When netflix ( NFLX -2.75% ) started talking about video games, investors wondered how this effort could come to fruition. The company’s initial launch of mobile game titles last November didn’t add much color to the picture, with just four simple games and no obvious long-term strategy.
Four months later, we have more evidence on the table. Netflix has 14 mobile games and 18 interactive video options available now, and the company just bought another game developer.
This puzzle is starting to make sense. Let’s see where Netflix’s long-term gaming ambition goes.
The pieces of the puzzle
At first glance, Netflix’s collection of video game-related assets looks like a disorganized mess. Mobile titles range from toddler-friendly pattern-matching and pet dress-up trifles to sophisticated dungeon crawlers and rogue-like card games. Only three of these games have any obvious ties to the original Netflix shows or movies.
The quality of the gaming experience is uneven. Some titles are clunky conversions of existing PC or console games, where the controls don’t always make sense on a tablet or smartphone.
Interactive videos primarily focus on content for young children, but adult fare, such as Black Mirror: Bandersnatch — is added for good measure. Again, experiences range from the polished and the complex Bandersnatch to impossibly simple meditation tools and animated picture books with a twist of choosing your own adventure.
As for Netflix’s games-related acquisitions, they seem to target the company’s intellectual property, with some social benefits. The takeover of the Finnish game developer for $72 million has just been announced Next games involves the manufacturer of a stranger things– themed puzzle game. Next has also developed two hits Walking Dead games with a brand license from the producer AMC Networks.
Previously, Netflix bought Night School Studio for an undisclosed sum, locking in another game developer with experience in the field. stranger things world. Night School also has a history of licensed development, having published a game based on Comcast USA Network’s subsidiary Mister Robot.
The vice-president of the games division, Mike Verdu, presides over this pell-mell. Netflix snatched Verdu from the title of augmented and virtual reality chief Metaplatforms, when that company was known as Facebook. Further down Verdu’s CV, he was running electronic arts‘ mobile games division. It’s an impressive and industry-relevant pedigree.
What it is not
Netflix isn’t putting together a narrowly focused portfolio of games here. Much like its original video content, the company offers options for many different tastes, without zooming in on any particular age group or type of game.
Nor is it a concerted effort to promote the video service. Besides some direct links to the stranger things phenomenon, you will find that most game titles have nothing to do with Netflix originals.
These video games are not a lucrative operation. None of the games offer in-game advertising or items for purchase on the gaming platform. As long as you have an active subscription to the Netflix streaming service, the company does not take a dime out of your pocket.
What it is
Netflix is building a robust framework for its games service. And it’s a very different experience than the rest of the industry.
It’s hard to find a game these days that doesn’t try to squeeze a few extra pennies out of you through advertising and/or microtransactions. Where Netflix re-releases games previously available on other platforms, the new release comes without the pay-per-game features that might have been present in the original game.
It’s a refreshing change of pace. Netflix does more than just unbox a pre-packaged idea of how video games should work, and specifically how the publisher should monetize the product. And we’ve seen Netflix play that role before when it upended the standard operating procedure for movie rentals with its iconic red DVD shippers – and again, when the digital streaming service made us forget about DVDs. .
The Netflix model has so far attracted 222 million paying subscribers, generating $29.7 billion in revenue and $5.1 billion in net profit last year. Yet, after all these years, no one is doing exactly what Netflix is doing in the video streaming market. Each competing service includes a combination of commercial breaks, banner ads in their video selection menu systems, ways to charge the customer in addition to monthly subscription fees, and more.
There is a place for these competing ideas, and some of the alternative services are winners as well. But Netflix has found the secret sauce to creating the most popular video streaming service on the planet, and the video game business might just be next.
Wait and see. In a few years, we’ll probably hear that Netflix is separating games from video content, creating another subscription service. Some users may complain or even cancel their subscriptions as Netflix shares plummet, echoing the Qwikster debacle of 2011. And then Netflix gets a second stream of revenue (the microscopic DVD service doesn’t really matter anymore) with its own goals and overall growth prospects, just as the video service did in 2012 and beyond.
I look forward to seeing this scenario unfold over the next few years. As a shareholder, I expect great things from this jostling side. There will be some turbulence along the way, so you should be prepared to buy Netflix in the event of a dip.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end consulting service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.