NETFLIX knows video games are killing them, and the only way to survive is to adapt. Reid Hastings, CEO and founder of NETFLIX, recently stated, “We compete with (and lose to) Fortnite more than HBO”.
At the surface streaming services seem to be competing with each other to produce the best movies, TV, and streaming content, but in reality, they are competing for consumer attention.
Right now gaming is destroying movies when it comes to grabbing and keeping user attention, and NETFLIX knows it. As a result, they are making a monumental move to get into the gaming space before it’s too late.
Why is NETFLIX entering the gaming space? How will it help their bottom line? Can they truly compete with industry giants like Steam and Epic Games? The answers to all of those questions can be found below.
Video games as an industry make up a larger market than both the global movie industry and North American sports industries combined. With global gaming representing $180 billion in total revenues during 2020, and movies representing only $100 billion in total revenue, it’s easy to see why Netflix wants a piece of the pie.
Along with large overall numbers, the gaming industry has seen massive growth as a result of the pandemic. More people are staying at home with lots of extra time on their hands and gaming has become the go to way to fill that time. In 2020 the gaming industry grew by 20% in total revenue.
Competing for Absolute Attention
When a consumer feels bored or has some free time they have a lot of options for how to fill that time, and seemingly more often than not these days consumers are choosing to spend that time playing video games instead of watching NETFLIX.
While watching NETFLIX consumers have no problem watching TikTok, texting friends, or completing a host of other activities while they watch, the same can not be said for gaming.
Games require complete attention from the user and they are designed to grab and keep that attention at all costs. It’s very difficult to defuse a bomb, rob a bank, or win a game while watching Tik Tok or youtube at the same time.
Netflix’s decision to start with mobile gaming proves they are very aware of their attention-grabbing motive. By beginning with mobile games Netflix entirely removes the user’s ability to use other apps while playing.
Increasing Customer LTV (LifeTime Value)
Video games have a far longer lifespan when it comes to consumption than movies or TV Shows. With the majority of shows and movies, consumers watch one time and when they are done they move onto the next show. With video games the story is very different.
Video games can remain popular for years. Grand Theft Auto 5 was released in 2013, and still averages over 140,000 daily active users, with more than 200 million total unique users during its lifetime.
Part of the reason there is such incredible replay value in video games is because of UGC (user-generated content). In games like GTA and Fortnite players can create their own game modes, maps, cars, modifications, and all sorts of other things that keep them playing.
On top of that, there is an entire ecosystem created around the game that keeps players coming back for more. Players stream the game, which attracts new users to play, who then create more in-game content, then that content is streamed and the cycle starts all over again.
This flywheel keeps users engaged at all times and truly makes it so there is no reason to leave NETFLIX.
From an economic standpoint games cost just about the same to produce as blockbuster movies, and yet produce far more interaction and consumption long term. GTA V costs around $265 million to create and market, while a blockbuster movie like Avengers Infinity War costs around $316 million to produce.
While Avengers Infinity War made over $2 billion at the box office, once people have already gone to see it, it loses a lot of its value. On the other hand video games like Fortnite have been able to remain relevant and rake in around or above $2 billion USD every year since 2018.
The profit margin on video games is absolutely massive, and it applies to more than just big-time games. Indie games like Fall Guys and Among Us cost far less to produce and yet have been able to rake in massive revenue. Among Us in November of 2020 achieved 500 million monthly active users, and raked in $50 million during that month alone.
Can They Compete?
Getting into the gaming space in a successful way is going to be a challenge, but NETFLIX has made a good decision to begin its journey in the mobile arena. This move will have them competing less directly with EPIC Games and Steam, and will also allow them to create games that require far less development cost.
The other major advantage NETFLIX has is distribution. With 200+ Million users already signed on, not to mention many of those accounts including up to 6 members of a family, Netflix already has a massive audience to distribute their games to.
While the process will definitely be very difficult, NETFLIX is attacking the issue in the right way, and they have big advantages that give them a true fighting chance.
Cameron Overton is a contributor, professional ESports coach, part of NOVOS.gg’s business development team, and a professional content writer in the Gaming field for the last couple of years.
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