For years, Netflix has taken over the video streaming industry and has hit the jackpot. We have often heard that progressive companies like Microsoft are trying to become the Netflix of “gaming.” This could have made this big video streaming company enter the game streaming field and again achieve success. But is it that simple? Stay tuned with RivalArium to get a little deeper into it and review the reasons for Netflix’s entry into the cloud gaming field, and finally, check the possible challenges facing this company.
Netflix, where did the story begin?
In a 2002 interview, Netflix CEO Reed Hastings announced that he had changed the company’s vision from “becoming America’s number one DVD company” to a bold twenty-year dream of “becoming the world’s number one entertainment company.” A dream that came true. Netflix has taught us to dream big and act bigger.
Years after this interview, Reed Hastings changed the company’s services from “DVD delivery to doorsteps” to “online streaming of movies and series.” With competitors such as Blockbuster and despite the existing doubts, the CEO finally decided to keep up with the advancement of the world’s technology and meet the customers’ needs. By launching its internet movie streaming service, this company increased its subscribers to 200 million people, its revenue to 20 billion dollars, and its employees to about 9 thousand people. By changing its business model, Netflix has changed how millions worldwide watch movies and TV shows, surpassing Blockbuster.
Netflix on top
Netflix has been on top for years. With its strategy, the company has dominated the highly competitive SVOD market for years. The ultimate focus of Netflix was producing original content in the unique markets of Latin America and Asia and increasing the price in the more profitable markets of North America and Europe. Despite the highest subscription price in the market, the Netflix business still had the lowest customer churn rate in the industry at approximately 3.5 percent.
A success, not eternal!
But it didn’t take long for Netflix to get into trouble. During the Corona era, this company faced problems that continued until 2022. Until June 19, 2022, Reed Hastings announced that Netflix was struggling with difficult circumstances. Even though such issues are common in technology-related businesses, Netflix had the worst possible situation, losing 63% of its market value and about one million subscribers by August 2022.
Looking forward to the cloud gaming service
Despite the drop in subscribers of this service, Netflix considered cloud gaming as a way to eliminate its problems. So, about a year ago, with its long-term dreams for the future, it looked at cloud gaming. In this market, it faced a fierce competitor named Microsoft, trying to take over the 200-billion-dollar gaming market. The tech-giant Microsoft had 10 million users in 26 countries paying for Xbox cloud gaming. Its decision to acquire Activision, in addition to successful franchises such as Call of Duty and World of Warcraft, will also bring the possibility of producing and publishing video games. All this, in addition to strong technical capabilities, ensures its strong presence in the market.
Other competitors of Netflix also wanted to have a share of the market. Its second competitor was Sony, with over three million PlayStation Now subscribers. Although this Japanese company owes most of its fame to its hardware, it also managed to offer an efficient cloud gaming service. Sony survived in this market by acquiring Gaikai for $380 million in 2012.
The technical infrastructure required for cloud gaming service
Apart from strong competitors, Netflix will face the challenge of developing the technical infrastructure to provide cloud gaming services. The technical infrastructure required for a cloud service is beyond Netflix’s capabilities. Unlike movies, cloud gaming involves continuity. A one-second delay in the gameplay will ruin the user’s experience. With thousands of players from all over the world playing at the same time, smooth and fast data management will become a challenge. Matchmaking algorithms, online chat, and anti-hacking systems complicate the matter.
Gaming is an expensive industry that requires significant investments!
Beyond the competition and infrastructure, there is money involved. Gaming is an expensive industry. Game companies play a role in this industry by investing generously in content production. In 2021, Electronic Arts, one of the top companies in this field, created the world’s biggest gaming franchises, Tetris, FIFA, and The Sims, by spending $2.2 billion on research and development.
