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Netflix (NFLX) will be moving into the gaming sector with the hire of a 30-year gaming industry veteran — former EA (EA) and Oculus executive Mike Verdu. The company’s stock wavered today following the news, with its share price down a little over 1% since market open.
“I think this is an extension of their content strategy — an extension, just like they moved into unscripted and premium films, children's programming, and the like,” Truist Securities (TFC) analyst Matthew Thornton told Yahoo Finance Live.
Thornton joined Yahoo Finance Live to discuss Verdu’s hiring as well as what Netflix’s speculated expansion into the video game industry means for the company and its competitors. Some experts believe that the initiative will be “dead on arrival,” citing the difficulty of breaking into a historically cutthroat gaming market.
On the other hand, Thornton believes that there may be an opportunity for Netflix to differentiate its content offerings as well as boost subscriber engagement and retention against other major players in the content streaming industry such as Hulu and Amazon Prime (AMZN). The ultimate goal with this move, according to Thornton, is to drive subscriber growth and revenue.
Will Netflix become a major player?
Netflix’s content strategy for future video game offerings still remains to be seen, however. Thornton said that the biggest opportunities for Netflix would arise if it chose to work with third-party video game studios and publishers, which would likely give them the best chance of survival in the face of platform giants such as Microsoft’s Xbox (MSFT), Sony’s PlayStation (SONY), and Nintendo (NTDOY).
As for the odds of this actually happening, Thornton said that Netflix has never shown itself to be an acquisitive company, having only acquired a handful of small entities throughout the company’s life. This is in stark contrast to large, established video game publishers like EA, Activision Blizzard (ATVI), Take-Two (TTWO), and Zynga (ZNGA).
“[If Netflix produces video game content in-house,] it would be probably fairly small, it would be very slow to reach scale, and probably wouldn't be overly disruptive to the overall video game sphere, but, again, could be accretive to their business,” he said. “They could also get more aggressive by going after acquisitions to kind of supplement their own organic development efforts.”
Thornton said that Netflix’s move into the gaming market serves as another push towards a fully digital video game industry. With every passing year, digital downloads are eclipsing the physical purchase of video games by a growing margin. And while Netflix’s announcement likely won’t alter the trajectory of the industry in any significant manner, Thornton noted that it will be interesting to see how the company prices its video game products, with Netflix being a subscription-based service.
Currently, it is Microsoft with Xbox’s Game Pass that stands near the top of the subscription-based video game food chain.
“There are subscription gaming services out there. But they've tended to co-exist with transactional, digital downloads of games,” Thornton said. “Obviously, the purchase of in-game content is where the real trend is.”
Thomas Hum is a writer at Yahoo Finance. Follow him on Twitter: @thomashumTV
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