Written by Ethan Levy, who is always looking for worthy, free-to-play mobile games for the N3TWORK Scale Platform. Ask him about a free, $10,000 UA test for your game. Thoughts and opinions are his own and do not express those of his employer.

Details are scant but locked behind a $39/month paywall that I am definitely not subscribing to, The Information reports that Netflix is looking to hire a game industry exec to oversee a move into gaming. This report has been reiterated and expanded on over at Axios Gaming with additional sourcing, where Stephen Totillo reports “A source familiar with Netflix's plans tells Axios to ‘think of it as a smaller Apple Arcade.’” But “Netflix's plans are not public and potentially in flux” so really all we know at this point is that Netflix “is looking to hire an executive to oversee the gaming effort.” 

Over the years, there have been a number of services trying to become the Netflix of gaming: Xbox Games Pass, Playstation Now, Apple Arcade, Geforce Now, EA Play, and the Google Play Pass among them. But now, thanks to this tantalizing report we get to wonder, what should be the gaming of Netflix?

What do we actually know?

Honestly, we know next to nothing. The basic details reported by The Information have been reiterated by a few sources with little variation. Netflix wants to get into gaming and is looking for an experienced executive. It is possible that the article is just talking about this job posting for Director of Product Innovation, Interactive, but it seems more likely this is an unposted executive-level role they are looking to fill. We know from a statement to Polygon that they’ve already done “games based on Stranger Things, La Casa de Papel and To All the Boys” and are looking to do more.

I think the “smaller Apple Arcade” concept is a bit of a red herring. On one hand, it makes sense that Netflix would want to be the Netflix of gaming. But when you think about the AAA catalogs offered by Xbox Game Pass and Playstation Now, this just seems like a nearly impossible battle to take on for a streaming media company with little game development experience, no matter how flush with cash they are. So, setting their sites on a subscription-based offering on mobile does sound like a more approachable business that Netflix would consider. 

My interpretation is that there is a desire to move into games, they want to hire an exec, and most likely “smaller Apple Arcade” is just one of the directions they’ve discussed. My guess is that there is a whiteboard somewhere with NETFLIX GAMING written on it, and “Apple Arcade” is one of the many brainstorm ideas sitting below it along with plenty of others ranging from batshit crazy to no brainer. We’ve all been there. My guess is, it just happens that “smaller Apple Arcade” is the direction that was leaked/reported on. Likely, it is this unhired person’s job to come in and answer the question “what should Netflix Gaming be?”

What directions could Netflix take?

At the highest level, this is the menu of options for Netflix gaming to mix and match from:

1. 1st party game developer - Netflix could build up or purchase internal teams to create their own games from the ground up. 

Editor’s Two Cents: This is the ‘all-in’ option. Building up a studio and releasing a game is a slow and costly process as Netflix would have to also build their publishing capabilities at the same time. As the costs accumulate with every new key hire, the expectations mount up and the runway for the executive in charge shortens. We’ve seen numerous entertainment organizations collapse under this pressure the moment they release their first games that are merely good but not great.

1. 3rd party publisher and Co-Development - Netflix could build or purchase a publishing org that funds and releases games under the Netflix brand. The Stranger Things companion games are an example of this. In the case of co-development, Netflix as a publisher would bear part of the development cost ensuring them more control and a larger share of the revenues.
   
   Editor’s Two Cents: Building up a publishing organization and finding the studios to work with is more challenging than you’d think. But the true challenge lies in setting up contracts with external studios that are mutually beneficial. Most of the publishing deals fall flat when the published game succeeds (assuming the game is F2P). At that point, the developer will work overtime to produce content but see no return for their investment as the revenue is spent on fuelling further growth. At that point it is typical to see the developer start to sandbag the development leading to one of the two outcomes: either the publisher acquires the game/developer or the game starts to decline as the publisher stops investing in its growth. In other words, 3rd party publishing, if successful, leads to 1st party development.
   
