Why Netflix needs video games and why it doesn't have to buy the creators of Witcher 3: Wild Hunt

By: Dmitriy Bazilevich | 13.08.2021, 00:00
Why Netflix needs video games and why it doesn't have to buy the creators of Witcher 3: Wild Hunt

In mid-July, news spread around the world that Netflix was opening up a gaming division. The itinerary was as follows. First comes the news that Netflix has hired Mike Verdoux, a gaming industry veteran who previously held the position of VP VR/AR Content at Facebook. That's a fact. There were immediately several "circles on the wings of guesswork" around this fact about what it means - what, how and when Netflix will have a gaming division.

Then, on July 20, Netflix publishes another letter to shareholders, with which it will begin to develop a game line. This will be a library of mobile games available to subscribers of the service at no extra charge. This fact also caused a lot of analytical manifestations of all those involved in the industry.

Moreover, despite the fact that the company clearly explained what it plans to do in the near future and why, some experts found it extremely difficult to stop, and for several weeks we all had the opportunity to observe hot battles in comments to articles, in social networks, etc.


For those who want to know more

By the way, the “flyby” of information on the media began with Bloomberg. At least, it was this resource that most of the media referred to. However, they cited and reprinted only one news item published in the open (free) section. On Bloomberg itself, many publications were devoted to this topic, mainly expert and not very evaluations about what and how Netflix should do in order to achieve success.

My personal favorite is a member of the Bloomberg Opinion HUB (edited by specially trained experts, I think all media need this), Tai Kim.

Just a week after the company published an appeal to shareholders, Mr. Kim writes that Netflix has a real chance to defeat the giants of the gaming industry only if they buy someone large and famous. For example, CD Project RED, the publisher and developer of games about the witcher Geralt. Both companies have successful experiences with this franchise, the market value of CDPR for Netflix is ​​quite lifting, so - "so let's win!"


Of course, I couldn't stand aside at this festival of intuitive analytics, so I decided to share my thoughts on what to expect from Netflix and what it all means for the industry as a whole.

Netflix and video games

I think it is very important to understand how Netflix sees the entertainment industry and itself in it. Of course, only the top management of the company and those close to it can have the most complete understanding of this point. We can only form our opinion on the basis of the public statements of this very top management.

Here are the two key statementsб in my opinion.

  1. “You have a movie or TV show that you want to watch so badly that you end up going to bed very late. It turns out that we are competing with your sleep. And We Win "- Reed Hastings, CEO, Netflix, 2017
  2. We compete (and lose) more with Fortnite than with HBO ” - Letter to Shareholders with Q4 2018 Results, 01/17/2019

These two statements prove that Netflix understands very clearly that the entire entertainment industry is competing with each other for consumer time, which is known to be limited. And since we are not yet able to bypass these restrictions, the struggle for those few hours when a person decides how to entertain himself is serious.

The next important point is the experience that the company has accumulated so far. Do all remember that Netflix has long been conducting "reconnaissance" in the territory of video games and interactive content? The last phrase is a hint, after which everyone should remember about the last episode of "Black Mirror" ("Black Mirror: Bandersnatch" (2018), which is exactly an interactive film. And it also received the most attention from the media, which I personally explain it exclusively by the popularity of Black Mirror as a series, but certainly not by the very fact of interactivity. Well, and a little more by the fact that Bundersnatch became the first interactive film with live actors on Netflix. Before that, the service experimented with animated projects, in particular, a special interactive episode of the animated series "The Adventures of Puss in Boots" - "Puss in Boots: Trapped in an Epic Tale" - was released in 2017.


For those who want to know more: interactive cinema

Of course, interactive cinema is not a Netflix invention, nor is it anything new. Who owns the invention of the format is now very difficult to say. Changing the plot depending on the decisions of the viewer, who at the moment of making a decision, turns into a player - a long familiar phenomenon for fans of story board games, for example. And avid gamers can tell a lot about such a genre as a "game-movie" and remember its most prominent representatives - Heavy Rain, Last of US and many, many others.

Attempts to provide the viewer with the ability to control video playback were made even before the transition of video to digital format. The first interactive film in the usual sense of the word was shown in 1967 in Montreal. The picture was called "Kinoautomat", script and director - Raduz Chinchera (Czech Republic). The interactivity was realized with the help of ... a live moderator, who asked the audience what choice to make at the key moment and, depending on the majority's answer, give a command to the mechanic to start one or another tape.

Well, the digital format allowed the viewer to control the video playback and move from chapter to chapter, making the interactive in the cinema easier and more natural.


Not only "Black Mirror"

After the release of Bundersnatch, the company continued to actively experiment. There are now 14 (!) Interactive titles in the Netflix library. Personally, I really enjoyed the interactive special from Unbreakable Kimmy Schmidt: Kimmy vs the Reverend. Unlike Black Mirror, in which there are 8 different endings, in this version there is only one ending, and the viewer's "wrong" choices lead to funny options for ending the story (everyone died in one way or another) and then returning to the key episodes.

