflix to deviate from a basic product tenet that they have so far held sacred, namely that all Netflix members have access to all content (which is available on their website). market).
“Another option Netflix could choose would be to characterize games as ‘free-to-play,’ like so many successful video games,” Juenger wrote. “The trick here is to make sure that subscribers who don’t want video games believe they really aren’t.
“Pay” for them. “
Morgan Stanley analyst Benjamin Swinburne offers even more cautious words in a July 16 memo. “The risks and points of caution reflect the lack of success of other even larger mainstream technology platforms despite significant effort and investment… Success in the game will require a significant shift in resources and priorities. of the company. ”
Swinburne highlights the struggles of Amazon.com Inc. AMZN,
and Google’s parent company, Alphabet Inc. GOOGL,
GOOG,
in expanding their cloud-based game distribution platforms, Luna and Stadia, respectively, due to a “lack of unique content offerings and technology limitations.”
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