Netflix's mobile games are growing, and so are its gaming ambitions

A closer look at the company’s nascent gaming initiative suggests big plans that could involve cloud gaming and more.

Gaming controller with the Netflix logo.

Netflix’s acquisitions in the gaming space, and clues found in a number of job listings, suggest it has big plans.

Illustration: Christopher T. Fong/Protocol

Netflix’s foray into gaming is dead on arrival — at least according to the latest headlines about the company’s first few mobile games.

“Less than 1 percent of Netflix’s subscribers are playing its games,” declared Engadget recently. The article was referencing data from app analytics company Apptopia, which estimated that on any given day, only around 1.7 million people were playing Netflix’s mobile games on average.

It’s true: Netflix has yet to release a true blockbuster game, and its small but growing catalog of mobile games isn’t nearly as popular as some of its biggest shows and movies. However, the company’s gaming efforts are on an upward trajectory, according to data mobile intelligence company Sensor Tower recently shared with Protocol. In fact, July was the best month yet for Netflix’s gaming efforts.

“Netflix is really just at the beginning of implementing its strategy for a new games business, and it’s not off to a bad start,” Sensor Tower mobile insights strategist Craig Chapple told Protocol. “With an increasing portfolio of globally recognizable entertainment IP, there’s a lot of potential here.”

Netflix itself has kept mum on key aspects of its gaming strategy, but the company’s acquisitions in this space, and clues found in a number of job listings, suggest it has big plans, which appear to include building its own cloud gaming infrastructure. Ultimately, these plans could make the first few months of Netflix’s gaming initiative, with its relatively modest usage numbers, look like a trial run.

New numbers on Netflix’s gaming initiative

Netflix’s foray into mobile gaming began in earnest in November. Since then, the company has published a little over two dozen games for iOS and Android and has plans to nearly double its games catalog by the end of the year. Since November, the company’s games have been downloaded around 17 million times on iOS and Android, according to Sensor Tower estimates.

Downloads actually declined this spring, but got a significant bump from the release of the latest season of “Stranger Things” on Netflix. The company has acquired and published two “Stranger Things” mobile games, both of which saw a significant boost in downloads after the fourth season of “Stranger Things” premiered on the service in May.

Stranger Things: 1984 and Stranger Things 3: The Game continued to be the two most popular Netflix games in July, followed by Netflix Asphalt Xtreme. Altogether, Netflix’s games were downloaded 2.9 million times in July, according to Sensor Tower, making it the best month yet for the company’s gaming efforts.

There are a few things worth noting about these numbers, aside from the fact that they are third-party estimates. Many of the games published by Netflix are actually being re-released, and some already had sizable audiences before the company acquired them, which likely has an impact on the audience the titles are now attracting.

Stranger Things: The Game was published by BonusXP in October 2017, and accumulated close to 14 million downloads before it became a Netflix title. Asphalt Xtreme was published by Gameloft in October 2016, and clocked nearly 40 million downloads before Netflix re-released it, according to Sensor Tower estimates.

Netflix also hasn’t done a whole lot of promotion for these games, as Chapple pointed out. “It appears that the company is not investing heavily in user acquisition,” he said. “Large marketing campaigns are typically how the world’s top mobile titles become so popular and successful.”

And finally, comparing Netflix’s video audience to its games audience should come with a notable asterisk: It may well be that only 1% of Netflix subscribers are daily active users of its games. However, the company’s games library is also an order of magnitude smaller than its video library, which currently consists of nearly 3,800 movies and over 2,100 TV shows, according to JustWatch.

Netflix is hiring for a ‘cloud gaming service’

Aside from a few remarks during earnings calls earlier this year, Netflix has said little about its game initiative. “We’re still intentionally keeping things a little bit quiet,” acknowledged Leanne Loombe, who is heading the company’s efforts to license games from external partners, during a June Tribeca panel. “We’re still learning and experimenting and trying to figure out what things are going to actually resonate with our members,” Loombe said in remarks first reported by Variety.

Loombe said the company was still experimenting with how to best surface games to its subscribers. Netflix is using mobile as an on-ramp to more easily get feedback and evaluate what’s working to then fine-tune its games catalog over the coming years, she said.

