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Netflix makes a game and is in a hurry to go to the doctor

The author | wu xi

The original debut | The Blue Axis Tour

Netflix (Netflix), the king of streaming media, has not yet reached its darkest moment in the capital market.

After the U.S. stock market on May 6, Netflix's stock price was $180.97 per share, with a market value of only 80.4 billion yuan; it was also the same trading day that Netflix stock price once hit a record low of 175.81 in the past five years.

It all started last month when Netflix handed over its fiscal 2022 quarterly report. According to the earnings report, Netflix lost 200,000 paid subscribers worldwide in the first quarter of this fiscal year, far below the company's expectation of an additional 2.5 million.

For Netflix, whose business model relies heavily on user growth, this data can be said to be fatal.

On the one hand, the financial report data is not satisfactory, and on the other hand, there is more and more news about Netflix to increase investment in the game field. At first glance, games have the potential to be the antidote to Netflix's depressed stock price performance.

Another reflection that has arisen is that Netflix really wants to pin its hopes for the future on games.

What is the real attitude and positioning of this star enterprise that relies on streaming media film and television content to make a fortune and climbs to the top of the industry?

01. Step forward

Netflix's steps to make a game are gradually moving forward.

Recently, according to the Washington Post, Netflix intends to increase investment in the field of games and plans to launch a number of new games within the year.

Sources revealed that at present, Netflix's main focus on game content is still concentrated in the field of mobile games, and in 2022, it will successively update its own game library and add nearly 50 new games on the existing basis.

The report further introduced that Netflix hopes to create a content ecology that runs through the two fields of film and television and games by increasing the layout related to games.

Based on this premise, the first thing Netflix should do at present is to try to turn a board game IP called "Exploding Kittens" ("Exploding Kittens") into a "multi-habitat product" that spans film and television, terminal games, and mobile games.

Judging from Netflix's selection of film and television content in the game genre in recent years, such a practice seems to have a premonition.

In self-produced dramas such as "Black Mirror: Pandasnake" and "You and the Wilderness", Netflix has tried to integrate the operation of "audience interaction" into the plot, and the decisions made by the audience during the viewing process will directly affect the subsequent development of the plot.

In addition, through the self-made and purchase of excellent game-themed film and television content, such as "The Witcher", "Castlevania", "DOTA" and "Resident Evil" and other IP film and television derivatives, Netflix has successfully labeled itself as "game-related" Internet.

Netflix makes games, on the basis of following the film and television content account system, the main focus is still the old-fashioned housekeeping skills: exclusive, no advertising, no in-app purchase. Of course, this is also the business strategy that Netflix is proud of in the streaming space.

However, judging from the current development status of the Netflix game platform, the streaming giant's game strategy is obviously still in its infancy.

As early as last November, Netflix has officially launched its game platform Netflix Games. Now, nearly half a year before the platform goes live, the game lineup within the platform has revealed a little embarrassment.

A notable problem is that there is not enough content to support Netflix, the so-called gaming platform.

As can be seen from the official website of Netflix, as of now, the platform has launched a total of 18 games, the most eye-catching of which are two mobile games adapted by the exclusive IP of "Stranger Things" by Netflix, namely "Stranger Things: 1984" and "Stranger Things 3: Games".

These two pixel-style adventure games are developed by BonusXP Studios, and have a strong plot connection with the series itself, which is a product that is more in line with the expectations of the outside world in the current Netflix "small test knife" attempt.

Another more distinctive game is "Hex Blows Up: League of Legends" developed by The Fist Company. This "League of Legends" IP derivative game belongs to the fast-paced game of the music beat parkour category, and is also online on multiple platforms such as Steam and Epic.

Looking at the entire game platform, the current style of Netflix games is more inclined to casual types such as placement and cards, which is also in line with the more popular categories of the current mobile game track.

The king of streaming media announced his entry into the game industry for nearly a year, and the outside world is not waiting for spoilers, but these "small fights", where is the root of the problem?

An important reason may be that Netflix's ambitions in the game field are actually not as big as the outside world thinks.

02. Darkest hour

For Netflix, making games is not a major survival decision.

This should be seen in conjunction with the "darkest hour" that Netflix has experienced in recent times.

Almost coinciding with the timeline of Netflix's entry into the game is that Netflix's proud ad-free, subscription-only business model has begun to be questioned by the outside world.

Over the past year, Netflix's growth rate in north America, its "home base", has been under pressure, first in Q2 last year, followed by a negative growth of 70,000 in Q3; even in the Q4 peak season, Netflix's new subscribers were only 1.19 million.

