Can Netflix Profit from Video Games?

According to the Wall Street Journal, executives at Netflix (NFLX) have had discussions in recent months about how to make money from its video games.  Netflix games are currently free for all subscribers as part of the company’s strategy to keep users returning to the streaming service when their favorite shows are idled or between seasons. 

The foray into pay-to-play videogames would be a new strategy for Netflix.  According to people familiar with the discussions, some of the ideas discussed include in-app purchases, charging more for sophisticated games it is developing, or giving subscribers to its ad-supported tier access to games with ads.  Netflix has previously resisted putting ads or in-app purchases in its games.

The discussions among Netflix executives on how the company is attempting to monetize its video games would be pivotal and suggest a change in strategy.  Back in April, Netflix Co-CEO Peters told investors, “We want to have a differentiated gaming experience, and part of that is giving game creators the ability to think about building games purely from the perspective of player enjoyment and not having to worry about other forms of monetization, whether it be ads of in-game payment.”

Netflix's strategy to get into the video gaming business is long-term.  The company began offering video games in 2021 that consist of mobile games that subscribers can download for free.  Netflix also licenses popular games like “Grand Theft Auto: San Andreas,” which constituted 11% of Netflix’s game downloads in 2023.  The number of users downloading Netflix games is growing but remains small.  According to Sensor Tower, Netflix games were downloaded 81.2 million times globally last year, a nearly threefold increase from the 28.7 million downloads it had in 2022. However, the popularity of its videogames has yet to catch on, as fewer than 1% of Netflix’s global subscribers were playing its games daily as of October, according to Apptopia. 

Netflix has bought several small gaming studios over the past few years and has started to create more games focused on its own shows and movies.  It can cost hundreds of millions of dollars to develop and make a video game, a reason why Netflix is discussing the possibility of charging customers to play.  Analysts estimate Netflix has spent about $1 billion on buying gaming studios and building the business, well below the $17 billion it spends a year on its shows and movies.  Some analysts are questioning Netflix’s foray into the video game business.  Capital Group, which holds a large stake in Netflix, questioned the value of the push into the gaming business and expressed concerns it was taking resources away from programming.

On the date of publication, Rich Asplund did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.