After naming Fortnite as a big competitor, the company is making moves to expand into video games.

Last week, Netflix had a big announcement to make: one of the most prominent streaming platforms in Hollywood had hired Mike Verdu, a video game executive at Facebook with background working at Electronic Arts, Kabam, and Atari, to spearhead the company's push into gaming.

This week, Netflix officially made its plans known to the world. A shareholder letter accompanying its second quarter earnings revealed the platform is "in the early stages of further expanding into games, building on our earlier efforts around interactivity (e.g. Black Mirror: Bandersnatch) and our Stranger Things games."

The plan is for games to be "included in members' Netflix subscription at no additional cost similar to films and series," with a primary focus on mobile devices, the letter continued.

It may seem out of the ordinary for an entity like Netflix, which has been dominating the original programming space in television and film for years, to now want to develop video games, but the company has been dropping clues for years as to why this is a right move for them.

Netflix subscriber using the app
| Credit: Phil Barker/Future Publishing via Getty Images

In 2017, Netflix released Stranger Things: The Game, an 8-bit mobile game with a story set between seasons 1 and 2. By the end of 2018, it had gone on to announce Stranger Things 3: The Game for consoles and PC, timed to the premiere of Stranger Things season 3. Then, a month later in January 2019, the Netflix shareholder letter at the time included an interesting tidbit: "In the U.S., we earn around 10 percent of television screen time and less than that of mobile screen time... We compete with (and lose to) Fortnite more than HBO."

The company made it clear that it didn't necessarily see other streaming platforms or entertainment networks as its sole competitors. It's about eyeballs and how much time any particular thing was occupying those eyeballs. By those terms, video games felt like big competition.

Later that year, by June's annual E3 conference, which gives the video game industry a massive stage for its biggest announcements, Netflix let loose the news that it would be developing a mobile game based on the world of Stranger Things. Around this time, a Dark Crystal video game inspired by the Netflix prequel series was revealed to be in the works. Netflix wasn't the only tech company getting in on the gaming game. Look at Amazon, Google, Apple, and Microsoft. They just weren't investing in it heavily at the time. Now that's changing, and we can already see the strategy for making the streaming platform a go-to destination for gamers.

A big clue was Black Mirror: Bandersnatch, the interactive Black Mirror movie that premiered in 2018. It was a choose-your-own adventure narrative film about a game developer trying to make a game and you, the viewer, making decisions about what happens to him in this world... kind of like a game. The success of that made those within Netflix think about ways to experiment with other kinds of interactive entertainment.

On top of that, the studio moved hard and fast on greenlighting movies and shows based on popular games. Among the ones we already know about are animated series for League of Legends, Cyberpunk 2077, and Splinter Cell; live-action Assassin's Creed and Resident Evil shows; and an anime movie based on The Witcher (even though technically it's based on the books, the show continuously pays tribute to the games).

Netflix's Geeked Week, a virtual fan convention launched this year, dedicated one of its days, in part, to video games, further drawing in that fandom crowd. Expanding into gaming could create a symbiotic relationship between divisions: gamers come to play games on Netflix but stay to watch programs based on their favorite IPs.

"We view gaming as another new content category for us, similar to our expansion into original films, animation, and unscripted TV," this year's shareholder letter read. And that's it right there. Content. The more content Netflix has, the more eyeballs it captivates.

"We're excited as ever about our movies and TV series offering and we expect a long runway of increasing investment and growth across all of our existing content categories," the letter continues, "but since we are nearly a decade into our push into original programming, we think the time is right to learn more about how our members value games."

The gaming industry learned a valuable lesson over the past year and a half, which is that it's basically pandemic proof. Sure, it's exponentially harder to develop games while entire teams of coders and animators are off working from different locations. It's partly why so many big titles of 2020, including Ghost of Tsushima, The Last of Us Part II, and Cyberpunk 2077, ended up getting delayed. But it's not impossible.

While everyone was looking for ways to occupy their time during COVID-19-prompted lockdowns, productions on live-action movies and TV were delayed and theaters were closed — but gaming boomed. According to the NPD Group, which released stats on video games sales in 2020, U.S. consumers spent a record amount of money on gaming: $56.9 billion in America during that calendar year. It was a 27-percent increase from 2019 findings.

Meanwhile, it terms of subscriber numbers, streaming platforms are catching up with Netflix. Amazon, for instance, has more than 200 million subscribers and it recently made a big buy in MGM for billions of dollars. Amazon also happens to be a company that launched Luna, its own cloud gaming service. Apple — though not near that nine-figure subscriber count at a reported $40 million — flaunts Apple TV+ with shows like Ted Lasso and movies like Martin Scorsese's upcoming Killers of the Flower Moon, in addition to the App Store, which hosts a large collection of games for Apple devices. Netflix reported a loss of 430,000 subscribers in North America during the second quarter of 2021, with 209 million subscribers globally.

It makes sense that Netflix would want to carve out its own piece of the gaming market. And once it builds its library, what a piece it could be.

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