How Netflix Could Go Big in Gaming

Opinion

July 31st, 5:26am

Tae Kim

Tae Kim -

Hi there, it’s Tae from the Bloomberg Opinion team. Netflix Inc. is getting into gaming—but it’s starting small. Last week, the streaming video leader tempered expectations over the planned move into interactive entertainment. On an investor call, the company’s management said it would begin modestly with phone-based games, experimenting in a deliberate fashion to learn about the category. For years, Netflix has publicly worried about how gaming was taking screen time away from video programming. This is a legitimate concern—and one that will only become more pressing thanks to demographic shifts. According to a Deloitte survey, Generation Z ranked playing videogames as their favorite entertainment activity—way above music, social media and television. But while Netflix gingerly dips its toe into the gaming waters, its competitors are going big. Companies like Microsoft Corp., Tencent Holdings Ltd. and Electronic Arts Inc. have all been actively scooping up gaming studios, staking their claim on what researcher Newzoo projects will be a nearly $220 billion market opportunity by 2024. This all means Netflix’s incrementalist approach risks the company falling behind. So here’s a modest proposal for how it could take a big swing now: Buy CD Projekt SA, the storied game maker and one of the largest companies in Poland. It’s not as crazy as it sounds. Netflix executives have repeatedly said the company would be open to acquisitions that can improve its growth prospects. And if Netflix follows its own playbook from video, it’s going to eventually have to pivot toward original content and build up its own internal capabilities to make games. Why not jump-start that effort now? CD Projekt has had a rough year so far. Shares of the company are down more than 50% since the disappointing December release of its Cyberpunk 2077 game, meaning an acquirer could have a rare opportunity to buy a quality asset at a discount. Despite its recent missteps, CD Projekt remains one of a handful of world-class developers. Its ability to make games with amazing stories and characters, along with jaw-dropping visuals and immersive worlds is unrivaled. Many critics consider its prior release, The Witcher 3: Wild Hunt, to be one of the best games of all time. CD Projekt could be poised for a comeback. Other studios have been able to recover from flops by patching up games and adding more content. The same could happen for Cyberpunk. In fact, the game’s main problem was trying to get its ambitious vision working on less powerful hardware. Cyberpunk, by and large, was fine on PC, PlayStation 5 and Xbox Series X—it was the older consoles that proved to be too much of a challenge. Now, with the technical foundation for its latest game engine built out, development for CD Projekt’s future releases will likely be much easier. Plus, we already know that Netflix’s core business and CD Projekt’s ideas can be a potent combination. The success of the game maker’s Witcher franchise—which has sold more than 50 million copies in total—was instrumental in making The Witcher one of Netflix’s biggest hit series. It also created a positive feedback loop with the show’s viewership, sparking more game sales. Netflix, with a market cap of nearly $230 billion, certainly has the money to make big bets in gaming. CD Projekt’s current market value is roughly $4.7 billion. Even if Netflix offered a 40% premium, the purchase price would be lower than Microsoft’s $7.5 billion recent purchase of ZeniMax Media, the owner of games maker Bethesda Softworks. Easing into the video game world isn’t a terrible idea. But if Netflix wants to win the hearts and minds of the next generation, it should think bigger. Bloomberg

from Asharq AL-awsat https://english.aawsat.com/home/article/3107521/tae-kim/how-netflix-could-go-big-gaming