Last week, rumors swirled around the idea of Netflix jumping into the world of gaming. Netflix immediately denied the report, albeit acknowledging that they will be working with video game developer Telltale to create Minecraft: Story Mode, which is being dubbed as an "interactive narrative series."
This got me thinking about a few things: 1) When will we see a digital video game streaming service, akin to Netflix with movies and tv shows; and, 2) Is Netflix the right platform for such a service, and if not them, then who?
Over the past several years, the video game industry has followed a similar path to that of music & movies. Take music for example: growing up, I would head over to Target or Best Buy to buy a new CD - Lil' Bow Wow's album "Doggy Bag" was my 1st. From there, iTunes became the #1 stop for downloading both albums and individual songs digitally. Finally, the music industry as a whole moved away from the á la carte business model to the current subscription streaming services like Spotify and Apple Music. Video games are close to completing this cycle, but they are a step short.
Currently, gamers are able to download individual games such as NBA 2K or Grand Theft Auto via the Playstation or Microsoft Store, and the majority seem to favor this over physical copies. According to a 2016 Entertainment Software Association report, digital video game downloads accounted for 74% of all sales (see below).
Now, this number needs to be taken with a grain of salt, as it includes mobile apps, which obviously are only going to be available digitally. But after doing some further digging, the trend was confirmed.
Take-Two Interactive, the company behind GTA and NBA 2K, saw net revenue from digital online sales in their fiscal 2018 4th quarter rise 18% YOY to 67%, while digital accounted for an astounding 81% of net bookings. In short, the move to digital in gaming is happening - and fast. So where does that leave us on subscription models?
The 2 main consoles (PS4 and Xbox One) already employ streaming services, Playstation Now and Xbox Game Pass, respectively. However, while these subscription models include hundreds of games, they do not include the latest releases. For example, when the new Red Dead Redemption game comes out this fall, it won't be on the streaming platforms.
My first thought was that Netflix would be a great platform for a subscription streaming service for new video games, being that they've mastered the process for movies & television. But after further thinking (and an E3 announcement that Microsoft is in the process of developing a streaming service), I've concluded it makes the most sense for the console companies to lead this next revolution in gaming. While Netflix has perfected "The Process," Sony and Microsoft have the requisite infrastructure and established relationships with developers to pull this off within the next 2-3 years. That being said, there should be a place for Netflix in this arena.
As Netflix plans to spend around $8 billion on content in 2018, they are increasing the percentage that goes toward developing original content (now over 25%). With that, I believe they will play a role in working with video game developers to transform shows and movies that appear on Netflix into video games. It seems like a logical fit for the company who is set on growth and taking market share. Now that AT&T has finalized the merger with Time Warner (now WarnerMedia), the arms race to win the time and money of consumers is as strong as ever.
All in all, it is a good time to be a gamer. As the secular trend of subscriptions sweeps across all aspects of the economy, it is only a matter of time before we see unlimited gaming services. It will be interesting to see how this plays out in terms of margins for video game developers, but Take-Two Interactive has shown through their virtual currencies available for purchase in-game that there is great opportunity for revenue and profit beyond the physical (or digital) game itself.
