AI and CTV gaming could help Netflix scale, but consumer interest lags

The news: Netflix is continuing its push into gaming, with plans to offer co-op and party games that can stream over the cloud to TVs.

• The streamer said it will focus on creating IP-based narrative games and offering licensed mainstream titles like “Grand Theft Auto.”
• It will also introduce ad-free games for children, with no in-app purchases.

Netflix reported record revenue and subscribers in Q4 and recently raised prices of its US Standard plan to $17.99 from $15.49 per month—the tier’s first hike in three years.

Shaky road: Despite Netflix’s goal to scale its investment in games, consumer interest in gaming on connected TVs (CTVs) is low, and the company’s gaming strategy has been inconsistent.

• US adults spend an average of just one minute per day gaming on CTVs, per our forecast, compared with 17 minutes on computers and 26 minutes on mobile devices.
• Last year, Netflix closed its AAA gaming division then delisted almost all interactive titles to focus on a vague generative AI (genAI) gaming initiative.

Why games? Netflix’s skyrocketing user base gives it ample funds to experiment in new arenas, even if they don’t drive significant subscriber growth.

• “We already see positive impacts in acquisition and retention from our game-playing members (though) those effects are relatively small currently,” Netflix co-CEO Gregory Peters said during the company’s earnings call.
• He added that Netflix’s investment in games is small compared with its overall content budget.

AI plans: Using genAI for game development isn’t a new move, but Netflix’s IP-based focus will help it create original content.

• An AI gaming department will be easier for Netflix to scale up—or down—depending on its level of success.
• However, Netflix’s genAI gaming plan seems stagnant and wasn’t mentioned on its Q4 earnings call, indicating that it may have been prematurely announced.

Our take: Even if Netflix’s gaming push doesn’t make it a major name in the gaming market, it could diversify the company’s offerings and justify rising prices.

Leveraging AI and cloud streaming capabilities will depend on consumer interest, and any actual value for users hinges on whether Netflix can create games that stack up against their own IP.

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