August 1, 2021

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Netflix bets on video games to keep consumers’ attention

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Posted on Jul 21, 2021 at 7:46 amUpdated on Jul 21, 2021, 7:47 AM

To face increasingly fierce competition in the world of video platforms, Netflix is ​​pulling out its parade. And confirms to launch in turn in the video game.

“It’s about strengthening and improving our service, not creating a separate source of profit,” said Reed Hastings, co-founder of the company. The games, initially designed for smartphones and tablets, will be added at no additional cost to existing customers.

Increasingly fierce competition

It will be “a new category for us, as our expansion into films, animation and television shows,” says Netflix. The streaming giant has also, to develop this new offer, recruited Mike Verdu, former of Electronic Arts and Oculus (Facebook).

A strategy intended to face a growing number of competitors. The video-on-demand veteran, which is approaching 210 million paying subscribers, posted net income nearly doubled in one year in the second quarter. But, at $ 1.35 billion, it remains below the expectations of a market worried about seeing the platform gradually lose its lead over more and more competitors: Amazon Prime Video, but also Disney +, Apple. TV +, HBO Max, NBCUniversal’s Peacock and a host of entertainment platforms.

Netflix praised itself for being “ahead of its forecast” in terms of subscriber growth. But that does not change the conclusions of analysts: “Netflix seems to have reached the saturation of its market in the United States”, asserts Eric Haggstrom of eMarketer. He acknowledges that the company has been “able to raise prices and increase revenues despite increased competition from cheaper services”, but notes that “Netflix has lost significant market share to Disney.”

Confident in the future

From April to June, the platform garnered $ 7.3 billion in revenue, up 19%. For the third quarter, it expects 3.5 million additional paying subscribers, a level of growth over two years equivalent to that before the pandemic. This result would reassure investors, who wonder if Netflix will run out of steam after having largely benefited, last year, from the lockdowns linked to the health crisis and from its status as a well-established streaming pioneer.

The Californian company ensures that its prospects for earnings remain immense, because streaming still only represents 27% of the time spent in front of television screens in the United States (including 7% for Netflix), against 63% for TV channels ” linear, ”according to a study by Nielsen cited by the group.

Diversification efforts

“Knowing that we are less mature in other countries and that this does not include mobile screens, where our share of user engagement is even lower, we have confidence in our growth reserves,” explains Netflix. But in a business model based on subscriptions, not advertising, more attention doesn’t necessarily translate into better revenue. This is why Netflix has undertaken to diversify, with an online store of derivatives and the recruitment, this month, of a manager in charge of video games.

A solution that seems to be appreciated. “It’s a good tactic to keep and even attract new paying subscribers at the margin,” said investor Gene Munsters of Loup Ventures on Twitter. “In all, there are about 2 billion monthly gamers in the world. “New sources of income such as derivatives and potential future experiments such as theatrical releases, podcasts and video games could bring growth,” says Eric Haggstrom. “But success in these areas is far from assured,” he tempers.

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