Since entering the gaming space last year, Netflix (NFLX +3.23%) has released almost two dozen mobile games that are exclusively available to subscribers of its streaming video service. The lineup of iOS and Android titles includes Bowling Ballers and Shooting Hoops, along with show tie-ins like Stranger Things: 1984. Netflix says it plans to have at least 50 games available by the end of 2022.
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But there are indications that Netflix's entry into the video game market is not off to a great start. While the streamer has over 220 million subscribers, app insights company Apptopia estimates Netflix's games have only been downloaded 23.3 million times globally across Apple's App Store and Alphabet's Google Play.
Apptopia also says 1.7 million people play Netflix games on a daily basis. If those stats are correct, then it indicates Netflix could be pursuing a fruitless strategy.
Netflix wants to diversify its appeal
When compared with its streaming peers, Netflix is unique in that it doesn't have any notable ancillary businesses that it can rely on to drive significant revenue. Its legacy DVD rental service still exists, but that brought in just $200 million in 2021, a tiny fraction of the almost $30 billion the company generated last year.
By contrast, Amazon has several businesses including retail and web services, while Walt Disney is an all-round entertainment company with theme parks, TV networks, theater shows, and more.
Netflix has lost about 1.2 million subscribers over the last two quarters. In calls with investors, Netflix executives have stressed the company's ambitions in the gaming space as key to reversing declining customer numbers. Co-CEO Ted Sarandos has told shareholders that the company is focused on creating "games that people really love," suggesting such titles could eventually become "a big revenue and profit stream."
NASDAQ: NFLX
Key Data Points
Netflix is trying to become a player in a growing industry
To help it reach its goals, Netflix has acquired three games studios over the past year: Night School, which is known for Oxenfree; Next Games, developer of Stranger Things: Puzzle Tales; and most recently Boss Fight Entertainment, maker of strategy title Dungeon Boss.
Following the takeover of Boss Fight Entertainment, Amir Rahimi, Netflix's vice president for games studios, reasserted the streamer's ambitions. "[W]e hope to build a world-class games studio capable of bringing a wide variety of delightful and deeply engaging original games -- with no ads and no in-app purchases -- to our hundreds of millions of members around the world."
As Rahimi said, Netflix does not intend to profit directly from individual games. So for them to become a "profit stream" for the company, they have to add value to its subscriber plans. And judging by Apptopia's numbers, that's simply not happening. At least, not yet.
The subscription gaming industry was worth an estimated $7.8 billion in 2021, a figure expected to roughly double by 2027. With this in mind, it makes sense for Netflix to try to get into the space. But it's going up against some of the biggest names in gaming: Microsoft's Xbox Game Pass, Sony's PlayStation Now, and Nintendo's Switch Online -- from companies that have been in the video game arena for decades.
As things stand, Netflix's biggest barrier to success is not 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 taking on an expensive venture that is showing little sign of working.
That's not to say Netflix won't eventually come up with some hits that really do drive customer sign-ups, but the longer subscribers ignore its efforts, then the less likely it will be to justify the investment. And for a company that is trying to deliver growth in a difficult economic, winning at games might be a challenge too far.
