Netflix: Videogames Won't Be an Easy Next Act for Netflix - Barron's

Netflix made a big hire in Mike Verdu. Here's what it says about how the company will compete in the already crowded videogame-streaming space.

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In the interactive entertainment business, hits are often related more to talent than overall budget. So when Netflix said Wednesday that it had hired former Electronic Arts and Zynga executive Mike Verdu as vice president of game development, investors would be wise to take note.

Netflix (ticker: NFLX) was tight-lipped about further details, and the reaction from Wall Street was mixed, as shares of the streaming giant dropped 0.9% to $542.95 amid broad weakness among tech names. Truist analyst Matthew Thornton summed up the reaction nicely in a Thursday note: the news is a net positive for the company, depending on the strategy.

Two things appear likely. First, Netflix opted to hire Verdu, who has a track-record of mobile-game involvement, so maybe the company wants games more like Candy Crush than Grand Theft Auto. Second, it’s Netflix, so it’s a reasonably safe bet to expect some kind of streaming-videogame offering in the future.

Videogame streaming, however, can be a tough business. The technical challenges revolve around reducing delay between a player pressing a button in a game to that action occurring on screen. And there is lots of competition working on the various hurdles.

Alphabet ‘s (GOOGL) Google launched Stadia, its streaming platform, in 2019 with muted results. Stadia has struggled from the start to achieve success on par with major videogame systems produced by the likes of Nintendo (NTDOY) or Sony (SNE). Google appears to have rethought its vision for the service earlier this year, after the company shut down its internal game production to focus on the technology’s future as a platform.

That makes some sense. Stadia’s stumbles have not been caused by weak technology—just the opposite, as it is one of the most promising of the current crop of offerings, from a technical perspective. For example, Stadia was one of the few reliable ways to play the notoriously buggy Cyberpunk 2077 at the game’s December launch without a top-notch, expensive videogame computer. It’s also possible to run Stadia inside Google’s Chrome browser on many kinds of devices—a big part of the promise of any kind of streaming-game platform.

Microsoft (MSFT) has been the most outspoken proponent of cloud games recently, doubling down on its strategy to make its Xbox catalog available on any device last month in a significant announcement. It even announced deals with TV manufacturers and a plan to make dongles for game streaming. Powered by Microsoft’s impressive Azure infrastructure, the Redmond, Wash.-based company boasts both technical prowess and a large catalog of games built for Xbox.

Another impressive participant is Nvidia (NVDA), one of the pioneers in the industry. Its GeForce Now platform has been running—in beta and as a full product combined—for roughly six years, which has meant plenty of time for Nvidia to work out the kinks. GeForce Now boasts a big selection of PC games, and under the hood features some of Nvidia’s most advanced graphics chips, which add features such as real-time raytracing, adding graphic realism.

The list doesn’t stop there. Sony has a cloud-streaming service that runs PlayStation games with PlayStation Now. Publishing giant EA (EA) continues to view cloud streaming as an important opportunity in the sector, a spokesman said Thursday.

Amazon.com (AMZN), too, launched a streaming service. Called Luna, it went live amid the Covid-19 pandemic last year—it includes a subscription for Ubisoft Entertainment games, and as other such as Stadia, boasts a custom controller (will Netflix start making hardware?).

With at least six major efforts under way, it’s an open question as to whether Netflix will succeed.

Write to Max A. Cherney at max.cherney@barrons.com

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