With subscriber growth hitting headwinds in 2021 after a COVID-19-led surge in 2020, Netflix recently made a splashy announcement that it was hiring a gaming executive, Oculus and EA alumnus Mike Verdu, to build up the company’s newly minted interactive division. Reports soon followed that Netflix would start offering video games on the service within a year. Details are sparse at this point, but the assumption is that Netflix will create games around popular Netflix franchises—think Stranger Things—as a way to “enhance and deepen member engagement,” as a job listing recently put it.
The move isn’t all that surprising. There have been rumblings about Netflix looking to hire a top gaming exec within the gaming industry for a year now, and Netflix cofounder and co-CEO Reed Hastings has referenced Fortnite as one of Netflix’s biggest competitors. But it is audacious for a company that has been so disciplined about refraining from sideline businesses, instead keeping its focus on doing just one thing really well: offering movies and TV shows to stream.
That single-mindedness seems to be weakening, however, as the streaming wars rage on: Amazon Prime is now head-to-head with Netflix when it comes to subscribers, with over 200 million worldwide, and it potentially just boosted its content library with the purchase of MGM for $8.5 billion (if regulators permit it). Apple TV Plus is still playing subscriber catch up, but it’s gaining critical acclaim with shows like Ted Lasso, which just scored 20 Emmy nominations, including Outstanding Comedy Series. HBO Max and Disney Plus, meanwhile, are loading up with tentpole offerings, such as, respectively, Space Jam: A New Legacy and Black Widow, from their parent companies.
With pressure from all sides, and an unspectacular outlook ahead as COVID-19 (potentially) begins to subside—in advance of Netflix reporting second-quarter earnings after the market close on July 20, the company projected that it would add just 1 million subscribers in the quarter—Netflix is looking for new ways to boost subscribers, its one and only revenue stream, and justify future price hikes.
But venturing into games has many observers scratching their heads, given the technical and financial challenges of the games industry. “When I say it’s impossible and Netflix is going to fail miserably, I’m not saying that because I’m a Netflix hater,” says Wedbush Securities analyst Michael Pachter. “I’m saying it because to me this is like Starbucks saying, ‘We’ve decided to get into the FedEx business because people come to our store already. They can pick up their package when they get their coffee.’ It’s like, ‘Are you crazy? Why do you think you can do that?‘”
Pachter pointed out the cost of building up a games business, recalling how Disney abruptly shut down its Infinity gaming division in 2013, even after it had generated $1 billion in revenue. “They couldn’t make any money,” Pachter says. “Their games were awesome, but they couldn’t scale it. Their overhead was so great, the cost of games was so great, even with a billion dollars in revenue.”
ABOUT THE AUTHOR
Nicole LaPorte is an LA-based senior writer for Fast Company who writes about where technology and entertainment intersect. She previously was a columnist for The New York Times and a staff writer for Newsweek/The Daily Beast and Variety