"Coming soon to Netflix... Video Games?"

Netflix played a starring role in the reinvention of how we all watch television. It looks like video games may be next. The streaming giant have announced plans to enter the gaming market.

This is a fascinating, and potentially disruptive, decision. Netflix explained their move as being “similar to our expansion into original films, animation and unscripted TV”. They added that this would be “relatively small” to start. But with Netflix - and their 200 million subscribers - relatively small can quickly escalate into something relatively massive.

Gaming is a big industry - and it's changing

Most of us have fond memories of small, handheld Nintendo Gameboys – but the modern games market is anything but small. UKIE’s annual games market valuation for the UK alone is ￡7bn. ￡3.9bn aline relates to digital sales (Source: 2020 UK Consumer Games Market Valuation - UKIE).

The consumption of the gaming products is changing - fast. Microsoft, creator the Xbox, now offer the ‘Game Pass’. This includes over 100 high quality games available across a range of devices on the cloud for ￡10.99 a month. Does that sound familiar to anyone?

And Microsoft isn’t just using digital to leverage a ‘retro’ back catalogue for ancillary revenue. In August 2021 they released Microsoft Flight Sim for consoles straight onto Gamepass – RRP of approximately ￡60. To the delight of many fans, major franchises Forza Horizon and Halo have been a promised additions to Game Pass in the Autumn of 2021. These are big titles that traditionally would have top of Christmas present lists.

Now enter Netflix – the world’s largest global streaming provider.

Why is Netflix a potential big-player?

The first factor to consider is Netflix’s vast size and scale. There are no recent publicly available subscriber numbers for Game Pass, but industry speculation indicates the numbers are between 15m and 25m. This is a fraction of scale of Netflix, who reported 209m subscribers in their half year results. Netflix has the advantage of a global technology platform and vast global user base that creates enormous potential for gaming to be streamed into global markets across our mobile devices, computers and TVs.

Netflix have not declared how they will develop content but more gamers means more appetite for content. Content is an area that Netflix have openly declared they are looking at on a global scale. The half year results show that in just six months $1,812 million was invested in produced content. As Netflix look to build their expertise, they may look to independent gaming companies to partner with them on this exciting new venture. Netflix may experience some ?disruption as they look to build their own team of executives and experts. And of course, there may be speculation of a large acquisition or merger.

Another major player - Disney – follows close behind Netflix, with rapidly rising subscriber numbers with their platform Disney+. This company have a proven track record of leveraging their own IP into diverse product streams and so will undoubtedly be considering their own strategy. And this is before gaming's big-hitters decide how they will respond.

Will cloud based gaming work? Fast global advancements in internet speed has underpinned Netflix’s phenomenal global growth. Further developments in handheld technology, computing and 5G mean Netflix have the potential to leverage their enormous user base and fundamentally change the world of gaming, just as it has done with television. Gamers may not need consoles and high-powered laptops in the future.

Watch this space... although my RSM colleague Hannah Matthews has looked cloud based gaming from the perspective of the high-end gamer and the obstacles Netflix may face in the future.

“Can Wii use Netflix?” - Hannah Matthews looks at cloud based gaming from the perspective of the gamer

If done right, this could turn the gaming industry on its head. If they get it wrong - potential for serious damage to their brand and a huge financial blow. The question Netflix must ask itself - will serious gamers abandon hardware?

The move from downloading games onto hardware to a cloud based streaming service is, in my opinion, unlikely to be popular with serious gamers at present for a couple of key reasons:

• Accessibility to games – Developers and software houses are often tied into exclusivity contracts with certain platforms – especially on the popular franchises. Gamers want to access their favourite games and play in real time with others. If Netflix doesn’t have the right games on its platform people simply won’t subscribe
• Quality of gaming experience - A streaming service will struggle with high graphics games. To achieve a similar level of quality to those downloaded onto hardware streaming capabilities need to massively improve. Frames per second drop within the game will happen if multiple users are in the same household, seriously affecting the user experience. Who else has already struggled this past year with competing demands for a Netflix session while someone in the same house has a Teams call? Subscribers will switch off in seconds if their games constantly buffer or pixelate.

At the moment, unless a top end internet connection is available to players all of the time, the functionality and gaming experience for the user just wouldn’t be up to scratch. Does the UK have top end internet “on the go” everywhere? Until the answer is yes, streaming just won’t cut the mustard… yet.