Netflix's Expansion Into Gaming Isn't Bizarre. If Anything, It's Overdue
Netflix needs to drive cost efficiency and video games are the best way to do it
Netflix is getting into gaming which has some pundits scratching their heads: Gizmodo called the plans bizarre this week when reporting on the news that Netflix just acquired their first game studio. To me it isn’t bizarre at all, to be honest, I’m astonished it’s taken this long.
Netflix is in the attention business. Everything they’re doing is geared around one objective: Getting customers to spend more time on the service. This explains the astronomical sums the company spends on original programming…
At the New Yorker’s TechFest conference last fall, Hastings cited $150 million budgets for blockbuster Hollywood films, or about $100 million per hour of content, and compared that with TV shows like HBO’s “Game of Thrones” or Netflix’s “The Crown,” in the neighborhood of about $10 million per hour in production budget. - Variety
What kind of cost-efficiency, if any, does Netflix get when it is spending up to $100 million to acquire just one hour of your time? Crucially, how many bites of the cherry do Netflix get with that investment? I don’t know about you but when I watch an episode of Stranger Things once, I’m not too likely to watch the same episode again, at least not for a long time. So that’s up to $100 million dollars for an hour of your time… Once. This one and done model is why Netflix has had to consistently increase their content spending year after year to keep up with the appetite of their subscribers…
In the interests of fairness, let’s take the lowest end of Netflix’s cost per hour of programming at $10 million and compare that to a game. Public data around time spent per specific game is pretty hard to find, but thanks to a recent study by LimeLight Networks we do know that the average video game player is spending eight hours and 27 minutes each week gaming. Obviously, that could encompass multiple games and therefore isn’t apples to apples, fortunately, VideoGamer.com ran this story from around the time Call of Duty Black Ops was released. In it, Activision Blizzard revealed that the average Call of Duty player spends 170 hours every year, or 3.26 hours weekly, playing the game. We know that since 2011 time spent gaming has increased drastically but again let’s go with this 170 hours to give Netflix’s premium video content a headstart.
Call of Duty Black Ops is estimated to have had a development cost of between $18 million and $28 million. A typical AAA game is usually around $20m. Let’s again be as conservative as possible (and favourable to Netflix) and take the highest end of the range at $28 million. Assuming the average Netflix user re-watches the same episode/movie once a year (again, generous) the cost efficiency looks like this…
Given the above, the only thing bizarre about Netflix getting into the gaming business is how long it took to happen. If they can forge a credible foothold into the space (and we know Netflix has the deep pockets to do so) then gaming could be a huge boost to Netflix’s business.
Like this post? Hit the subscribe button and get my posts directly in your inbox.
Not an investor yet but interested to try investing in stocks? Check out my beginner’s guide. I recommend using the FreeTrade app which is free, lets you get started with just a couple of pounds and is perfect for newcomers with an easy to use interface. Use this Loot Box Investing referral link and we both get a free random stock when you sign up.
Agree or disagree with any of the above? Love or hate this? Let me know on Twitter - @LootBoxInvest.