   

2. Licensing - Netflix could build a team dedicated to licensing their properties for use by other game developers. The La Casa de Papel event in Rainbow 6 Siege is an example of this.
   
   Editor’s Two Cents: This is a low-risk, low reward option where the IP-holder receives a cut from the game's revenue in addition to a minimum guarantee while all they have to do is run an approval process throughout the development. There have been only a few IPs worth the effort of - namely Marvel and Harry Potter. But especially on mobile, in the post-IDFA world, the developers will likely be more open to adopting an IP that can broaden their appeal and lower CPIs. 

These games could be a console, pc, or mobile. They could be premium, free-to-play, free marketing tie-ins, or subscription-based. They could be all of the above. The route that makes the most sense for Netflix depends on what the strategic objectives for Netflix Gaming are and how they wish to utilize their competitive advantages in the space. The direction posed by The Information - 3rd party publisher + mobile + subscription-based - is just one of many routes that Netflix could take.

Why would Netflix get into gaming?

At the end of the day, Netflix is a public company like any other, and a push into gaming is a push to make more money. But given their core, streaming business, there are a number of ways one could justify the existence of a gaming division.

Retention Play? 

Like Prime Gaming - which offers free games and free in-game items on a monthly basis to Amazon Prime customers - Netflix Gaming could be a value-add service whose sole purpose is to keep existing subscribers around longer. All active Netflix subscribers get access to a library of N free mobile games. When thinking about canceling their subscription, a user thinks “not only will I miss out on the next season of Bridgerton, I won’t be able to play The Old Guard: Undying Bullets anymore.” And then they decide to give their subscription another few months.

Side note - I claim every free game Prime Gaming has ever released, but have yet to download a single one. I’ll get to you someday, SNK 40th Anniversary Collection.

Side-side note - I would totally play an Old Guard twin-stick shooter. Gimme those Undying Bullets!

Marketing Play?

As shown by Black Mirror: Bandersnatch, innovative interactive entertainment can generate a lot of headlines and interest for Netflix. Netflix Gaming could just be a very fancy marketing division that makes innovative, tentpole experiences to market major releases. For example, when the next Dave Chappelle special is released, imagine playing an interactive movie Dave Chappelle: Should I Tell This Joke? Just think of the laughs, controversy, and headlines it would generate!

Upsell Play?

Netflix offers a variety of subscription tiers, currently priced in the US from $8.99 to $17.99 per month. A Netflix Gaming service could be another checkbox on the table of reasons to subscribe to Netflix Premium. Why pay $17.99? Not only do you get Ultra HD, but also free access to our growing library of 100+ free mobile games. It’s the only way to play Zach Snyder Presents: Zach Snyder’s Army of the Dead: The Game: The Snyder Cut after all.

Revenue Play?

The most direct path to revenue is for Netflix to create a new game division so that people will spend money directly on games - either through purchasing premium products, in-game purchases, an additional subscription service, or by collecting licensing fees from game developers. This is the model I personally like the most because it is not a spreadsheet game of justifying your existence and budget, but a standalone business that either sinks or swims based on its ability to make money.

Gaming is a great business where hit games can make hundreds of millions if not billions of dollars. In success, Netflix Gaming could release a single, hit mobile game that generates $1 billion a year. Just think of all the gifts you could buy Eloise Bridgerton trying to romance her in a F2P Bridgerton mobile game. And then she’d reject you because she’s a strong, independent woman who doesn’t value material possessions. So you’d buy her more gifts. That gacha pack practically designs itself! This is... not a joke. More on my love for the love of Bridgerton later. 

What will it take for Netflix to compete with Apple Arcade?

As a game developer and a player, I think Apple Arcade is a fantastic offering. I am all for any service that puts money in the pockets of deserving game developers and lets them craft games like Sayonara Wild Hearts, Cozy Grove, or Exit The Gungeon. So just from a developer ecosystem perspective, I would love for Netflix to spin up an Apple Arcade competitor that helps employ more game developers in the pursuit of making delightful games. 

