Why Netflix's Video Game Launch Is Critical For Streaming Platform: Matthew Ball

Investors and metaverse expert Matthew Ball has released his latest industry essay, and the subject of the new piece explores why Netflix Inc NFLX could be getting into video games and what kind of success the company may have.

Ball is a partner in the Roundhill Ball Metaverse ETF META, which began trading earlier this year.

Netflix And Video Games: While Netflix getting into video games has been rumored for years, the talk really heated up this year when the company offered hints during an earnings call in April.

Ball has argued for Netflix to get into video games dating back to 2018, when he said it was unlikely the streaming giant would pursue live sports or live news, but a launch into gaming “felt inevitable given the company’s culture and growing scale.”

Netflix CEO Reed Hastings said in 2018 that "Fortnite" was the company’s biggest competition. The statement came 41 days after Ball tweeted a similar thought about a competition for entertainment time.

Why Netflix Is Getting Into Games: Ultimately, Netflix’s entry into the game is more about leisure time than money, Ball argues.

“Hollywood’s newfound focus on attention competition reflects a fundamental and relatively recent change in consumer behaviors and options,” Ball said.

Every company is an entertainment company, and some of the most valuable intellectual property in the world is franchises, of which Netflix has created several.

Video games become another way to keep Netflix customers within the company’s ecosystem and not send them to a third-party company that would launch games from its IP.

The Challenges Netflix Faces: Gaming could be particularly hard for Netflix to enter, as it will have to spend money to build out its technology and portfolio to be successful, Ball said. 

“The most popular and lucrative games in the world are online and multiplayer. This requires Netflix to create and operate extensive and highly social player account systems,” he said.

Netflix could source some of the operations to Amazon Inc AMZN for its game tech, or Microsoft Corporation MSFT, Valve, Discord or Epic Games, but that could represent a cultural shift, Ball said.

Launching mobile games could prove problematic given the control that companies like Apple Inc AAPL have and the revenue cut they take, he said. 

Ball argues that Netflix could launch a cloud game streaming service.

The ultimate solution could be acquiring a company with gaming experience. Ball mentions Ubisoft UBSFY, which could come with a $10-billion price tag.

Ubisoft has huge franchises like "Assassin’s Creed," but the price would represent what the company spends annually on programming to grow a small segment, he said. 

Related Link: Netflix Could Expand Into Video Games: Report 

What Netflix Could Be Doing: Reports are that Netflix will add casual, single player mobile-focused games. The games will come with no additional fee and won’t contain microtransactions or ads.

Ball said this approach is similar to Apple Arcade, which is offered at $5 a month to get access to around 200 mobile games.

This strategy could show that Netflix doesn’t foresee video games being a huge hit. Netflix has 210 million subscribers and could have around 700 million monthly or daily users.

This reach is larger than many companies in the gaming field.

“This incremental engagement will have a non-zero impact on churn, while also helping to fortify the company’s IP,” Ball said.

What’s Next For Netflix Gaming: Netflix’s gaming strategy should be considered long-term oriented rather than a gimmick or a distraction from competition, Ball said.

“The focus on lightly casual, single-player mobile games minimizes the cost and size of individual games, as well as the backend technology needed,” he said. 

Skipping microtransactions and having the title located inside the Netflix app could also help with a hurdle of having quality games and happy customers.

“To thrive in the ‘Leisure Wars,’ Netflix will need to start building and testing and creating. It need not rush, but it cannot just wait.”