The shadow of peaking user growth has been hanging over the streaming giant, which already has 220 million paying users.

After the release of the first quarter of fiscal 2022 on the 19th of last month, Netflix ushered in its darkest moment in the capital market.

According to the financial report, its global paid subscribers lost 200,000 in the first quarter, far below the company's expected new 2.5 million, and even lower than the market's general expectation of 2.73 million; Netflix said that the loss of users affected by multiple factors will continue, and it is expected that the global paid subscribers will decrease by 2 million in the second quarter.

This is the first wave of "unsubscribes" from the star company in eleven years.

Not only that, Netflix's revenue of only $7.868 billion in the first quarter was also less than expected, up only 9.8% compared with $7.163 billion in the same period last year, the growth rate is a new low after 2014; the day after the earnings report, Netflix's stock price fell 35%, erasing 50 billion market value.

Netflix's downturn in the capital markets has continued to this day.

On May 6, Netflix's stock price fell to $175.81 per share, a new low in the past year; after hours in the United States, Netflix's stock price was $180.97 per share, with a market value of only 80.4 billion.

According to Netflix, there are two main reasons for the loss of users, namely, the geopolitical events of the Conflict between Russia and Ukraine and the increase in the price of reading subscriptions in North America.

First of all, after the outbreak of the Russian-Ukrainian conflict, Netflix announced the suspension of all services in Russia, which directly led to the loss of 700,000 users, if this impact is not taken into account, the global paid new users were originally 500,000.

To disassemble Netflix's business model in the simplest formula, it is: "revenue = subscription fee x number of users." In the case of peaking the growth of the number of users, another means of ensuring revenue is naturally to increase subscription fees.

In January this year, Netflix again raised the subscription fee for monthly subscribers in the United States and Canada, and the monthly fee generally increased by $1 to $2. As a result, the number of users in North America was lost by 600,000, but overall revenue rose to $3.35 million from $3.17 million in the same period last year.

Netflix's accelerated layout of the game business is rooted in the streaming media company, which relies entirely on subscription revenue, and feels that the real crisis is approaching: subscribers are accelerating the loss.

Behind this crisis is a reality that all streaming media platforms must face at present, that is, the current streaming media market has gradually entered a state of stock competition.

Seeking new user stimuli and creating a more platform-loyal content matrix has become something that Netflix, which stands at the top of the industry, has become a must-do thing at the moment.

The content industry has confirmed the importance of building an IP ecosystem over the years.

Whether it is the full-content industry chain that Marvel and DC have built around their respective superhero series for many years, or the entertainment giants such as Disney injecting their classic characters into all aspects of the consumer market, it shows that:

Only through the mutual penetration and combination of multiple content media can we ensure that IP has sufficient attractiveness and enduring vitality.

With this as a premise, it is natural for Netflix to point its eyes to the linkage of movies and games.

That is to say, the starting point of Netflix's entry into the game industry is not to "make games" and "spoilers", but to calculate how to use the medium of games to more effectively activate a large number of original IP at hand.

03. Stability is the mainstay

Just as the so-called interlacing is like a mountain, although Netflix has better experience than friends in the past in content production and dissemination, streaming media subscriptions and other solutions, it has always been a novice in the field of games.

How to do a good job in game production and distribution mode without blindly burning money is not an easy task for any company that enters the game halfway.

What's more, the entry into the game, for Netflix, which is still in the field of streaming media and television, is just seeking one more development possibility in addition to film and television content, so it is understandable to take such a relatively conservative start.

This also explains why Netflix's acquisition of game studios over the past year, as well as the mining of game talent, has always maintained a relatively low-key and pragmatic stance.

Since the rumors of entering the game last May, Netflix's big moves have been so small that they can even be counted with one hand, simply put:

Acquired three studios and poached an industry big bull.

First, in July last year, Bloomberg took the lead in exposing Netflix's poaching mike Verdu from Facebook's AR/VR content department as vice president of its own game development department.

The 30-year veteran has previously led projects at several game companies, including EA, ZYNGA and Atari.

For Netflix, which is not short of money, it is also natural to choose a veteran player who has accumulated deep experience in the industry and has rich project experience as the leader of the game department.

But at this point, the pace of Netflix's large-scale poaching has basically slowed down, and the important decisions and rhythms of the game business have basically been delegated to Mike Verdu.

Two months after joining Netflix, Mike Verdu led the first game studio acquisition.

