Are you not entertained?
Netflix has won the streaming war. It’s towering over its streaming competitors Disney+ and MAX (HBO) What’s next and what is the big play Netflix is after?
There’s no denying that Netflix is absolutely killing it. The results of the company’s earnings call last week leave zero doubt about the might of the streaming giant. Over 300 million subscribers - 19 million new subscribers in the last quarter alone. Over 10 billion in revenue in Q4 - a 16% increase compared to the same period last year. Price hike of its premium tier to $24.99 as well as price increases across the advertising-supported tiers with no indication that it’ll impact subscriber growth. Pricing power is the ultimate superpower.
Netflix is on an absolute tear and the immediate priorities for 2025 are clear: more content, enhance its product experience, and continue to grow its advertising business. Especially the latter is a top priority according to the company “to improve our offering for advertisers so that we can substantially grow our advertising.”
The streaming market certainly has more room for growth. But eventually, there are only so many customers who can afford a monthly subscription at a price of 25 bucks, and who can watch more and more hours to monetize the advertising supported subscription tiers. Which raises an all important question.
What is the bigger picture, the ultimate play Netflix is after?
If past events are any indication for the future, Netflix will pursue new growth areas aggressively. Here’s a look at what Netflix has been investing in, spaces they might go into - and an attempt to tie it all together into a puzzle where all these pieces fit.
Games as a puzzle piece
Video games were Netflix’s first foray beyond streaming. The company has made significant investment into this part of its business, with analysts estimating that the total investment into games comes out to $1 billion. That certainly is a lot of money and industry pundits have gone as far as calling Netflix Games a failure (not yours truly!) Yes, they initiated a leadership change and shuttered their AAA game development studio. But: already at the end of 2023, Netflix Games had seen year-over-year growth in downloads by more than 180%. Downloads of the Netflix Games app already approached 100 million then, and user engagement tripled within one year. Similar to what games are doing for the New York Times, it’s increasing engagement overall with the entire offering Netflix has and improves retention (read: giving people less reasons to leave and cancel their subscription). And yes, $1 billion is a big investment. But let’s not forget that Netflix invests around $17 billion every year into content production. So with only 6% of its annual content budget, it’s built an important strategic pillar to its future growth.
I believe that the purpose of Netflix’s investment into games isn’t to drive games as a standalone offering - it’s a piece to a larger puzzle. Mike Verdu, the executive who built Netflix Games from the ground up, has since taken on a new role at the intersection of GenAI and entertainment content. Verdu has been a gaming executive his whole career. His shifting role and focus was interpreted (again) by industry pundits as a sign that Netflix Games had failed. But people close to the matter as well as folks that have worked with Verdu had a different take: he’s the perfect guy to take something from zero to one, but operating something at scale doesn’t align as well with his skills and interests. I saw this more as a sign that Netflix will continue to scale its games business while wanting to spin up their next effort that benefits from Verdu’s extensive gaming expertise.
What if Netflix is looking into immersive entertainment that leverages the mechanics and inner workings that make games so powerful?
What if Netflix is putting together all of the puzzle pieces to build connected entertainment experiences based on its unrivalled IP catalogue?
To engage consumers along every touch point of their journey.
To become THE entertainment center of our lives.
Let’s dissect the different avenues Netflix is pursuing and the ones it might sooner than later.
Core business
See above - over 300 million subscribers (almost double the subscribers Disney+ has), unrivalled investments in content, pricing power to grow the subscription prices faster than any of their competitors, 55% of new subscribers coming in on their ad-supported subscription tier. Streaming is Netflix and Netflix is streaming. Video games are now a part of Netflix’s core as well. In addition, the company licenses its IP to other content creators, for example game developers on Roblox. It gives them avenues to reach additional audiences as well as engage them in different ways while further monetizing the IP asset itself without shouldering any of the development or distribution.