And as a player, at $5 a month it offers a frankly overwhelming amount of value. I personally haven’t found the time to put a dent into games like FANTASIAN, Necobarista or The Pathless. There is too much work to do and I’ve got too many children to spend quality time with to dive into this many well-crafted games.

I understand why building a gaming subscription service seems like an obvious path for Netflix to take. But if we assume their goal was to generate new revenue, competing against Apple Arcade seems like an extremely challenging strategy to pursue.

Let’s imagine that you wanted to compete with Apple Arcade, which offers access to 180+ games for the amazingly low price of $5 a month. And you’re planning on launching in 2022, so we can assume Arcade offers somewhere around 250 games by then. If you need half that volume of content to even be competitive, let’s guess you’re trying to make 125 games at an average price of $2 million each (probably more), plus a big marketing push and continued support and development, and that’s just to get started. You will need publishing staff to guide the creation of those games AND you are now competing with Apple Arcade, Google Play Pass, N3TWORK, Tilting Point, Scopely et all to work with a limited pool of talented, mobile game developers. Your initial investment is somewhere in the $250 - $300 million range to launch a service with half the content of Apple Arcade. Please note: having never run a games publishing business firsthand, these are all numbers I am pulling directly out of my ass.

Once launched, you need to sustain engagement with live operations in order to keep your audience subscribed. Plus you need to build new games. Plus your competitor has anchored the price of this offering to $5 a month. Plus they have a library of world-class content. And the cherry on top is that you’re competing against both Apple Arcade and Google Play Pass on their home turf. On the positive side, you’re playing the full market. But your competitors get to take a cut of your subscription revenue! So we’ll throw a dart at the board and guess you’re looking at an additional $250 million per year of investment just to stay competitive with Apple Arcade/Google Play Pass with the added wrinkle that you need to sell more active subscriptions than they do to cover an equivalent investment in game development, publishing, live operations, and marketing. 

The business case I’ve laid out here needs to generate nearly 6 million full-year subscribers to break even on its operational costs, let alone to repay the initial investment and become profitable. In my opinion, this is a herculean task for any company. Let alone a streaming media company with no game development infrastructure to take on. Especially when you consider that combining a budget this massive with the competitive advantages Netflix enjoys, it is feasible to instead build an individual free-to-play game that makes $1 billion a year for many years. 

Sure, I may be biased by my decade of experience in free-to-play mobile games, but in my opinion, if Netflix wants to compete in gaming in a big way, the natural fit for them is free-to-play franchises driven by owned IP, not the familiar subscription bundle used in their streaming business.

What are Netflix’s competitive advantages?

Even though its experience level in games is fairly low, if they are willing to make a long-term investment into building a games business, Netflix is starting with some tremendous advantages that any game maker should be jealous of. And by long I mean decades-long, which is the only way a company should view getting into the games business. 

Cradle-to-Grave Relationship

Personally, I’ve been a Netflix subscriber for 10 years, and I expect I will continue to be for the next decade at least. Netflix is an incredibly sticky service, and on a recent TWIG episode, Eric Seufert shared data that their subscription churn rate is an unbelievably low 2.5% (according to Antenna). And more importantly, they are truly a cradle-to-grave, multi-generational, family service. My young children don’t ask to watch shows, they ask to watch Netflix. And most of the major brands they’ve fallen in love with - Transformers, My Little Pony, How To Train Your Dragon, Barbie, Voltron - are because of Netflix. And as they grow up, it won’t be long until my kids learn about Pokemon, Power Rangers, Lego, and Jurassic Park thanks to Netflix recommendations.

Netflix is introducing viewers to IPs that will stick with them for the rest of their lives. I’ve enjoyed Transformers for over 30 years, and now I get to enjoy it with my 3-year-old son. If I was at Netflix, the number one question I would be asking myself is “how do I make sure that kid falls in love with a Netflix robot show instead of a Hasbro robot show?” By the time I’m a grandfather, I should be watching the latest iteration of Netflix-bots and not Transformers with my grandchildren. 