In 2019, Netflix partnered with Doppio Games to create the 3% Challenge voice game. The project was created specifically for voice assistants Google Assistance and Amazon Alexa, and you can play it even on devices without a screen, just listening and giving voice commands. The game is based on the fantastic dystopia "3%", which was the first Netflix original series produced in Brazil.

And there was also the famous "The Witcher" in different ways and the collaboration with the not yet acquired CDPR - the holding of the digital festival "WitcherCon" and the announcement of the content addition to the game "Witcher: Wild Hunt" based on the Netflix series

So, there is some experience. What's next?

Further - a quote from the last letter to shareholders. “We see games as another new content category for us, just like our original films, animations and TV shows. Games will be included with Netflix subscription at no additional cost, just like movies and TV shows. At the initial stage, we will focus primarily on mobile games. We're more excited than ever with our films and series offerings, and we expect a long streak of increased investment and growth across all of our existing content categories, but since we've been in original programming for almost a decade now, we think it's time to learn more about how our users will appreciate the games."

Everything seems clear, but there are questions, right? First, why mobile? But what about consoles, next-gen, and cloud gaming in general? Secondly, everything is somehow boring. After interactive movies, voice games, is it just a library of games for subscribers?

While not close to the Netflix executives, I still love to fantasize about being close to them. Therefore, I will try to answer these questions myself.

Why mobile games? Because "mobile" is pretty much our everything. It's a category of video games that grows year after year, eating chunks from the rest of the segments - PC games, consoles and others (yes, there are other segments!)

It is worth reminding that the technological barrier to the development of content areas has been completely eliminated in mobile. Namely - practically any modern smartphone which costs from 200 dollars has enough computing power to work with high quality interactive content, and modern mobile networks have enough bandwidth for comfortable delivery of this content.

In other words, there are billions of fairly productive "mobile computers" (hello, Nokia from 2006) connected to high-speed mobile Internet access networks on the hands of the world's population. And every year these devices are getting more powerful, and access is getting faster.

Netflix also understands the importance of mobile. The company recently expanded the coverage of its new "Mobile only" subscription plan, which is now available in 78 countries (Southeast Asia and Africa). "Mobile only" subscription plan allows you to watch SD content through a mobile app and download it on a single device. Being the cheapest plan, it nevertheless compensates for the lowest revenue per subscriber with the best retention and attraction rates.

It is quite logical to assume that the appearance of the game library looks like a logical continuation of the expansion into the mobile segment.


For those who want to know more: Who is Mike Verdu?

Who is this Michael Verdu who started it all when he came to Netflix? Well, as we have already found out, it all started long before his arrival. However, the information on who Michael Verdu is might help a little to understand what the company's management expects from the gaming division. Mike Verdu is one of the veterans of the video game industry. His career as a game developer began in 1990, when he partnered with the infamous Bob Bates to found Legend Entertainment, which has released over 15 PC games in the quest, adventure and shooter genres. The company was then bought by GT Interactive, which in turn was acquired by Atari.

At Atari, Michael led a shooter studio. Under his leadership, games such as Unreal II, Unreal: Return to Na Pali and Robert Jordan's The Wheel of Time were released. Then Mr. Verdu moves to Electronics Arts and holds the position of General Manager of EA Los Angeles - Command & Conquer, Lord of the Rings: Battle for Middle-earth and Medal of Honor. Then - Zynga, Senior Vice President, Co-President of Games (Poker, Farmville, Mafia Wars), after a while - again Electronic Arts, but already in the position of Senior Vice

President EA Mobile (Star Wars: Galaxy of Heroes, SimCity Build It, Plants vs. Zombies, Sims Free Play). After that, Facebook, and now, Netflix.

The experience and expertise of Mr. Verdu is very difficult to imagine - he stood at the origins of the industry and successfully grew along with it. What he will do once he has the resources and capabilities of Netflix at his disposal is anyone's guess, but I'm sure it will be very cool.


Okay, there will be a library of mobile games. Is that all?

Of course no. But what else - I don't know. And nobody knows. And most importantly, Netflix probably doesn't know either. At least because the space for experimentation is enormous. Alexey Savchenko, who is much more competent in these matters (at the time of the description, works at Epic Games), described everything very accurately. For those who are too lazy to follow the link, I will quote the most important points from his post.

  1. Netflix has huge expertise in Big Data analytics and IP marketing (IPOs). Moreover, the company is constantly building up this expertise and is constantly using it. Just remember the legendary "you may also like" content selection algorithm.
  2. The company does not need to immediately make money on new content by all means.
  3. The company knows how to test and predict the success of new entertainment content - this is a very cool thing that they will obviously actively use.
  4. Netflix very rarely acts as a "catch-up" in the industry, the company is focused on "blue oceans" at the level of DNA.

