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What Netflix’s move into gaming means for developers

John S. Kim CEO & Co-Founder of Sendbird
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Originally published on Techcrunch

Netflix sees gaming as a big part of its future in the battle for consumer attention. In July, the company hired Mike Verdu to head a new gaming division, signaling just how serious it is about moving into this new territory.

Verdu has a lot of gaming cred. He most recently served as vice president of augmented reality and virtual reality content at Facebook, and he was also the former head of Electronic Arts’ mobile gaming division. He has had stints at other game developers including Zynga, Kabam, Atari and Legend Entertainment, and he was a game developer himself. In short, Verdu knows this world inside and out, which is a good thing because his decisions could have a profound impact on the future of game development.

Verdu recently hinted at the company’s future plans. On September 28, Netflix announced its acquisition of Night School Studio, bringing some developer talent in house. It’s also been speculated that Netflix will pursue licensing deals with other gaming studios to quickly grow its offerings.

It makes one wonder how Netflix’s plans will influence game developers and studios around the world. More importantly, how will developers respond to Netflix’s entry into the space?

There will likely be some fallout over the next few years as Netflix finds its footing, but ultimately, the company’s move into gaming will push game development further.

Options: A model shakeup

Netflix’s existing audience of over 209 million subscribers translates into a lot of free marketing impressions and low player acquisition costs, giving it an immediate advantage over small studios and independent game developers who often struggle to gain attention for their games. Additionally, Netflix’s gaming division could spell trouble for the huge numbers of mobile game developers who rely on in-app purchases or advertising to make money — Netflix’s subscription model means it controls the user experience and doesn’t have to rely on ads or in-app purchases for its revenue stream.

At first blush, this could seem like a terrible blow to game developers, but it also opens new opportunities. If Netflix starts to gain traction in the gaming market (still a big if), developers will be spurred to innovate to stay a step ahead. This could be in terms of how games are designed and marketed, the actual player experience or how they are monetized. Innovation is good and necessary if developers want to continue attracting players.

It’s fair to say we could see some new models and experiences entering the gaming landscape. Netflix’s move into gaming is an inflection point, as it validates the work that developers have done thus far in capturing the mindshare of billions of players throughout the world. Gaming has gone mainstream, and Netflix will likely force it to evolve even more. This could be the moment gaming grows up.

The path of collaboration

It can be easy to assume the worst about a big public company jumping into your space, but this is not always the case. Based on Verdu’s background and early decisions, he appears to want a collaborative relationship with game developers and studios. This could be mutually beneficial, providing developers with new audiences who may enjoy discovering other games they’ve created outside of the Netflix universe while helping Netflix build its gaming library quickly.

Imagine what small studios or independent developers could do if they could tap into a fraction of Netflix’s resources. They could together create some pretty incredible experiences, prompting developers to create more sophisticated and interactive elements. Armed with the right tools, developers can build such experiences even more quickly, particularly as SDKs for desirable features become more readily available. Netflix has deep pockets and developers know the tech advances that can take their games to the next level.

The question then becomes once the Netflix catalog looks robust and its in- house team is assembled, do they turn off the licensing deals or studio partnerships to do it all in-house? This is a potential risk: Netflix could turn on the developers that help build the business.

But I would posit this has not been Netflix’s M.O. to date. Even though its original movies and shows have been wildly successful and critically acclaimed, it still has studio deals to bring popular movies and shows to its platform. It couldn’t survive without them. People come to Netflix to be entertained and to have options, and that is likely to be true in its approach to games.

Compete, or at least coexist

At the same time, many game developers and studios may adopt the approach that it is more important than ever to build product moats to retain their players so that they resist the temptation to even test out Netflix.

For many games, a sunk-cost moat may currently suffice. That is, players have invested enough time — and often money through in-game purchases — in the game that switching seems like a waste. However, with players’ growing disdain for what they see as pay-to-win games, this model may not be sustainable for much longer, particularly if more enticing free-to-win games emerge, as Netflix seemingly proposes.

Truly, a game’s deepest moat is its community or tribe of loyal players that know its mechanics inside out, often spending hours lovingly crafting mods and other user-generated content to give their fellow players a richer gaming experience.

Games that make it easy for communities to form and thrive (without the need to rely on third-party platforms like Discord) have an advantage in that they keep players engaged for longer. Interactive tools like in-app chat enable players to connect one-to-one, in group chats, as well as via open public channels, making for a more social gameplay experience that powers in-game allegiances and drives loyalty — both to other players and to the game itself.

Final thoughts

There are no guarantees that Netflix will succeed in gaming. Its entry in the space could trigger other media giants to take a shot at the gaming industry. However, as this piece on why Square Enix’s massively hyped and heavily marketed Marvel Avengers game flopped points out, “Success in one industry does not follow directly from success in another.”

Data also suggests that current models of mobile gaming, with in-app purchases and ads, are preferable to a subscription experience. For example, 74% of mobile gamers in the U.S. would watch an in-game ad if they receive an in-app perk, while 82% prefer free mobile games with ads to ad-free, paid games.

So Netflix gaming will be a big experiment, but with Verdu in charge, I wouldn’t bet against it. After all, this company has fundamentally shifted entertainment content consumption on more than one occasion — the shift from Blockbuster movie rentals, the shift to streaming and the shift to original content.

But at the end of the day, it’s important to remember that gamers want to have fun and enjoy a great experience — and that experience will never be one-size-fits-all. There is room for all types of game development, some great collaboration as well as strong competition. There will likely be some fallout over the next few years as Netflix finds its footing, but ultimately, the company’s move into gaming will push game development further. It will become even more creative and magical, and that is a win for the players developers serve.

Categories: Insights