Netflix also has such capital. In 2021, this company produced over 500 original programs by spending about eight times this amount to create original video content. Investing in making original content was another way to save from decreased subscribers. But part of the expenditures of this capital on games will benefit big investors like Disney and Comcast. In addition, the return on investment from the competitive gaming market will be challenging for Netflix. Because of these capital and infrastructure challenges, Netflix has gone to mobile games…
Mobile games, one step towards cloud gaming
Why are mobile games one step toward cloud gaming? The company faces fewer challenges because this work does not require cloud infrastructure. This work is a trial and error to measure users. By offering free mobile games in its application, Netflix can check users’ reception and calculate the conditions. Also, the release of mobile games is a prelude and groundwork for subscribers to accept Netflix’s cloud gaming service later. Also, since users have to download games from app stores, Netflix can identify and solve possible user challenges.
The only catch is that Netflix has offered its games “without any ads, additional fees or in-app payments.” Ampere predicts that Netflix will eventually catch up and add in-game monetization to its mobile games. By adding this revenue channel, Netflix can offset the additional costs of its service.
After mobile games, Netflix is expected to move to cloud gaming streaming on mobile. But there will be a lot of obstacles ahead:
The twists and turns of cloud gaming on mobile: mobile games popular for gamers and unfamiliar to Netflix users!
The first challenge for Netflix is that almost a third of the service’s subscribers in America watch Netflix movies and series on smart TVs. Their second most popular device is the computer. Android phones of most users have low technical specifications and need help playing the games of the day.
The cloud gaming streaming service on smartphones only offers a little value, at least for current Netflix subscribers. But by streaming games on any device, such as a smart TV or PC, Netflix can create significant value for its service.
Also, according to Newzoo’s report, smartphone income accounts for 50% of the video game market, and the mobile gaming sector has grown the fastest. So, Netflix should push its users to use their Android phones and iPhones more for gaming. Also, the need for Netflix’s culture and advertising is felt in this context because some users need to learn about the existence of games in the Netflix application.
The challenges of mobile game streaming in foreign markets
Netflix will face challenges to streaming cloud games on smartphones in foreign markets and reach audiences in markets such as India, Southeast Asia, and Latin America. Factors such as the unwillingness of end users to pay for the relatively expensive subscription service and the high consumption or slowness of the Internet will be some of the obstacles facing this service. However, Netflix can overcome such obstacles by partnering with telecommunications companies by doing something similar to Nvidia’s move to Malaysia. For example, the telecommunications company Yes in Malaysia first provided the facilities and infrastructure needed for cloud gaming by offering 5G SIM cards. Now, it is trying to make the cloud gaming experience available to Malaysian citizens by providing Nvidia GeForce Now cloud gaming service.
A completely new opportunity to connect gaming and video
Cloud gaming can also provide Netflix with entirely new interactive experiences in line with video content that will be substantially cheaper to support and manage. Interactive Live Events named MILES are one of the examples introduced by the cloud gaming company Gnvid Technologies. MILES are streaming or broadcast events that handle thousands of online users simultaneously. Genvid has already tried collaborating on MILES with Facebook (meta) and is currently developing Silent Hill: Ascension with Konami. Just like Netflix’s own interactive video content like Bandersnatch and Triviaverse, these events or similar ones can bridge the gap between video and gaming and differentiate Netflix from other game streaming services.
Can Netflix turn the page?
Netflix will have difficult years ahead. The gaming industry giants will soon seek their market share with unlimited capital and resources. But despite the current poor performance, the company’s investors should not underestimate Netflix and do not forget that the company was able to turn the unfavorable situation in its favor years ago. So, it is not unlikely that Netflix will defeat its competitors by presenting a winning card this time.
On the other hand, despite all the criticism and analysis, Netflix has just announced that it has 55 more games in production. The managers of this company believe that, unlike Google’s failure, Netflix can succeed because of its approach to cloud gaming as an added value in its business model. Mike Verdu, the company’s vice president of gaming, says:
We do not ask you to sign up for this service as a replacement for the console. So, our business model is entirely different. We hope to play the game over time, typically anywhere.
What do you think? Will Netflix win the competition with cloud gaming superpowers, or will it say goodbye to the competition like Google Stadia?