What Netflix Wants to Do with Cloud Gaming

Reading Time: 9 minutes

When Netflix began its foray into gaming a few years back, there were a myriad of obstacles in its way. Having positioned itself as a company focused on capturing a larger share of “leisure time” (rather than entertainment), it was clear that the streaming giant’s ambitions in games were a larger play to capture consumers' attention and compete with the likes of Fortnite and other live service juggernauts. However, the company lacked the ability to make that vision a reality in nearly every way — primarily in technology, content, and team composition.

In the years since, the steps Netflix has taken show a keen awareness of this fact. The company has slowly been bolstering its gaming presence through a series of acquisitions, mobile game launches, and interactive tie-ins on its video platform. The latest in its string of gaming-focused bets came earlier this month, when Netflix announced it would be dipping its toes into cloud-based game streaming.

The news came in the form of a test for select subscribers in Canada and the U.K., with users having the opportunity to stream titles on their TV, connected devices, and PCs via the company’s website. The service itself only supports two titles — Oxenfree, a narrative-based game from Netflix’s own Night School Studio, and Molehew’s Mining Adventure, a gem-mining game built seemingly from scratch with Netflix's game streaming platform in mind. The news itself isn’t unexpected, considering the company outright stated it was interested in exploring game streaming late last year. But it does confirm the rumors that first began when the company’s mobile app controller landed on the App Store a few weeks ago.

After the failures of Stadia and Luma, it's worth asking why a company as disconnected from games as Netflix is investing in game streaming as a concept. Is the tech giant slated to suffer the same fate as its FAANG counterparts? Or is game streaming part of a broader play that will work out in the long term? Let’s explore why the company is launching the platform today and what we can glean from the move.

Why Streaming Makes Sense for Netflix

As previously mentioned, it’s not as if Netflix was unaware of the massive hill it would have to climb when entering the broader gaming industry. As industry analyst Matthew Ball noted in his essay on the topic, Netflix was able to crowbar itself into the entertainment industry through a combination of novel technology (i.e. streaming) and a more compelling (albeit less comprehensive) content library. It’s a potent combo that gave the company a leg up in both its variety of content and how it delivers that content when compared to its competitors.

This advantage was distinctly not present for the company when breaking into games. The technology powering Netflix’s gaming infrastructure lacks the customizability and scalability that we’ve come to expect from true gaming platforms. Meanwhile, when the company’s efforts kicked off, its gaming content was literally nonexistent. They’ve had to spend millions building up a body of mostly mobile-centric content to justify garnering even a sliver of consumer interest to date.

Even more so than both content and technology, Netflix lacked distribution when it launched games. As Ball points out in the aforementioned analysis, the company can’t rely on any of gaming’s traditional methods of distribution:

Building a console would be too expensive and complex of an endeavor.
Its major hardware partners, Roku and Apple TV, don't support game SDKs or technical needs.
Distribution on consoles would require Microsoft and Sony to allow Netflix to undercut their businesses by distributing games on their platforms.
Any mobile distribution would be subject to standard iOS restrictions on bundling plus the much-discussed 30% take-rate.

PC is seemingly the only “traditional” game distribution channel that could work for the company, and as I’ve noted in my previous analysis of Epic Games’ own efforts to launch a game distribution channel, it's a strategy that’s costly and difficult to pull off.

By those considerations, it has become clear that streaming is really the only way Netflix can expand beyond its current footprint and make a bigger dent in the gaming space. It's a service that can bypass hardware costs and concerns from channels like in-house console development or Apple TV-centric games. It allows the company to distribute using a streaming platform that already has hundreds of millions of users and, in fact, makes that platform a more valuable overall bundle when paired with Netflix’s existing entertainment offerings.

Of course, streaming as a go-to-market offer doesn’t come without issues. The technical costs and infrastructure to offer such a service have made it cost-prohibitive for nearly every tech company that does not have its own cloud-based technical offering (see AWS, Microsoft Azure, Google Cloud). That’s not to mention the difficulty of reaching feature parity with competitors that have both the infrastructure and a multiyear head start.

But despite the challenges, it doesn't seem like Netflix is deterred. A quote from Netflix’s VP of Games, Mike Verdu, when rumors of cloud streaming first appeared late last year, gives us an inclination of just how long-term a vision Netflix has for gaming: “We’re not asking you to subscribe (to game streaming) as a console replacement, so it’s a completely different business model. The hope is over time that it just becomes this very natural way to play games wherever you are.”

It’s a deceptive simple statement that reveals quite a bit of the company’s intention. Rather than walk the path of Stadia or Amazon’s Luna, it seems Netflix perceives streaming to be a feature, not an end result, at least in its current format. It’s reminiscent of how we’ve seen Microsoft frame cloud gaming in recent interviews: Streaming is the channel by which good content gets delivered, not the thing to be sold itself.

When considering this mindset, it seems more clear that Netflix is happy to take its time bolstering its content library. That’s where the company will rely on its investments in acquired studios like Next Games and Night School Studio. That's the reason it hired ex-Overwatch Executive Producer Chacko Sunny to build a new studio and why 14 of the company’s 55 games in development are being built in-house. That's also why the company hired Joseph Staten, ex-lead for Halo Infinite, to help build a new AAA game for the company.

Netflix seemingly recognizes there aren’t shortcuts to winning in the space, and the only path to making a dent is heavy investment combined with a dose of patience. It's a lesson Google learned the hard way with Stadia after the company gave up on its internal game development plans less than two years after its platform was first launched.

