Netflix to add video games to service after declining subscriber growth

Netflix reported its worst slowdown in subscriber growth in eight years as people broke out of their pandemic cocoons. So it's adding a new attraction to its marquee: video games.

On Tuesday, the video streaming giant announced that it would be offering video games to its existing subscription plans at no additional cost. The long-awaited expansion was confirmed with the release of its latest earnings report.

The long-awaited gaming expansion was confirmed by the release of Netflix's latest earnings report. That financial crisis showed the video service added 1.5 million subscribers during the April-June period.

That's slightly better than the modest growth that management forecast after a sluggish start during the winter months, but well below its growth rate in recent years.

Netflix's 5.5 million subscribers in the first six months of this year represent its weakest performance since 2013 — a time when the company is still starting to license more original programming than older TV series and movies. . was going

Now Netflix is taking another leap by introducing video games. The Los Gatos, Calif., company telegraphed the move last week when it revealed the hiring of a veteran video game executive, Mike Verdu, to explore potential opportunities in another area of entertainment.

"We see them doing it to help the subscription service grow and become more important in people's lives," Netflix co-CEO Reed Hastings told investors during Tuesday's discussion.

Netflix chief product officer and executive Greg Peters, who will oversee what is described as a multi-year expansion, said the company will initially focus on mobile games and eventually expand to consoles and TV sets as well. Games will initially be tied to Netflix's most popular programming, Peters said, but standalone titles could also be added to the mix. He also speculated that Netflix might eventually make a TV series or movie inspired by one of its video games.

"There's a big, big prize here, and our job is to be really focused," Peters said.

Despite this year's growth slowdown, Netflix remains the world's largest streaming service in an increasingly competitive field that includes The Walt Disney Company, HBO, Amazon and Apple. Netflix ended June with 209 million subscribers worldwide.

Netflix's piracy has also made steady profits. The company earned $1.35 billion, or $2.97 per share, nearly double from the same period last year. Revenue grew 19 percent over the previous year to $47.3 billion.

But the reduction in the first half is a dramatic reversal from last year, when government-imposed lockdowns across the world drove people into a binge frenzy while staying at home. Already the world's largest video streaming service, Netflix scored 26 million subscribers during the first half of last year, when the pandemic began in March 2020.

While no one expected Netflix to maintain that breakneck pace, the decline in subscriber growth this year has been more severe than anticipated. Shares of Netflix have fallen nearly 10 percent from their peak of $593.29 six months ago. Shares rose slightly in extended trading after Tuesday's news emerged.

Netflix management has blamed pandemic-induced production delays for this year's slowdown, which has left its video service with a less proven hit. The company is hoping to address this issue during the second half of this year with the release of popular series like Sex Education and The Witcher, as well as movies featuring big-name stars like Leonardo DiCaprio and Meryl Streep. What will happen.

Still, Netflix disappointed investors with a forecast of only an additional 3.5 million subscribers during the July-September period. That was well below analyst estimates for third-quarter profit of 5.6 million customers, according to FactSet Research.

The conservative view suggests that Netflix isn't expecting an immediate boost from its entry into the highly competitive video game arena, which is already contested by more seasoned companies like Epic Games, Microsoft and Electronic Arts.

But if the move in video gaming pays off, Netflix may eventually have more leverage to boost its prices. The company has been gradually increasing subscription costs in recent years, increasing its average monthly revenue per subscriber to $14.54 in its largest markets, the US and Canada. That's a 16 percent increase from $1.52 per month two years ago.