Netflix’s move into the gaming arena will initially focus on mobile titles. It looks to offset greater competition and shrinking market share in its over-the-top (OTT) video streaming business. Including games in the company’s subscription packages should also help the company reduce its churn rates by helping existing customers see more value in recent price increases.
Specific details on how Netflix will fit games into its commercial proposition are yet to emerge, with options including an Apple Arcade or Xbox Game Pass type approach likely on the table. The streaming company is wisely concentrating on the single largest growing segment of the gaming market first.
Research firm Newzoo estimates that mobile games will generate US$90.7bn of revenue in 2021, up 4.4% year on year. Of that total, smartphone games will account for the more significant proportion at US$79bn, up 5% compared to 2020. By contrast, sales of PC (down 1.7%) and console titles (down 8.9%) are expected to decline this year. Statista forecasts suggest that the global mobile gaming market will now grow to be worth US$170bn by 2025, with Asia generating the largest share of the revenue.
Gaming focus ramping up
Netflix has dabbled in gaming before, introducing interactive content for one of its most popular TV series, Black Mirror Bandersnatch, in 2018 and launched a cross-platform companion game for Stranger Things – Stranger Things 3 in 2019: The Game. The company is now set to ramp up those efforts after having recently hired Facebook’s former vice president of Oculus augmented reality and virtual reality content and Electronic Arts (EA) executive Mike Verdu as its own vice president of game development[i]. Netflix also expanded its relationship with US TV producer and screenwriter Shonda Rhimes (the creative force behind Bridgerton) to produce exclusively, stream and distribute feature films in addition to potential gaming and virtual reality content.[ii]
The crossover between video games and television is nothing new – some of Netflix’ most-watched TV series are spin-offs from popular games, most notably the Witcher, whilst others are about video games (Alice in Borderland, for example). Netflix also has partnerships with smartphone makers that could help it customise and distribute mobile titles to its subscribers, has announced a collaboration around video streaming with smartphone manufacturer Samsung in February 2020.
Value-added appeal to reduce customer churn
The growing popularity of Disney+, the merger of WarnerMedia and Discovery, and Amazon’s pending acquisition of MGM all threaten to erode Netflix’s market share. The company is actively looking for new ways of enticing customers onto its platform and keeping them. The indications so far are that Netflix does not intend to charge extra for its gaming content. Polygon reports that the company’s chief operating officer Greg Peters has stated that game subscriptions will not feature titles with in-game ads or purchases.[iii]
If that is the case, it would seem that Netflix’ initial intention is to boost the appeal and value of its existing subscription services by adding games into the mix at no extra charge. Netflix increased subscription fees in the US and Canada in October 2020, with subscribers in Europe too paying up to around 12% more as of February this year.
Reports suggest all OTT video streaming companies saw increased churn during the pandemic as viewers proved more than happy to drop one service in favour of another whenever exclusive new content became available[iv]. Deloitte estimates that churn rates have increased from around 20% before the onset of coronavirus to approximately 35% during it. However, the more significant number of people signing up to multiple streaming services during lockdown partially explains the trend.
Netflix may be more sensitive to customer losses if only because historically, it has more than its rivals to lose. The company’s subscriber growth has slowed considerably in 2021 after the colossal pandemic induced surge seen in 2020. Although it failed to match the 4m subscriptions added globally in the first quarter of 2021 (Q12020 10m), the 1.5m new customers signed up in the second quarter was still ahead of the 1.2m expected[v].
But the company also reported that it lost 430k paying subscribers in the US and Canada between Q121 and Q221, leaving its subscriber base in those two countries at 74m out of 209m globally (35% of the total). A recent report from Parrot Analytics suggests that Netflix share of the global audience demand of original digital series dropped below 50% for the first time since the company began tracking the data in 2015.[vi] Subscriptions hit 48.3% in the second calendar quarter of 2021, down from 54.9% in 2020.
The 15th edition of Deloitte’s media trends survey also provides a fascinating snapshot of how US consumers have come to consume digital content in the wake of the coronavirus pandemic. It suggests that Generation Z in particular (those aged between 6 and 24) may not be “video first”, for example. That means entertainment companies should be prepared to take a more diversified approach to the type of content they deliver in the future (read more detail in DOCOMO Digital VP of Partnerships Greg Sigel’s blog here).
Offering mobile game subscriptions would seem like an ideal strategy to tempt that demographic into Netflix subscriptions which can be quickly funded through carrier billing and other smartphone-based payment mechanisms which are quick, convenient and secure to set up and maintain. Mobile game consumption is also highest in the Asia Pacific, according to Newzoo, a region of the world within which Netflix will be even keener to expand its presence should its US and Canada customer base continue to shrink.
[i] Netflix hires Facebook gaming executive Mike Verdu as part of a deeper push into entertainment, CNBC, 15th July 2021
[ii] Netflix, Shonda Rhimes Extend Deal to Include Feature Films, Gaming and Virtual Reality Content, Variety, 8th July 2021
[iii] Netflix’s games will be mobile-focused and free for subscribers, Polygon, 20th July 2021
[iv] Streaming-Video Subscriber Churn Up 85% As Audiences Seek Next Hot Show, Forbes.com, 19th April 2021
[v] Netflix beats on paid subscriber growth, but misses earnings expectations, CNBC, 20th July 2021
[vi] As competition mounts, Netflix faces shrinking market share, report says, Los Angeles Times, 20th July 2021