Netflix Faces Familiar Challenges

But despite the long-term mindset, it doesn’t mean the company’s game streaming option isn’t generating concern today. As my colleagues over at the Naavik Gaming Podcast noted in their discussion on this topic, Netflix’s approach to game streaming raises just as many questions as it does answers. The company’s decision to opt for a mobile app-based controller option will undoubtedly hamper players’ ability to execute highly technical inputs in potential future AAA releases.

In its current format, this isn’t an issue, as the service only supports two games, neither of which rely heavily on high-speed inputs. However, digital controllers only work well for the casual and multiplayer gaming experiences the company has historically released in nonmobile formats, such Trivia Quest or Black Mirror: Bandersnatch, not the true AAA titles that console buyers and PC fans are known for playing.

Meanwhile, the move opens up broader questions about the pace and order of how Netflix delivers its gaming content overall. Is the intention for game streaming to be used for future AAA? Is Netflix even interested in mid-core or hardcore consumers? Does this strategy serve as a jumping-off point for the company’s expansion out of mobile games? Verdu has been careful to characterize the experiment as a “limited beta” as it’s “still very early in our games journey.” In other words, don’t get your hopes up — at least not yet.

It's hard to imagine that, after spending so much on games and looking at the success of more diverse titles like Fortnite, the company isn’t interested in moving into developing more complex and competitive titles for its platforms. But doing so would necessitate a pretty large deviation from its approach to games to date, and so far, our only indication that Netflix is willing to devote time and resources to larger-scale projects is the hiring of Staten, the fruits of which appear to be many, many years away.

Regardless of its plans, the long-term outlook of Netflix’s gaming business is still anything but a certainty. The company is rapidly losing entertainment market share to a host of competitors, just as spending on games continues to rise. If Netflix can truly use games as a way to not only generate new revenue but also mitigate churn in an increasingly competitive streaming environment, it's no exaggeration to say that a company-wide turnaround could be the outcome. But until we see more from the company’s games division, we should consider Netflix still an underdog in gaming and its cloud ambitions as prone to the same fate as Google Stadia’s.

This post appeared in the Thursday, August 31st version of Naavik Digest. If you enjoyed it, please consider forwarding it or sharing the piece with your followers. Also, remember to subscribe to Naavik Digest here.

#2 Game of the Week: Sea of Stars

By Nick Statt, Naavik Managing Editor

Platform: Nintendo Switch, Xbox One / Series, PS4 / PS5, PC

Developer/Publisher: Sabotage Studio

State: Worldwide Launch

Genre: RPG

What You Need to Know:

Sea of Stars is a retro-inspired RPG in the vein of classics like Chrono Trigger and Final Fantasy VI. The game mixes traditional turn-based combat and a gorgeous pixel art style with more unique puzzle-solving and level design for an experience that’s both nostalgic while also interesting and dynamic.
The game is technically a prequel to developer Sabotage Studio’s action platformer The Messenger, though Sea of Star bears very little resemblance to the latter’s genre-bending Metroidvania design.
Sea of Stars shines in its presentation, with an aesthetic bursting at the seams with bright colors, intricate detail, and stylistic flourishes that elevate the visual experience, which you can see in a gameplay video here.
The combat is a slightly more involved turn-based system, requiring players to time attacks for critical hits and other bonuses alongside a stagger system for interrupting enemy attacks and exploiting distinct weaknesses.
Fans of Game Boy classics like Camelot’s excellent Golden Sun series, or more recent indie gems like Radical Fish Games’ CrossCode, will enjoy the depth of the game’s puzzles. They often require the player to manipulate levels using a variety of mechanisms that shift the orientation of platforms and blocks and go beyond your standard RPG fare.
More than any other game, Sabotage’s new RPG is a love letter to Chrono Trigger. There’s the soundtrack from none other than Chrono Trigger composer Yasunori Mitsuda, as well as an overworld design and general vibe that’s extremely reminiscent of the 1995 classic without tipping over into indulgent nostalgia for nostalgia’s sake.

The Verdict:

Sea of Stars is arguably one of the best retro RPGs in years, and that’s saying a lot, given the quality of new entries in this fast-growing genre has risen dramatically since the release of big names like Bravely Default and Octopath Traveler and newer indie breakouts like CrossCode and Chained Echoes.
What makes Sabotage’s addition to this growing list stand out is its undeniably elevated art style and Chrono Trigger-inspired feel, which goes a long way in helping conjure old memories of playing SNES classics in the ‘90s.
From a business standpoint, Sabotage’s approach here has been rather remarkable and unprecedented for this style of game. Despite selling Sea of Stars for $34.99 on all platforms, the developer also partnered with both Microsoft and Sony to release the game onto Xbox Game Pass and PlayStation Plus at the same time, making it the first-ever simultaneous release on both services since Sony revamped its subscription to include day-one launches.
Although that may seem like a gamble, Sabotage may have made a savvy decision here, as the studio is already celebrating 100,000 units sold after just one day of launch this week. No doubt helping its sales is the Nintendo Switch, which has become a key pillar of the retro RPG subgenre thanks to its portability.
The game’s critical reception is giving it a healthy boost too, with a score between 88 and 91 across all platforms and a “Very Positive” customer review rating on Steam.
While it’s unlikely Sea of Stars will sell more than a few million copies in its lifetime, the subscription deals Sabotage struck with Microsoft and Sony, combined with strong early unit sales, have likely helped the studio recoup its costs and have hopefully set it up for many more years of success to come.

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