If Netflix (NFLX 3.14%) invested $200 million in a TV series or film and less than 10% of its global subscriber base decided to check it out, management might consider that a disappointment. Well, Netflix is investing heavily in games without much to show for it so far.
Its 24 titles have garnered 23.3 million total downloads since last November, and about 1.7 million Netflix subscribers play one of its games on any given day, according to data from Apptopia. That's a tiny percentage of Netflix's 220 million subscribers.
Management is betting on gaming as it's seen its subscriber base shrink over the last two quarters amid economic uncertainty and increased competition. But it hasn't turned out to be a great bet so far.
Gaming is not the same as film or TV
Netflix has a built-in advantage when it comes to making a TV series or film grow popular. It already has the attention of 220 million households globally, giving it one of the most effective digital billboards in the world. Netflix's user interface promotes discovery and it can recommend titles that are seeing traction or that it thinks you'll like.
When it comes to gaming, though, the process isn't nearly as smooth. There are two challenges for Netflix, both regarding friction in driving users to games.
First of all, Netflix probably won't do well promoting games to viewers on connected TVs or PCs. Few people will see a game on their TV and then go download it on their phone. So Netflix is only promoting games on smartphones.
The issue is that only a tiny percentage of viewing takes place on smartphones and tablets. It was 15% in 2018, but that number may have shrunk further as connected-TV devices have grown increasingly popular.
Second, Netflix must direct iOS users to the App Store in order to download its games. While Android users can directly download games from the Netflix app, a large percentage of the world uses iOS.
In this light, the fact that just around 10% of subscribers have even downloaded a Netflix game shows it's actually doing pretty well at penetrating the users that stream on mobile. But with much more friction in driving game downloads than streaming a new film, there's still a significant challenge for Netflix to overcome.
Is it worth it?
The question for investors is whether games are worth it for Netflix. With the increased difficulty in making a popular game (or maybe I should say in making a game popular), should Netflix just stick with what it does best?
It's already bought three indie game studios, including the $72 million acquisition of Next Games. And it has plans to expand its slate of 24 games to 50 games by the end of the year.
The total investment is likely on par with the media company's biggest film and television productions. But as a percentage of its total content spending, it's still a very, very small portion. The company spent $17 billion in cash on content in 2021, and it'll likely remain around that level in 2022.
The way I view Netflix's foray into games is as a moonshot. The biggest mobile games seemingly come out of nowhere and go viral (think Wordle). The same thing happens with some of Netflix's biggest shows (think Squid Game). The more shots the company takes, the more likely it's going to find a hit. And it has the resources and experience to capitalize if and when it finds that hit. That could result in stronger subscriber retention and monetization down the road.
So while games have been disappointing so far, there's no need for Netflix to give up on them anytime soon.