When you have the time, money, and vision to invest for the long term, it is this cradle-to-grave relationship that, properly executed, can make Netflix the biggest gaming company in the world.

Millions of Marketing Impressions Daily

In 2020, a GamesBeat article on the N3TWORK Scale Platform states “N3TWORK has scaled Legendary to more than $250 million in revenues, and it has spent perhaps $150 million in user acquisition money.” Clearly, from the $150 million in marketing expenses, in today’s crowded marketplace, discovery is one of the biggest problems game developers face. It’s the reason the N3TWORK Scale Platform exists. 

Marketing is one of any F2P developer’s biggest expenses. This comes as no surprise to DoF readers who share many of the same challenges as a company like N3TWORK. Marketing is the key currency of the day, and Netflix owns a platform that serves millions and millions of impressions of brand imagery to customers around the world every day. Viewed through that lens, Netflix could use that space to help push owned gaming brands and content to their customers daily.

Imagine, for instance, a LiveOps game built on a Netflix-owned IP with tight integration between the game team and the media team. And imagine that instead of releasing in binge format, that show was committed to releasing a new episode weekly, comic-book style, for the entire year. And the game’s weekly event was tied directly to that episodic content. Now you have a reason to market your game to your audience on a weekly basis without shelling out millions of dollars to Facebook and Google for advertising impressions. This is an advantage that no other company can replicate at the same scale as Netflix.

They Know Video Content

Netflix distributes an amazing amount of video content. They’re not trying to be a TV network. They’re trying to be TV. And if my house is any indication, they are largely succeeding. So the idea of creating shows whose sole purpose is to market a game property is not a big stretch.

They Know What you Like

Again, Netflix doesn’t need Facebook machine learning algorithms to figure out who in their audience is a high net-worth male in the United States who likes superheroes and fantasy. They already know. And they have insights that could lead to the generation of new IP that a game maker like me might never think of. I might have an instinct that an anime-style game about being a pastry chef might have surprising, global, full-demographic appeal. But Netflix knows, or at least they have the tools to figure it out.

What about Netflix’s IP?

I think the big weakness Netflix has when it comes to gaming is that, in my opinion, it does not have a lot of game-ready IP. First of all, although Netflix distributes a lot of shows and movies, it is not clear what they really own. For instance, Voltron is a Netflix original, but does Netflix have the rights to do a Voltron game? There have been several games made from Netflix’s hit original Narcos, but the credits for Narcos: Rise of the Cartels does not mention the company, leading me to assume they are the distributor and hold no ownership rights over the IP.

Second, of the Netflix originals that have broken through to the mainstream and become watercooler shows, few seem like ideal fits for gaming. I would argue that, if anything, Bridgerton is the show Netflix could turn into a must-play game (Regency era otome romance game? Yes please! Shondaland, if you are listening, please let me make a Bridgerton game!) But again, to the rights, Bridgerton is distributed by Netflix so I don’t think this is a game they could make, not without paying a licensing fee at least.

A Queen’s Gambit chess game is a no-brainer. But after that, even sci-fi mega-hit Stranger Things doesn’t really have the DNA of a must-play mobile game with multi-year retention. In The Walking Dead, our heroes spend a lot of time-fighting zombies and other humans. Stranger Things is more often about running from monsters than confronting them. Maybe after a few more seasons to give us more characters and enemies types? 

The Venn diagram of a must-binge TV show and a must-play mobile game has a pretty slim overlap. Netflix’s cerebral, dramatic, adult-oriented hits are a better match for starting a chain of branded escape rooms than for making a bunch of mobile games. And when it comes to children and young adult IP, it appears to me that Netflix is building much more brand equity for other companies than building their own multi-decade brands.

