Netflix Acquires A Video Game Company: How The Deal Expands Cross Promotional Opportunities

Streaming giant Netflix Inc NFLX announced Wednesday an acquisition that could continue the company’s push into the massive video game sector. Here are the details on the acquisition and why it's important.

What Happened: Netflix is acquiring Next Games, a Finnish gaming company founded by Teemu Huuhtanen in 2013. The acquisition will see Netflix pay 2.10 Euros per share for the publicly traded company.

The acquisition values Next Games at 65 million Euros ($72 million) and is expected to close in the second half of 2022.

The company is behind mobile games that include “Stranger Things: Puzzle Tales” and “The Walking Dead: No Man’s Land.”

Netflix and Next Games have an existing relationship thanks to a collaboration on the Stranger Things mobile game.

Next Games also counts AMC Networks Inc AMCX and Lions Gate Entertainment Corp LGFALGFB as investors.

AMC Networks was an investor in Next Games’ 2014 Series A and 2016 Series B rounds and together with investor Jari Oraskainen own 43.3% of the gaming company, which could provide a nice return on investment to the media company.

Next Games reported revenue of 12.9 million Euros for the most recent quarter, up 1% year-over-year. Full fiscal year 2021 revenue of 25.2 million Euros was down 7% year-over-year.

The company celebrated the six-year anniversary of “The Walking Dead: No Man’s Land” in October and announced the game had hit 23 million downloads and a cumulative total of 131 million Euros in revenue since its 2015 launch.

Related Link: Netflix Falls On Q4 Earnings Results: Here's Why And What Investors Need To Know 

Why It’s Important: Netflix hinted at a push into the video game space in April 2021.

Netflix launched Netflix Games in November for iPhone and iPad users using the Apple Inc AAPL iOS App Store and Android users through the Google Play Store from Alphabet Inc GOOGGOOGL.

The first games from the company included two based on the “Stranger Things” franchise and three puzzle games. Netflix also released a spinoff of the popular video game franchise, “League of Legends.”

“Hextech Mayhem: A League of Legends Story” was released as an exclusive mobile game to Netflix and is also available to purchase for PC players and on the Nintendo Switch from Nintendo NTDOY.

Riot Games, which is owned by Tencent Holdings ADR TCEHY partnered with Netflix on “Arcane,” a show set in the “League of Legends” universe.

The partnerships with Riot Games and Next Games have shown that Netflix is using games to help promote and grow brand awareness for shows and vice versa, a strategy that could pay off in the long run.

The company ended the fourth quarter with 222 million paid memberships, giving it a massive audience to which it can cross promote its games. People who launch the Netflix Games app without an account for the streaming platform are prompted to sign up for a Netflix account, something that could boost trials and memberships.

Right now the games are offered at no cost to Netflix subscribers, which along with increased in-demand movies and shows, can help justify the price increase on monthly plans announced at the start of 2022.

“We are excited for Next Games to join Netflix as a core studio in a strategic region and key talent market, expanding our internal game studio capabilities,” Netflix Vice President of Games Michael Verdu said. “While we’re just getting started in games, I am confident that together with Next Games we will be able to build a portfolio of world-class games that will delight our members around the world.”

Owning a video game studio could lead to Netflix partnering with more media companies to create video games based on upcoming Netflix shows and movies.

NFLX Price Action: Netflix shares are down 2.3% to $377.14 on Wednesday.