It's been nearly a year since Netflix (NFLX -0.63%) launched its first mobile games. The initial slate of five titles has grown to 35 games, ranging from simple puzzles and tabletop games to fast-paced car racers and complex adventures.
But that's just the beginning of Netflix's gaming ambitions. The company already has 55 additional titles in production, and the gaming segment keeps buying more developer studios. This week, for example, Netflix picked up Spry Fox, a maker of wholesome original games such as Cozy Grove and the Alphabear series.
With Spry Fox under its wing, Netflix now controls six game development studios. Investors and fans might focus on Netflix's ad-supported streaming service and the upcoming suppression of password-sharing users, but the company has not slowed down its exploration of the gaming space.
Where is Netflix going with the mobile-gaming idea, and how does the Spry Fox acquisition fit into these plans?
Image source: Getty Images.
Netflix and video games
Netflix's vision for game development was always ambitious. "Just like our series, films, and specials, we want to design games for any level of play and every kind of player, whether you're a beginner or a lifelong gamer," the launch-day announcement stated on Nov. 2, 2021.
In other words, Netflix wants to be the Netflix of video games. When choosing a template for the next target market, why not start with your own greatest hits?
So far, the company has delivered several dozen game titles across a wide range of styles and genres. Netflix has acquired four independent studios and started up two more by the shoestrings. Presiding over this effort is the gaming arm's vice president, Mike Verdu, who used to run the virtual reality division of Meta Platforms.
Netflix's gaming strategy reminds me of the company's early venture into video-streaming services. Like the streaming platform, Netflix games started life as a completely free add-on for existing subscribers. And the streaming catalog was far from impressive in the early days, offering just a handful of titles and an awkward selection of supported hardware platforms. Likewise, the gaming effort is fairly small today, and independent reports suggest that less than 1% of the company's video-streaming users have tried any of the games yet.
But the situation is also different in a couple of important ways. Netflix was a first mover and early innovator in the video-streaming market. In mobile games, the company faces a firmly established army of existing specialists. And besides the late entry into a pretty mature sector, Netflix has made some strange design choices.
For example, I don't love the multistep experience of installing and launching Netflix games through the normal Android or iOS app stores. I'm sure the process will improve over time, but it's not the super-simple, user-friendly joy you'd normally expect from a Netflix offering.
How Spry Fox fits into Netflix's plans
The Spry Fox deal isn't big and splashy, like the 65-million-euro ($64.5 million) buyout of Next Games. Financial terms of this agreement have not been published, which points to a fairly small sum changing hands.
The Spry Fox team clearly believes that the offer was generous enough, though. The studio's statement about this deal says that it now can double down on developing great games without worrying about the moneymaking side of the business. Netflix subscriptions provide that security and financial support.
On the Netflix side of the equation, the deal is presented as one more small wrinkle in a long-term plan.
"We look forward to creating games with a studio whose values -- a relentless focus on employee and player joy -- align closely with ours," the Netflix blog post said. "Our games journey has only just begun."
Netflix is dipping its toes into a massive pond here. The mobile-gaming market is worth more than $150 billion in global revenue this year, according to Statista. That's roughly twice the size of the video-streaming business opportunity.
Netflix won't dominate this sector, the way it's doing in video streaming, but even a modest foothold in the vibrant video-game market could provide a healthy revenue stream. Not yet, of course, since gaming is just a free add-on to the streaming experience today.
But I do expect Netflix to monetize this idea eventually. Remember, the first video streams were available four years before the Qwikster moment when Netflix turned streaming into a separate subscription service.
So assuming that the video-game platform starts to build some momentum and user interest, we should see a moneymaking version of Netflix games in three to five years. The company business model is diversifying again, and that has to be a good thing for us long-term investors.