So if you’re bringing only a few game-ready IPs to the table, when it comes to organic discovery on the storefronts, you don’t have much of a competitive advantage over any other game developer fighting to get noticed on the app stores. 

Netflix needs worlds!

Star Wars, X-Men, The Avengers, The Justice League, My Little Pony, Transformers, Dungeons & Dragons, Dragon Ball Z, Disney Princesses, Sonic, Mario, Pokemon, Hello Kitty, Harry Potter. These are all licenses that support not only games but also books, comics, t-shirts, toys, trading cards, toothpaste, party favors, collectible figures, and everything in-between. 

In my opinion, this is the goal that Netflix should pursue. Expanding into games is too limited. Netflix should instead set out on a multi-decade quest of building new, character-rich, licensing-friendly worlds, of which video games are just one component. Specifically, they should begin by focusing on animated entertainment that can be efficiently serialized over years and expanded up and down in age range with a mix of animation and live-action content.

I was first introduced to the X-Men when I started watching the 90s cartoon. In the years since, I’ve purchased X-Men toys, comics, video games, trading cards, played X-Men card games, watched X-Men movies, and worn X-Men clothing. My childhood love with the X-Men has stayed with me for decades and motivated me to purchase all sorts of products. When I play Marvel vs Capcom 2 in the arcade, purchase Spiderman: Miles Morales for the PS5, or open gacha packs in Marvel Strike Force, it is largely because of the love for Marvel superheroes kindled by that X-Men cartoon. When I drag my wife to go see Ant Man and The Wasp, it is because of the X-Men cartoon. When I hate-watch the New Mutants movie, it is because of the X-Men cartoon.

Similarly, when I’m ready to share Star Wars with my children, it is not going to be in the form of a live-action movie. We’ll start with Clone Wars cartoons, Lego Star Wars games, and a Baby Yoda plushie. 

Although Netflix can make fantastic superhero live-action content like The Umbrella Academy, in my opinion, the animation is the natural place for Netflix to build outworlds. FX heavy, live-action shows like Umbrella Academy - or the quickly canned Jupiter’s Legacy with its rumored budget of $200 million dollars - are expensive. Ensemble cast shows like Glow is complicated to make for 10 seasons. The cast members get more expensive and more difficult to schedule with each new season as the fame from a hit series increases their q score. Eventually, Netflix just abruptly cancels a beloved series like Glow instead of filming an additional season. Sidebar - Glow actually has all of the ingredients for a hit mobile game. Not to mention, who doesn’t want to pull Marc Maron in a gacha pack? But cartoons - you can make a cartoon for a decade with a relatively stable budget.

If I was Netflix, my answer for how to do games is to build a licensing business that can span all platforms and all sales models, first party, third party, or entirely license-based development. And in order to build a licensing business, you don’t take $600 million and plow it into a suite of mobile games. You take $600 million and invest it into building out new worlds.

Robots, outer space, superheroes, wizards, yokai, fantasy, dinosaurs, cars, military, martial arts, princesses, popular girls, and ponies. It’s not rocket science to figure out the themes of generational brands with great gaming potential. So, personally, I would begin a Netflix Gaming initiative by doing what Netflix does best and making a bunch of TVs. Specifically, I would make first seasons for a suite of character-rich cartoons for children, tweens, and teens, each of which was built around a 20-year plan for how it would expand into the additional cartoon and live-action content targeted at different age ranges. Each of these worlds needs a credible strategy for how it expands into toys, comics, paper plates, and yes, video games. 

Use your content creation superpower to make 20 different first seasons. Use your platform marketing superpower to take the successes and make them omnipresent. Use your multi-decade relationship superpower to grow the ones that resonate over years and years with a combination of animated and live-action offerings. Before long, game publishers will be fighting each other to make your games just like toymakers will be fighting for the rights to manufacture your toys and party favor manufacturers will be fighting for the rights to print your characters on paper plates. Netflix has everything it needs to be the next Disney, all it is missing is the game-ready, toy-ready worlds, licensing-ready worlds.