Netflix's Next Move Will Be a Real Game Changer
After an embarrassing and short-lived belly flop into the video game market nearly a decade ago, Netflix (NASDAQ:NFLX) is apparently ready to play again. Bloomberg is reporting that Netflix plans to add playable video games to its platform within a year. The plan (for now at least) is to not charge more for the new offering.
Netflix isn't messing around. Mike Verdu -- who has made the rounds as a video game executive at Zynga and Electronic Arts before heading up Facebook's segment watching over developers for the Oculus virtual-reality headsets -- is coming over to Netflix to lead the new initiative. It's a big step for the world's leading premium video service, but it's one that could play out nicely even if the new business proves to be merely a niche hit with a small chunk of the Netflix audience.
If you're struggling to recall Netflix's brief entry into the video game market, no one can blame you. Co-CEO Reed Hastings has routinely rebuffed analysts, financial journos, and die-hard gamers suggesting that the market darling should literally get its head in the game. Netflix has been laser-focused on building out its catalog of video entertainment, even if it means losing out on a tighter hold on gaming enthusiasts or forgoing what one analyst calls a $14 billion opportunity in advertising.
"We're not focused on games, either on the physical rental or on the electronic distribution," Hastings told me in a 2009 interview.
Netflix had a brief change of heart. It just happens to be tethered to the notorious Qwikster fiasco. Qwikster was supposed to be spun off in 2011 from the Netflix platform that would be dedicated solely to the streaming service we know and love today. Qwikster was supposed to be the gateway to its original DVD-by-mail business, but console video games were also included in the pitch.
Qwikster died as soon as the market laughter subsided, a handful of weeks after it was unveiled. Now Netflix has a second chance to get it right.
If the video game service launches as planned, it will be embedded within the Netflix app. Finding the games will be no different than scrolling past the programming genres that subscribers go through today. This is important. It will mean the service will be launched within the reach of more than 200 million homes. Netflix will be a major player in online gaming the moment the platform launches.
What if the games are bad? It's a fair question. The thing is that Verdu won't be the last gaming industry vet to warm up to Netflix. Developers with games that they want to get in front of Netflix's captive audience will play nice with the platform, just as Hollywood turns to the platform first to reach the widest base of movie and TV-show viewers.
Will Netflix really offer a growing catalog of games at no additional cost? Sure. It's a great retention tool. We should also define what "no additional cost" means. Spoiler alert: Netflix has increased its rate five times over the past seven years, a 75% increase in that time.
In retrospect, Netflix had no business getting into the gaming market a decade ago. Now that it's a top dog among entertainment stocks, it has no business staying away from the gaming market. Well played, Hastings.