Netflix bets on merchandise and … video games

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AFP

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Jul 21, 2021

Proof that video games are becoming essential for any self-respecting platform, Netflix is ​​also embarking on this vein, as a means of diversifying itself in the face of an early saturation of its market.

Netflix is ​​betting on video games to keep consumers’ attention. – AFP Archives

“This is about strengthening and improving our service, not creating a separate source of profit,” Reed Hastings, co-founder of the company, said at an analysts’ conference broadcast online Tuesday after the publication of quarterly results.

The games, initially designed for smartphones and tablets, will be added at no additional cost to existing customers.
It will be “a new category for us, as our expansion into films, animation and television shows,” Netflix detailed in its statement.

The video-on-demand veteran is approaching 210 million paying subscribers. In the second quarter, it made almost double its net profit from last year of $ 1.35 billion, but that result fell short of expectations from a market worried that the platform would slowly lose its lead. over its many competitors.

The group was pleased to be “ahead of its forecasts” in terms of subscriber growth, and recalled that the craze for video on demand during the pandemic was preventing normal comparisons.

But that does not change the conclusions of analysts: “Netflix seems to have reached the saturation of its market in the United States”, asserts Eric Haggstrom of eMarketer.

To dethrone the TV

He acknowledges that the company has been “able to jack up prices and increase revenues despite increased competition from cheaper services,” but notes that “Netflix has lost significant market share to Disney.”

From April to June, the platform garnered $ 7.3 billion in revenue, up 19%. For the third quarter, it expects 3.5 million additional paying subscribers, a level of growth over two years equivalent to that before the pandemic.

This result would reassure investors, who wonder if Netflix will run out of steam after having largely benefited last year from lockdowns linked to the health crisis and from its status as a well-established streaming pioneer.

The competition has since become fierce with old ones like Amazon Prime Video, and especially the recent Disney +, Apple TV +, HBO Max or even Peacock from NBCUniversal. Not to mention all the entertainment platforms that monopolize the attention of consumers, from video games to social networks.

The Californian company ensures that its earnings prospects remain immense, because streaming still only represents 27% of the time spent in front of television screens in the United States (including 7% for Netflix), against 63% for the so-called TV channels. “linear,” according to a study by Nielsen cited by the group.

Conquer the players

“Knowing that we are less mature in other countries and that this does not include mobile screens (where our share of user engagement is even lower), we have confidence in our growth reserves,” explains Netflix.

But in a business model based on subscriptions and not on advertising, more attention doesn’t necessarily translate into better revenues. Netflix has therefore undertaken to diversify, with an online store of merchandise and the recruitment this month of a manager in charge of video games.

The subscription-based operation will allow developers to not have to worry about integrating ads or buying bonuses, said COO Greg Peters.

Above all, “our job is to create incredible universes and characters, and we know that viewers want to go further,” he added.

“It’s a good tactic to keep and even attract new paying subscribers at the margin,” Loup Ventures investor Gene Munsters said on Twitter. “In all, there are approximately 2 billion monthly gamers in the world.”

“New sources of income such as derivatives and potential future experiments such as theatrical releases, podcasts and video games could bring growth,” says Eric Haggstrom. “But success in these areas is far from assured.”

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