Stuff Digital Edition

Don’t bet against Netflix

David Court

Blockbuster chief executive John Antioco famously turned down the chance to buy Netflix for US$50 million (NZ$71.85m) in 2000 because he thought it was a ‘‘very small niche’’ business.

Ten years later, Blockbuster closed doors on more than 9000 stores and filed for bankruptcy after racking up an impressive US$1 billion of debt.

Today, Netflix is worth more than US$225b (NZ$320b).

The lesson here? Don’t bet against Netflix.

Despite the overwhelming evidence that Netflix chief executive Reed Hastings knows what he’s doing (apart from trying to sell to Blockbuster in 2000), not everyone is convinced by his latest plan for the company – moving into gaming.

Quick recap: Netflix published its second quarter 2021 letter to shareholders this week explaining how Covid ‘‘created some lumpiness in [its] membership growth’’.

The letter continued outlining its performance to shareholders with nuggets about how engagement per member household was ‘‘as expected, down’’ but was still ‘‘up 17 per cent’’ compared with a more comparable

2019 second quarter. So far, so predictable. Then bang. At the bottom of page four, Netflix’s relationship with us, the customer, changed forever.

The letter segued from details about a new animated feature film ‘‘featuring all-new songs’’ from LinManuel Miranda to confirming it’s also in the early stages of ‘‘further expanding into games’’.

Citing its ‘‘earlier efforts’’ – Black Mirror Bandersnatch and Stranger Things games – as a platform to build from, the letter details how ‘‘games will be included in members’ Netflix subscription at no additional cost’’.

And that it will be ‘‘primarily focused on games for mobile devices’’. Before concluding: ‘‘We think the time is right to learn more about how our members value games.’’

Me too.

Netflix is a market leader in the single most valuable commodity that all of Big Tech is fighting over right now: attention. Over the past 10 years, Netflix has trained us, its lumpy but increasingly retainable users, to press the Netflix button on our TV remotes as soon as we fall into our favourite living room chairs. Right now, the only thing we’re paying Netflix for is video (or scrolling endlessly around the home screen).

Putting a link to stream Call of Duty ,or whatever, next to the latest episode of The Crown makes sense as a strategy to retain paying customers.

And this, as the letter also explains, is another lesson Netflix has learned. As it improves its service, it can ‘‘charge a bit more’’ – 8 per cent more (over a two-year period) to be exact.

The timing of the announcement couldn’t be better. Mark Zuckerberg this week announced that Facebook has a US$1b war chest ready to buy talent for its new ‘‘original video-content strategy’’.

It follows the recent ‘‘streaming wars’’ pileon, with Amazon, Apple, Disney, AT&T (and many more) all now direct rivals to Netflix’s dominance. Finding growth in the video industry is hard work right now. And while Netflix is holding its own, gaming is an industry that still has a lot of growing to go. But there are technical challenges that come with streaming games. The slightest suggestion of latency ruins the gaming experience, and the only real way to combat this is to have servers geographically close to your customers. It’s a massive and expensive hurdle, one that I’m not sure Netflix has answers to. Google didn’t, and its gamestreaming service Stadia now looks all but dead.

The other problem it faces is competition. Steaming games is already a thing in more developed markets (than New Zealand). Customers can already choose to stream games from Nvidia Geforce Now, Amazon Luna, Shadow Cloud Computing, PlayStation Now and Xbox Cloud Gaming.

Netflix became a market leader in subscription video streaming because it blazed a trail when the rest of the market was looking the other way.

That same opportunity isn’t there with gaming.

Despite that, I’m still not willing to bet against Netflix blockbusting its way to becoming the market leader in games too. It certainly has my attention.

Technology

en-nz

2021-07-24T07:00:00.0000000Z

2021-07-24T07:00:00.0000000Z

https://fairfaxmedia.pressreader.com/article/282381222572582

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