Immediate expansion
Netflix added a first set of live events to its content roster in 2024. From becoming the home for wrestling's biggest stars at the WWE, the SAG awards, or live streaming NFL games - Netflix is bound to have its hands in almost everything. It’s already paying off. The company stated that it’s attributing a fair amount of its Q4 subscriber growth to the fight between boxing legend Mike Tyson and streamer turned wannabe boxing star Jake Paul (I hope we don’t have to write about him for a while). Netflix will double down on live entertainment this year. More NFL, more WWE, more award shows, live converts, comedy specials - the idea is to have something for everyone. One item not on the list, at least not publicly? News. Amazon Prime pushed the door wide open with its live coverage of the US presidential election last November. I wouldn’t rule out Netflix going down this path and potentially accelerating it by acquiring an established news brand like MSNBC or CNN.
But live events aren’t the only expansion pathway this year for the company. Netflix also plans to enter the physical arena by opening the first two Netflix Houses - locations “where customers will be able to shop, play and interact, immersing themselves in some of their favorite Netflix shows.” Netflix tested the blending of entertainment and retail with its Netflix Bites, which were temporary dining pop-ups inspired by its culinary shows. Customer feedback was terrific - so much so that offering in-person experiences to Netflix customers has become a core part of the company’s long term strategy. Some industry analysts have erroneously taken this strategy to say Netflix will directly compete with Disney and its theme parks business. Whereas a trip to Disneyland will cost a family on average between $3000-5000 for a weekend, Netflix Houses will be set up in downtown metropolitan areas that are highly accessible at much lower price points - Netflix is going after a different type of consumer and consumption habit.
What do all of these initiatives have in common? They provide varied monetization streams that provide longevity and economies of scale to the heavy investment into Netflix’s critical competitive advantage: its IP catalogue.
Future growth
Rumor has it that Netflix may be in the mix to buy TikTok. I don’t think this will happen. It’d be too big of a distraction from the business that’s killing it and still has too much room for growth - and operating a large scale social media platform requires different skills and brings with it its own set of challenges, such as content moderation. Netflix leadership is wise to stay away from the politics in this space. What I see as more realistic is a deeper push into immersive environments, either through VR/AR or through platforms similar to Roblox. Why not give fans the ability to become a part of the Stranger Things story? Meet Millie Bobby Brown? The avenues for deepened consumer engagement based on Netflix IP are endless.
In my view, there are two additional avenues that would fit Netflix’s overall strategy well. The first one is music streaming. For all of their shows, they’re negotiating licensing deals and right switch record labels and artists already anyway. It wouldn’t be too big of a lift to extend those rights and include music streaming on demand similar to Spotify. What’s powerful about this is the ability to prolong customer engagement in the Netflix environment. Imagine you’re finishing the latest episode of Stranger Things. Kate Bush’s classic “Running up that hill” is playing as a part of the episode. Netflix prompts you with a call to action, saying if you like this song you can click here to keep listening to it or more songs from Kate Bush. Or any variation of that. And rather than just listening to the song, the music video is playing along with it. Video content is powerful. There’s a reason why Spotify keeps adding short reels of the artist’s music video to a given song. And video combined with audio is the recipe for the second avenue I believe Netflix will pursue.
Podcasting.
The growth of podcasts is astonishing. But it’s the combination of the podcast with a video where the magic happens. Joe Rogan’s podcast with President Donald Trump in the run-up to the election had 15 million downloads on Spotify - it had over 40 million views on YouTube. It’s a natural fit for Netflix.
Hindsight is 20/20. But: Netflix is executing on its grand strategy that it shared with everyone in 2018. Reed Hastings, then CEO and co-founder of Netflix, said that he viewed the video game Fortnite as a bigger competitor to Netflix than other streaming services like Disney+. Within that statement lies the vision for Netflix. Companies are battling for the limited attention of consumers. And all companies, whether it’s a streaming service provider, a video game developer, a language learning app, a news media company, or a social media platform are in direct competition with each other for the same allocatable hours of consumer attention.
Hastings understood this better than anyone. The broader your service offering is to satisfy multiple consumer touch points and needs, the better your chances are to steadily increase your share of consumer attention and ultimately create a moat where consumers have no reason to leave your environment. Or in the words of Rich Greenfield, the premier TMT analyst and Partner at research firm Lightshed Partners:
“The goal of any company in this new world - it’s all about winning time spent. It’s all out war for entertainment time spent. Netflix understands that.”
Netflix will become the experiential hub for all of our entertainment and media content, across digital and physical spaces.
You go to Google to search for information.
You go to Netflix to be entertained.