That strategy is also echoed in a variety of job listings for positions within Netflix’s nascent games division. Multiple listings mention that the company is looking to “launch games fast at minimal cost, learn fast, and iterate quickly." As part of these efforts, Netflix is looking to build a Game Studio Tech Lab team, which will be tasked with rapidly prototyping “smaller, experimental games and projects.” Applicants for open positions on that team are expected to have “passion for making video games, especially in a rapid, focused, smaller form vs multi-year investments.”

That’s very different from the way Amazon initially approached the space. The ecommerce giant created its own studio as part of a multiyear push into gaming, and the company invested hundreds of millions of dollars into its own AAA titles. Amazon’s game developers worked six years on the company’s first title, Crucible, only to pull the plug on it after an unsuccessful beta test in 2020.

Amazon has since refocused its efforts around live service games like New World and the successful Korean multiplayer game Lost Ark, and Amazon has also been working with publishers to populate its Luna cloud gaming service. Both of those strategies appear to be on Netflix’s road map as well: The company hired a head of live services in June and has been looking to fill technical roles for a push into cloud gaming for a few months now.

“We are looking for a rendering engineer to support our cloud gaming service,” one of the related job listings reads. Applicants will “help optimize the rendering of games so we can render multiple games on our cloud gaming appliances” and “assist with the development of SDKs to enable game developers to succeed in writing high-quality games for the Netflix cloud games ecosystem.”

Cloud gaming could help Netflix expand beyond mobile, and smart TVs in particular could provide Netflix with a massive growth vector. The company’s app is already pre-installed on virtually every new smart TV sold. It also could help the company find a way to the TV screen without having to deal with the gatekeepers of the major console app stores — something Loombe alluded to when she talked about the “friction that might exist [on non-mobile] platforms.

Buy-in from the highest levels

Netflix has acquired three game studios over a six-month period, and it spent $72 million on Next Games alone. Netflix COO Greg Peters called these acquisitions “a key part of our strategy to … produce the games titles that we think are really going to unlock value for our members” during the company’s Q1 2022 earnings call. Peters went on to describe Netflix’s goal as building franchises that span across movies, TV shows and games. “To deliver on that, we think the internal development capacity is going to be key,” he said.

For Netflix, those acquisitions aren’t without risk. The company has long resisted the urge to acquire tech IP and teams and opted to build its own technology in-house instead. Without a history of mergers and acquisitions, Netflix may find itself unprepared to deal with culture-clash issues as it absorbs the newly acquired entities.

Drake Star CEO and managing partner Greg Bedrosian, whose company has brokered M&A deals for multiple game studios and other entertainment companies in the past, still thinks it was smarter for Netflix to buy than to build. “Often the most successful strategy is to make one or two thoughtful acquisitions,” Bedrosian told Protocol recently. “In my experience, that seems to work better than just organically trying to enter a new market like that from scratch.”

By acquiring a few studios at the onset, a company like Netflix isn’t just getting its hands on content and IP, but also at the DNA necessary to better understand the space, Bedrosian said. The fact that Netflix doesn’t have much institutional M&A history could actually help it make those deals count. Other companies have built what Bedrosian called “great M&A machines” capable of ingesting companies, but not necessarily striking transformative deals.

Ultimately, it’s important that acquisitions that are meant to help a company build out a new line of business have buy-in from the highest levels, Bedrosian said. “If there's that board and CEO commitment, that's when we tend to see those strategic deals getting done in an intelligent way.”

At Netflix, that buy-in appears to exist, at least for the time being. “We're going down the game path because I think it fits us really nicely,” said co-CEO Ted Sarandos during Netflix’s Q1 earnings call. “Our ability to tell stories and build worlds are very consistent with our existing skill set and culture, and we think that we can build a big revenue and profit stream by adding games.”

That revenue stream will take time to manifest itself. “Netflix will need at least a couple of years to really build up its games division into a serious business,” said Chapple. Not helping the matter right now are a number of external economic pressures facing the gaming market, with analysts now forecasting a decline this year, and new Apple privacy features that have made advertising, and by extension user acquisition, more difficult for mobile game developers.

Still, executives seem clear-eyed about Netflix’s timeline. Peters pointed out during the Q1 call that the company was on a “long road” to build franchises that encompass both linear entertainment and games, which he described as the "multiyear vision" behind the push into gaming.

Co-CEO Reed Hastings equally painted the effort as a marathon during the company’s Q4 2021 earnings call, stressing that Netflix was looking to become a world-leading producer and distributor of games. “[We are] not just in it for the sake of being in it, or for a press release,” Hastings said. “We got to please our members by having the absolute best in the category.”

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