Netflix Won the Streaming Wars. Its Next Target? Video Games.
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If it wasn’t clear already, last week’s eye-popping shareholder report put all doubts to rest: Netflix won the streaming wars. The company signed up 13 million new subscribers in Q4, 2023, its biggest quarter since Q1 of 2020 when their platform became everyone’s escapist survival tactic. But why is Netflix growing so fast when most of their competitors are, to put it mildly, not?
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If Netflix is the streaming war victor, Andrew Rosen is the platform’s Thucydides. Rosen, a media analyst and the founder of PARQOR, which tracks media and technology trends, has documented Netflix’s ascent – and a lot of flailing at Disney and Warner Bros. Discovery – for years. Now, he’s watching his Pericles advance on a new front. Netflix is going after video games. This new strategy hasn’t gotten a ton of coverage, but it’s working.
The push actually began all the way back in 2021 when Netflix launched a few mobile games based on its streaming content: Squid Game, Carmen Sandiego, and Black Mirror. The company used those experiments – and a flirtation with Assassin’s Creed – to prepare for the big push. Then, in November and December, Netflix licensed and released Grand Theft Auto III, Grand Theft Auto: Vice City, and Grand Theft Auto: San Andreas onto its platform. “Gen Alpha and Gen Z consumption behaviors increasingly have gaming alongside streaming as part of their media diet,” Rosen says, explaining the streamer’s logic.
The potential value of video games for Netflix, Rosen explains, is decreased churn. Users who sign up for the service and start playing a game are less likely to quickly cancel their subscriptions. If shows last half an hour to an hour and movies last 115 minutes, games represent an engagement hack. GTA can be played over the course of months, if not longer. In a world where it arguably makes sense to hop between streamers (“does Apple have Killers of the Flower Moon yet?”) Netflix is becoming less reliant on month-to-month programming for retention.
That’s true even if a relatively small number of Netflix subscribers play the games. Netflix games were downloaded more than 81.2 million times last year, according to the market research company Sensor Tower, but as of last October, fewer than 1% of Netflix’s global subscribers were playing games daily, app research platform Apptopia reported recently. GTA may have changed that – Netflix claims higher engagement – but arguably it doesn’t even matter.
“The cynical take is that Netflix’s scale reflects how it won yesterday’s battles,” Rosen explains. “It has become so dominant that it has become a large incumbent whose customers prefer the incumbent product.”
If Big Red is the one to copy – and the one to beat – the next step for gaming might involve Netflix ramping up what it’s currently testing out in a few countries, games for desktop and TV. That means competing more seriously with, say, Riot Games (League of Legends), Mojang Studios (Minecraft), and Blizzard Entertainment (World of Warcraft). Netflix could also pursue revenue through in-app purchases, but that presents a cascade of parental control issues.
The biggest dilemma facing Netflix right now, Rosen says, isn’t what to do, but whether to do it. It’s the “Innovator’s Dilemma,” Rosen says, citing a term coined by Harvard Business School professor Clayton Christensen, who believed successful innovators tend to become less focused on continued innovation than on the maintenance of what works. This can lead massively successful companies like Netflix (or its predecessor, Blockbuster) to stagnate.
“This leaves Netflix vulnerable to nimbler, more innovative companies who can serve the next generations of consumers better,” Rosen says. “And those consumers increasingly are gamers. Whether they choose Netflix for both services remains to be seen.”
How Did Netflix Win?
It set out across the seas. If you ask Rosen, Netflix ensured its victory when it invested in tech, language dubbing and translation.
It righted the ship. Netflix reported an alarming loss of subscribers in 2022 and quickly responded to that by raising prices, introducing an ad-supported tier, and cracking down on password sharing. Lame, but good for the bottom line.
It weathered the storm. Disney+ lost $387 million in Q4 last year. Max lost millions of subscribers in the last few months. Both Disney and Warner Bros. Discovery, which owns Max, announced thousands of job eliminations and billions of dollars in spending cuts in the last year.
It stole the treasure. WarnerBros is so cash-strapped, it let Netflix license HBO shows like Insecure, True Blood, and Titans. As for Disney, it walked away from a major licensing pact with Netflix in 2019, only to close one with them last year. Those deals represent a bending of the knee. (On the investor call this week, Netflix’s co-CEO Ted Sarandos rubbed things in, saying, “I am thrilled that studios are more open to licensing again, and thrilled to tell them that we are open for business.)
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