I know some folks think I’m a Netflix hater. Among entertainment analysts, I am definitely among the most skeptical. I criticized Netflix’s foreign film hit rate a few weeks back. I warned about its churn numbers back in July. I’ve always wished it would generate more free cash flow. I asked what would happen when it lost its most viewed show.
But there are pieces of Netflix strategy I actually really like. Take Netflix CEO Reed Hastings’ belief in avoiding M&A deals while they grew. Sure, I think he should have bought a library of content back in 2019 when its valuation was sky-high, but I’d take Netflix’s minimalist M&A approach versus the maximalist M&A approach (think AT&T) every time.
Of Netflix’s recent moves, the launch of an ad-supported tier gets the headlines. But just last week Hastings was touting gaming as the third pillar of Netflix’s strategy. To me, its expansion into video games in November of last year is still the most exciting from a strategy perspective. It’s not a guaranteed hit, and may never end up moving the financial needle, but it isn’t a huge swing cost-wise. So that’s my subject today, and I’m going to break it down using one of my favorite frameworks, the 4Cs: Context, Customers, Company, Competition.
In this article I’ll answer…
Just how big video games, especially mobile games, are as a business
How subscriptions solve a real pain point for video games
Why Netflix bought instead of built their way into this space
And what the potential revenue upside could be
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