Another thing to note is that Netflix really doesn't need to care and keep "what about HBO? (Disney, Apple, Amazon)." Not because the company is a leader in its home market. And not because they're weak competitors, no.

It's just that for the time being, they can all grow by eating away at the shares of cable and broadcast television. Yes, yes! In the U.S. market, streaming services take up only 27% of Americans' screen time. Cable TV has 40% and broadcast networks 23%. That is to say, there is room where to grow and there is room to grow with.

Source: Netflix Letter to Shareholders

What else could be? In theory. Analyze this!

To seriously analyze what opportunities Netflix has in the video game market requires data that I don't have. So I am not going to analyze, but to speculate. No less seriously, but don't take it as analytics.

So what can Netflix do.

  1. Continue to use video games for in-house promotional content, releasing games-by-films. An example is "Stranger Things". In my opinion, it is unlikely that the company will emphasize this. There are many reasons for this, the main one being a fairly trivial process that almost all rightsholders of entertainment content use now.

  2. Develop interactive video content by adding more varied game mechanics to it. Yes, it is quite possible, however, we must not forget that interactive video content can be different. The special episode "Black Mirror" is a game film with the possibility of non-linear transition from the remote control. And yet there is also "game-film," where the viewer literally controls the characters at certain moments. Can Netflix figure out how to implement this on a TV platform? Well, it's possible.

  3. Add cloud gaming to the list of services (streaming gameplay to the player's screen). On the one hand, a good story, especially considering the company's competence in the field of video encoding and compression. On the other hand, looking at what is happening in this industry with existing players (Nvidia, Google, Microsoft), something tells me that this should not be expected from Netflix in the coming years. Unless in the form of some very simple coloboration with another service.

  4. Project Endemic is feasible and business sense only for Netflix. According to my feelings, this is the most likely scenario. And subjectively - the most desirable.

    What could it be? Literally anything. For example, the ability to open new episodes of the show earlier than others, depending on the results in the game. It's trivial, I know.

    Well, or the formation of an individual plot, depending on the choice made during the passage of the game. The gameplay is recorded, the game engine "on the fly" processes it for the "movie format" and - please, your individual episode of the new "Star Trek" is ready.

    And then you can share it, and then subscribers will vote for the best option, and then - a special version made up of the best episodes based on the audience's sympathy results. In the language of gamers, this can be called a "let-play movie". Well, or a cross-media project in which video episodes and game sessions are alternated with a narrative link.

    In general, I repeat, it can be anything.

For those who want to know more: everything will be SuperApp

There is one more interesting question, without touching on which, it is difficult to claim a complete picture. Namely - what is it all going to. In my opinion, “this is it” is the process of the formation of superapps in the entertainment industry. Superapps, in turn, are a completely logical scenario for solving the problem of competition with time. I mean, we understand that we can't add hours to a person's day. And we want the few minutes that a person spends on his entertainment to be with us. How do we do this? It makes sense to offer him an all-in-one solution. You want a movie? You're welcome. How about a soap opera? You are welcome! How about a game? Here you go...

I prefer to use the word portal instead of superapp. So, entertainment portals are a solution that at least some market players will inevitably come to.

And here it will be interesting. For example, a digital game distribution store (conditional Steam) in partnership with a cloud gaming service (conditional Nvidia GeForce Now) and a video content streaming service (conditional Disney +) negotiates and launches a portal-SuperApp, where in one application and for one monthly fee a user can watch a series about Loki, play the Loki game, record the gameplay of the Loki game and show everyone else. And so on and so forth. I say it will be interesting here.


And what about the rest?

Of course, the other players in the interactive entertainment market do not sit idly by either. The use of one franchise in all possible formats (game-movie-serial-merch) has long been a must. All possible coloborations and cross-promos, too. The industry is on the cusp of something important, all that remains to be seen is what, and who crosses that threshold. What's interesting to note?

First. Netflix isn't the only video streaming company that has decided to offer its subscribers a library of games. Among the services I use, there is at least on more.

This is Plex (a software product that allows you to organize your own cloud video streaming). At the beginning of the year, the company launched the add-on service Plex Arcade, which allows everyone to play retro games through the cloud. Cloudy retro gaming is a stunning word construction, but that's what it is.

Second. Right now, there are at least two companies on the market that can launch the entertainment -superapp Entertainment MegaPortal by simply re -assembling the services they already have.

These are Alphabet and Amazon. The first ones need to be repackaged under one icon Google Play Movies, YouTube & YouTube Music, Google Play Pass and Google Stadia. The second is to do the same exercise with Prime Video, Prime Music, Prime Games, Amazon Luna, and Twitch.

The rest (Apple, Microsoft, Disney) need to either merge or buy the missing services.

To conclude, the very fact that Netflix is ​​launching a video game division is a very good sign for the entertainment industry. In my opinion, it is Netflix that has the best chances of making a qualitative breakthrough in format transformation and business models for using these transformations, which the industry has come close to.

Well, if it is short and simple, it will be very cool and interesting.