Netflix has reported the worst slowdown in subscriber growth in eight years as people emerge from their pandemic cocoons. So it adds a new appeal to the marquee: video games.
On Tuesday, the video streaming giant announced that it would offer video games in its existing subscription plans at no additional cost, but did not say when the service would launch or what kind of games would be developed.
The much-anticipated expansion confirmation came in conjunction with the release of Netflix’s latest earnings report. Financial analysis showed that the video service added 1.5 million subscribers during the period from April to June. That’s slightly better than the modest increase management expected after the service faltered on a slow start during the winter months, but it’s still well below its growth rate in recent years.
Netflix’s net gain of 5.5 million subscribers during the first six months of this year marks its weakest first-half performance since 2013 — a time when the company was still releasing more original programming as it branched out from licensing existing TV series and movies.
Netflix is now taking another leap by offering video games that aim to produce themselves as part of what it has described as a multi-year expansion. Los Gatos, California, telegraphed the move last week when it revealed the hiring of veteran video game executive, Mike Verdo, to explore potential opportunities in another field of entertainment.
“The reason we’re doing this is to help the subscription service grow and be more important in people’s lives,” Netflix co-CEO Reed Hastings told investors during Tuesday’s discussion.
Greg Peters, chief product officer of Netflix, said the company will initially focus on mobile games before eventually expanding to consoles and TVs as well. Peters said the games will initially be tied to the most popular Netflix shows, but independent titles could be added to the mix as well. It was even speculated that Netflix might eventually create a TV series or movie based on one of its video games.
“There is a big, big prize here, and our job is to be really focused,” Peters said.
Despite slowing growth this year, Netflix remains by far the world’s largest streaming service in an increasingly competitive field that includes Walt Disney, HBO, Amazon and Apple. Netflix ended June with 209 million subscribers worldwide.
Netflix’s heaviness also produced steady earnings. The company earned $1.35 billion, or $2.97 per share, nearly double from the same period last year. Revenues increased 19 percent from a year ago to $7.3 billion.
But the lackluster numbers in the first half are a dramatic reversal from last year, when government-imposed lockdowns around the world sent people into fits of chaos while watching at home. It was already the world’s largest video streaming service when the pandemic began in March 2020, and Netflix picked up 26 million subscribers during the first half of last year. .
While no one expected Netflix to maintain such a rapid pace, the decline in subscriber growth this year has been more severe than expected. Netflix shares are down about 10 percent from their peak of $593.29 six months ago. Shares are up slightly in extended trading following Tuesday’s news release.
Netflix management has blamed part of the slowdown this year on production delays caused by the pandemic that has left its video service with fewer confirmed hits. Los Gatos, California, expects this problem to fade during the second half of this year with the new season releases of popular series such as sex education And the the magicianIn addition to films starring famous stars such as Leonardo DiCaprio and Meryl Streep.
However, Netflix disappointed investors with an expectation to invite only 3.5 million additional subscribers during the July-September period. That was well below analysts’ estimates of a third-quarter gain of 5.6 million subscribers, according to FactSet research. CFRA analyst Tuna Amobi said the “completely disappointing” guidance raised further concerns about the intensification of competition in video broadcasts, as well as the repercussions of the ending pandemic lockdowns.
The conservative view indicates that Netflix does not expect immediate support from its entry into the highly competitive field of video games that are already competing with more experienced companies such as Epic Games, Microsoft and Electronic Arts.
But if the move to video games pays off, it may eventually give Netflix more leverage to increase its prices. The company has already been gradually raising subscription costs in recent years, helping drive its average monthly revenue per subscriber to $14.54 in its largest markets of the United States and Canada. That’s a 16 percent increase from $12.52 a month two years ago.
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