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Netflix (NFLX) Might Add In-App Purchases and Ads to Games

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Netflix (NFLX - Free Report) is exploring ways to monetize its gaming venture, including in-app purchases, premium pricing and ads. Recent discussions among executives suggest a potential shift in strategy to generate revenues from gaming. Some of the ideas under consideration include introducing in-app purchases, charging extra for more sophisticated games, or providing access to games with ads for subscribers on the newer ad-supported tier.

This potential pivot represents a departure from Netflix's initial stance of keeping games ad-free and free from in-app purchases, as the company aimed to provide a differentiated gaming experience focused on player enjoyment.

The internal discussions highlight the ongoing balance NFLX navigates between customer experience and revenue generation.

While Netflix's gaming audience is growing, it remains a small percentage of its global subscriber base, with fewer than 1% playing games daily as of October. Analysts estimate that NFLX has spent around $1 billion on buying gaming studios and building its gaming business. The company's gaming budget is expected to increase as it ventures into developing high-budget and triple-A games.

Despite the growing gaming division, some executives and investors have questioned the value and resource allocation of Netflix's game push. Concerns were raised about the gaming initiative potentially diverting resources away from the core programming that has long been NFLX's primary focus.

As with any internal discussions, the company's decision to monetize games or adopt specific strategies is uncertain. However, the ongoing evaluations highlight Netflix’s commitment to exploring various avenues to enhance its gaming business while maintaining a balance with its core streaming service.

Netflix Boosts Gaming Efforts to Push Subscriber Growth

The company's foray into gaming has been in progress since 2021, primarily offering mobile games that are free for all subscribers. Netflix has released a total of 86 games, out of which 40 were released last year.

These include two in-house developed titles, Oxenfree II: Lost Signals and Netflix Stories: Love is Blind, as well as licensed titles, such as Football Manager 24 Mobile, Storyteller and Grand Theft Auto: The Trilogy - The Definitive Edition.

One notable success is the game Too Hot to Handle: Love is a Game, downloaded seven million times since its December 2022 launch. The streaming giant has acquired small gaming studios and is investing in creating more games, with a focus on producing console-quality games that could lead to charging users for such experiences.

Netflix has already started developing around 90 new games and many of these are based on its original programming. A game set in the Squid Games universe is on the roster, where players will be able to compete with each other in various games featured in the show.

The company is collaborating with Super Evil Megacorp on a Rebel Moon video game. The Money Heist: Ultimate Choice, announced last month at the Geeked Week, is set to release this month.

NFLX is also reportedly developing a high-budget PC game, which could be a costly endeavor. Hence, the company is considering charging for the game. The streaming platform is expected to have spent $1 billion on its gaming division, acquiring studios and IPs and developing new projects.

Shares of this Zacks Rank #2 (Buy) company have returned 7.3% in the past six months compared with the Zacks Consumer Discretionary sector’s 2.8% rise, attributed to the success of its recently released content and a strong pipeline for 2024. This is expected to fend off competition from industry peers like Warner Bros. Discovery (WBD - Free Report) , Disney (DIS - Free Report) and Amazon (AMZN - Free Report) . You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Netflix also outperformed Warner Bros Discovery and Disney but underperformed Amazon. Notably, shares of WBD have declined 13.5%, while shares of DIS and AMZN have returned 3.2% and 14.2%, respectively, over the past six months.

For the fourth quarter of 2023, NFLX forecasts earnings of $2.19 per share, significantly up from 12 cents reported in the year-ago quarter. The Zacks Consensus Estimate for the same is also pegged at $2.19 per share, up 0.5% over the past 30 days.

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