Friday, Jul 16th 2021

At long last, Netflix strides into gaming


The streaming wars and the gaming surge were bound to converge, as entertainment giants fight to capture audience attention in its most devoted forms. Netflix, in typical fashion, is leading the way.

This week, Netflix announced that Mike Verdu would be its new Vice President of Game Development, leading the company’s efforts to expand into the fastest-growing entertainment medium around. The company’s executive team has hinted at a more forceful move into gaming, even mentioning the popular game Fortnite as a direct competitor.

Verdu’s gaming expertise comes from a variety of executive roles he previously held, including Chief Creative Officer and Co-President of Games at Zynga; CEO of TapZen; President of Studios and Chief Creative Officer at Kabam; Senior VP of Mobile at Electronic Arts; and most recently, Vice President of AR/VR Content at Facebook.

Verdu brings a wealth of expertise at building out game portfolios -- precisely what Netflix needs to monetize its growing base of IP and drive user engagement, especially in mature and developed markets.

At Netflix, concerns have intensified around lackluster net subscriber additions, which fell significantly below consensus, as reported in the company’s latest quarterly report. In the shorter term, building out gaming products should drive subscriber growth in younger cohorts.

At Titan, we focus on the longer-term dynamics, and through that lens, we see this as another strategic move by Reed Hastings that we believe is critical to Netflix’s staying power as an entertainment platform. We view the company’s move into gaming as a logical supplement to its content strategy, enabling further monetization of the intellectual property that has led to the platform’s success. We expect that a successful gaming product will increase retention and engagement, further supporting pricing power for Netflix.

Taking a step back, we are excited to see Netflix focus its efforts on gaming -- a move we have been anticipating with enthusiasm for some time now. Still, it is important to note that Disney has failed to successfully monetize a gaming division with its IP, so Netflix’s moves by no mean guarantee a successful outcome. Google and Amazon have also had fits and starts in their attempts to develop a gaming platform.

However, Reed Hastings continues to prove that he is making strong decisions with your capital, and we view gaming as the dominant entertainment medium moving forward. As a result, this is a necessary allocation of capital on Netflix’s part.

Market researcher Newzoo reported that gaming is currently a $175 billion industry and is the fastest growing media & entertainment medium. And trends of user engagement (measured by time spent) continue to shift towards gaming at the expense of traditional video, audio, and text.

We remain highly constructive on Netflix’s path as a dominant entertainment platform and will not be making any changes to its allocation in the Flagship portfolio.

As of this writing, NFLX was a portfolio holding of Titan. This security may cease to be a portfolio holding at some point in the future.
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