Netflix last night confirmed plans to move into video games after the streaming giant suffered a sharp slowdown in new subscriber growth.
The streaming giant added 1.54 million subscribers over the last quarter, below analyst forecasts and a significant fall from its 2020 boom.
In the same quarter last year, at the peak of the pandemic, Netflix added 10.1m new subscribers.
Netflix reported losing around 430,000 subscribers in its key markets of the US and Canada — only its third quarterly decline in 10 years.
The California-based streamer, whose original hits include Bridgerton, Lupin and The Crown, also struck a downbeat tone about its prospects for the summer.
The company said it expected to add 3.5m subscribers between July and September. Wall Street had expected a forecast of 5.5m, according to analysts surveyed by Refinitiv.
Shares initially dropped sharply, before settling flat at around $531 in after-hours trading.
The slowdown in growth highlights the challenge faced by Netflix to maintain momentum after a stellar year in which the pandemic fuelled massive demand for its services.
The streaming platform is also facing increased competition from streaming rivals such as Disney Plus and Amazon Prime. Earlier this year Warner Media and Discovery announced plans to merge in a move that will create a major new on-demand rival.
Sophie Lund-Yates, senior equity analyst at Hargreaves Lansdown, said competition was the “biggest threat to the Netflix investment case”.
“It’s reasonable to think the average customer will happily pay for two streaming subscriptions, like Netflix and Prime,” she said. “The water’s being muddied by the unstoppable rise of Disney Plus and its wider family including Hulu though.”
In an apparent nod to these challenges, Netflix confirmed it will begin to expand its offering beyond TV and film and into video games.
The streamer said it was in the early stages of developing its gaming offering, which would be made available to subscribers at no extra cost. The company will initially focus on mobile games.
“We view gaming as another new content category for us, similar to our expansion into original films, animation and unscripted TV,” the company said in its quarterly letter to shareholders.
The multi-year effort will start “relatively small” with games tied to Netflix hits, chief operating officer Greg Peters said in a post-earnings video interview. “We know that fans of those stories want to go deeper. They want to engage further.”
Netflix has dabbled in video games with a few titles linked to series including Stranger Things and The Dark Crystal: Age of Resistance.
Hargreaves Lansdown’s Lund-Yates said: “A very high proportion of younger people already have a Netflix subscription, so getting them hooked on games, by leveraging its original content is a potential stroke of genius.
“It will also play into Netflix’s core strategy, which is to make more money from developed markets by increasing prices – which should be an easier job thanks to the pandemic, where streaming has become even more of a habit than it was before.”
Media analyst Paolo Pescatore added that Netflix “must pivot towards being a platform”.
“It cannot solely rely on subscription video streaming while others offer a slew of services,” he said. “Having a base of more than 209m paying subscribers is effectively a shop window — there are plentiful opportunities to offer other features, services and billing options.”