On September 30, Night School Studio officially announced that it was "selling" Netflix. The company, which made a name for developing the indie adventure game Oxenfree, became the first game studio to be "pocketed" by Netflix.

In March this year, Netflix restarted the pace of expansion that had been suspended for half a year, and successively acquired two game studios, Next Games and Boss Fight; so far, Netflix's game studio matrix has a total of 3, all of which are start-ups with independent game masterpieces.

The size and frequency of such acquisitions does not seem to be commensurate with Netflix's sheer size. The outside world's long-term expectations that Netflix can become a "spoiler" in the game industry have ushered in disappointment again and again in the pace of Netflix's "Buddha".

It is worth affirming that compared with the operation of Amazon, Google and other large companies in the Internet field in recent years when they entered the game field, Netflix's game development strategy is more restrained and calm.

This also shows the streaming company's clear understanding of its own positioning and development goals from the side, that is, the basis of Netflix's establishment must still be film and television content, and making games is just a similar "icing on the cake" operation.

04. Bones are hard to gnaw

Internet companies doing games is not an easy task, and if you want to rely on the linkage of movies and games to achieve diversified development of IP, it is an unsolvable problem of the century.

Speaking of making games first, looking at "FAANG" (that is, the five most popular technology companies in the US stock market, namely Facebook, Apple, Amazon, Netflix and Google), Netflix can be said to be the last player to enter the game.

Prior to this, the way "FAAG" "played" was very different, and their respective results were also very different.

For example, Facebook uses the advantage of social traffic to vigorously develop its own casual mini-game platform, and after changing the name OFMET to bet on the meta-universe, the platform has further expanded into the field of VR/AR games.

Although META has recently been angrily criticized by the outside world for increasing the sales of its VR content platform Horizon Worlds to 47.5%, this also confirms that THE STRATEGIC DEVELOPMENT OF META's current VR content platform is good.

After all, the price increase needs to have enough confidence, and META's confidence comes from its VR content platform has enough market appeal and is attractive enough for users and developers.

In contrast, Amazon, Google and Apple are far less developed in the game field.

Amazon Game Studios, Amazon's game division, has not been able to make a game that it can make after nine years of development with an annual cost of more than $500 million.

After experiencing a round of service boom, its MMORPG "New World", which was launched last year, was quickly abandoned by players due to repetitive and monotonous tasks and lack of follow-up updates.

Apple Arcade, Apple's game subscription service, began to show fatigue after a brief honeymoon period since its launch in 2019. The conditions that Apple promised at the beginning, such as developer freedom of creation and stable income, are gradually becoming a thing of the past.

According to Bloomberg's report last year, Apple has now canceled development contracts with a number of game studios and made clear requirements to apple Arcade developers, hoping that developers can make more playable and addictive games to increase user stickiness.

Google's Stadia cloud game project, launched three years ago, was officially sentenced to "death" after undergoing multiple positioning adjustments and weight downgrades.

According to a report by The Verge in February, Stadia chief Phil Harrison's reporting target has gone from Rick Ostello, the former senior vice president of hardware, to another executive at a lower level, in charge of "subscription services.".

The report further revealed that Google is planning to repackage Stadia into a product called Google Stream, facing the B-end market and providing enterprises with the underlying technology solutions. That is to say, the Stadia cloud game platform, which was originally for C-end users, was officially integrated and abandoned.

Despite being the latest to enter, Netflix is the only company in "FAANG" that has a rich IP matrix in the content field, which makes Netflix look different in doing games.

On the one hand, Netflix's huge film and television content moat has not been breached; on the other hand, Netflix has a sufficient "Buddha" mentality for game development and film-game linkage.

In 2019, Netflix founder Reed Hastings publicly stated that Netflix's biggest rival is not other streaming platforms, but games with social attributes like Fortnite.

This kind of game blurs the boundary between games and entertainment media such as movies and concerts, occupies a lot of players' free time, and becomes the center of the public's online social entertainment life.

For Netflix, which has 220 million subscribers and a vast content moat, the biggest enemy is not the streaming media on the same track, but these game products that perform better in the "preemptive user time" race.

Therefore, rather than saying that Netflix wants to enter the game field and become an industry "spoiler", it is better to think that Netflix is currently doing everything possible to improve its ability to "seize user time", in which the game only plays a small branch role.

Today, what Netflix has to do is to quickly enter the same arena and compete with its own game products.

The only problem is that "making games" doesn't seem to be far from enough to impress capital markets.

Judging from the current downward trend of Netflix's stock price, the darkest moment of the king of streaming media may not have officially arrived.

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