Netflix (NFLX) will move into the gaming sector with the hiring of a 30-year-old veteran in the gaming industry – former EA (EA) and Oculus CEO Mike Verdu. The company’s shares faltered today after the news, with the share price down just over 1% since the market was open.
“I think this is an extension of their content strategy – an extension, just like they moved into unscripted and premium movies, child programming and the like,” Truist Securities (TFC) analyst Matthew Thornton told Yahoo Finance Live.
Thornton joined Yahoo Finance Live to discuss Verdus̵
On the other hand, Thornton believes that there may be an opportunity for Netflix to differentiate content offerings, as well as increase subscriber engagement and maintenance against other major players in the content streaming industry such as Hulu and Amazon Prime (AMZN). According to Thornton, the ultimate goal of this move is to increase the subscriber’s growth and revenue.
Will Netflix become a major player?
However, Netflix’s content strategy for future video game offerings remains to be seen. Thornton said the biggest opportunities for Netflix would arise if it chose to partner with third-party studios and publishers, which would likely give them the best chance of surviving in the face of platform giants such as Microsoft’s Xbox (MSFT), Sony’s PlayStation (SONY) and Nintendo. (NTDOY).
As for the odds of this actually happening, Thornton said that Netflix has never proven to be an acquisition company, only to have acquired a handful of small devices throughout the company’s life. This is in stark contrast to major, established video game publishers such as EA, Activision Blizzard (ATVI), Take-Two (TTWO) and Zynga (ZNGA).
“[If Netflix produces video game content in-house,] “It would probably be quite small, it would be very slow to reach the scale, and probably would not be too disruptive to the general video game field, but again, could be accretive to their business,” he said. “They can also become more aggressive by going for procurement to supplement their own organic development efforts.”
Thornton said that Netflix’s transition to the gaming market acts as a new pressure on an all-digital video game industry. With each passing year, digital downloads darken the physical purchase of video games by an increasing margin. And while Netflix’s announcement is unlikely to change the industry’s path in any significant way, Thornton noted that it will be interesting to see how the company rates its video game products, with Netflix as a subscription-based service.
Currently, Microsoft with Xbox Game Pass is close to the top of the subscription-based food chain for video games.
“There are subscription game services out there. But they tend to coexist with transactional, digital game downloads, ”said Thornton. “Obviously, buying content in the game is where the real trend is.”
Thomas Hum is the author of Yahoo Finance. Follow him on Twitter: @thomashumTV
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