Netflix/Amazon: video games market has tech giants fighting over the controls

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A new front has opened in the battle to dominate digital entertainment. Netflix announced earlier this summer that it was venturing into video games. Last month it acquired game developer Night School Studio for an undisclosed sum. Amazon, which has invested hundreds of millions of dollars into gaming, finally had a hit with new online game New World.

The video game industry has become one of the world’s most popular — and lucrative — forms of entertainment. Video games generated nearly $178bn in global revenues last year, according to Newzoo, a market research group. That figure is projected to surpass $200bn by 2023.

For Amazon and Netflix, adding games to their platforms could attract more subscribers. Or at the very least dissuade existing ones from leaving. After a pandemic-induced jump in users, Netflix dropped 430,000 subscribers in the US and Canada in the second quarter. It regained some of these in the third quarter. Netflix has said in the past that in the “attention economy” it competes against video games just as much as rival video streaming services.

Two charts. First shows Netflix subscribers paid membership at end of period (millions) for US and Canada, Europe, Middle East and Canada, Latin America and Asia-Pacific. Q1 2018 to Q3 2021.Second shows that games are increasingly played on mobile devices.Figures are for revenues ($bn) and year-on-year growth rate (%) for tablets, smartphones, PC browsers, PC boxed/downloads and consoles.

But gaming is a difficult market to enter. For every blockbuster such as Minecraft or Fortnite there are thousands of flops. Netflix hopes to leverage the success of shows like Stranger Things into video game hits. But good games need more than recognisable names. Development requires different infrastructure and talents.

Just ask Disney. The entertainment juggernaut shut down its games studio in 2016 and transitioned to a licensing model. Amazon — whose gaming push includes its near-$1bn acquisition of video-streaming service Twitch and the launch of gaming streaming service Luna — cancelled or ended at least four video games before New World.

Established game makers such as Nintendo, Sony, and Microsoft all make money from selling games and consoles. Free-to-play mobile games as in Roblox and Fortnite get users to make in-game purchases. Netflix’s plan is to add games for free and as a loss leader to woo more subscribers.

The sweet spot may not be in making games at all. Apple and Google sell and distribute games from their app stores and take a cut of as much as 30 per cent from each sale. No wonder established game makers are more concerned about middlemen than new entrants.

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