Since entering the gaming space last year, netflix (NFLX 6.16%) released nearly two dozen mobile games exclusively available to subscribers of its video streaming service. The range of iOS and Android titles includes bowling balls and shooting hoopsas well as show links like Stranger Things: 1984. Netflix says it plans to have at least 50 games available by the end of 2022.
But there are indications that Netflix’s entry into the gaming market isn’t off to a great start. While the streamer has over 220 million subscribers, Apptopia estimates that Netflix games have only been downloaded 23.3 million times worldwide. Applethe App Store and Alphabetis Google Play.
Apptopia also reports that 1.7 million people play Netflix games daily. If these stats are correct, it indicates that Netflix might be pursuing an unsuccessful strategy.
Netflix wants to diversify its appeal
Compared to its streaming peers, Netflix is unique in that it has no notable ancillary businesses that it can rely on to generate significant revenue. Its old DVD rental service still exists, but it only brought in $200 million in 2021, a tiny fraction of the nearly $30 billion the company generated last year.
However, Amazon has several businesses, including retail and web services, while waltz disney is a versatile entertainment company with theme parks, TV channels, theater shows and more.
Netflix has lost around 1.2 million subscribers over the past two quarters. In calls with investors, Netflix executives stressed that the company’s gaming ambitions were key to reversing declining customer numbers. Co-CEO Ted Sarandos told shareholders the company is focused on making “games that people really love”, suggesting these titles could eventually become “a great source of revenue and profit”.
Netflix is trying to become a player in a growing industry
To help achieve its goals, Netflix has acquired three game studios over the past year: Night School, which is known for Without beef; Next Games, developer of Stranger Things: Tales of Riddles; and more recently Boss Fight Entertainment, creator of the strategy title Dungeon Boss.
Following the acquisition of Boss Fight Entertainment, Amir Rahimi, Netflix’s vice president for game studios, reaffirmed the streamer’s ambitions. “[W]We hope to build a world-class game studio capable of bringing a wide variety of delicious and deeply engaging original games – ad-free and without in-app purchases – to our hundreds of millions of members worldwide.”
As Rahimi said, Netflix has no plans to profit from individual games directly. So for them to become a “profit stream” for the company, they must add value to its subscriber plans. And judging by Apptopia’s numbers, that’s just not happening. At least not yet.
The subscription games industry was worth around $7.8 billion in 2021, a figure that’s expected to roughly double by 2027. With that in mind, it makes sense that Netflix is trying to get into the space. But he comes up against some of the biggest names in the game: MicrosoftXbox Game Pass, sonyfrom PlayStation Now, and nintendo‘s Switch Online – from companies that have been in the gaming business for decades.
As things stand, the biggest obstacle to Netflix’s success isn’t direct competition, but rather its lack of compelling titles that subscribers want to play. Considering mobile games can cost $1 million to develop, while more advanced titles are in the eight-figure range, the company is undertaking an expensive business that shows few signs of working.
That’s not to say Netflix won’t end up delivering hits that really drive customer signups, but the more long-time subscribers ignore its efforts, the less likely it’ll be to justify the investment. And for a company trying to generate growth in a tough economy, winning at the games may be too much of a challenge.
John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a board member of The Motley Fool. Suzanne Frey, an executive at Alphabet, is a board member of The Motley Fool. Tom Wilton has no position in the stocks mentioned. The Motley Fool owns and recommends Alphabet (A shares), Alphabet (C shares), Amazon, Apple, Microsoft, Netflix and Walt Disney. The Motley Fool recommends Nintendo and recommends the following options: January 2024 Long Calls at $145 on Walt Disney, March 2023 Long Calls at $120 on Apple, January 2024 Short Calls at $155 on Walt Disney and March Short Calls 2023 at $130 on Apple. The Motley Fool has a disclosure policy.