Netflix is getting into gaming — but for now, it’s starting small.
On an investor call last week, the streaming video leader tempered expectations over its planned move into interactive entertainment. 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 prevalent. According to a Deloitte survey, Generation Z ranked playing videogames as its favourite entertainment activity — much higher than listening to music, posting on social media and watching television.
But while Netflix dips its toe into gaming, its competitors are going big. Companies including Microsoft, Tencent and Electronic Arts have all been scooping up gaming studios, staking their claim on what research firm Newzoo projects will be a nearly US$220-billion market opportunity by 2024.
This all means Netflix’s approach could knock it out of the gaming race. So, here’s a proposal for how it could take a big swing now: buy CD Projekt, the beleaguered game maker behind Cyberpunk 2077 and one of the largest companies in Poland.
Pivot
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 eventually going to have to pivot towards 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. Shares of the company are down more than 50% since the disappointing December release of Cyberpunk, meaning an acquirer could have a rare opportunity to purchase a high-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 unrivalled. Many critics consider its The Witcher 3: Wild Hunt as one of the best games of all time.
CD Projekt could be poised for a comeback. Other industry titles such as No Man’s Sky have been able to recover from bug-riddled starts 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 humble hardware. Cyberpunk, by and large, was fine on PC, PlayStation 5 and Xbox Series X — it was older consoles that proved to be a challenge. Now, with the technical foundation for its latest game engine built out, development for CD Projekt’s future games will likely be much easier.
There’s already clear evidence that Netflix’s core business and CD Projekt’s work can be a potent combination. The success of the Witcher franchise — which has sold more than 50 million copies — was instrumental in making it 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 capitalisation of almost $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 price would be lower than Microsoft’s $7.5-billion buyout of ZeniMax Media, the owner of games maker Bethesda Softworks. And I’d argue CD Projekt is a better developer than Bethesda.
Easing into the videogame world is well and good. But if Netflix wants to win the hearts and minds of the next generation, it should think bigger. — By Kim Tae, (c) 2021 Bloomberg LP