The streaming giant has been unable to disrupt the video game market, but armed with massive resources and time, it is making a new push to level up that could leave its competitors in the dust.

“N

etflix has won the streaming wars. Case closed,” analyst Robert Fishman wrote in a MoffettNathanson report published Monday on the streamer’s recent earnings update. “But where does the company go from here? How much more runway for growth is ahead?”

Since November 2021, Netflix, which recently passed 300 million subscribers globally, has been trying to convince users, investors and developers alike that one of the answers to that question can be video games.

And it has put real money behind that conviction. By fall 2023, according to widely cited reports, Netflix had spent $1 billion on gaming, buying up four smaller development studios and building two of its own in California and Helsinki, Finland, while publishing dozens of titles for mobile devices, including tower defense game Bloons TD and graphic adventure Oxenfree.

Analysts believe the company likely spent another $1 billion on gaming in 2024 alone, increasing its offering to 140 games made available to anyone with a Netflix subscription, all without ads or in-app microtransactions.

Traction in the gaming marketplace has been harder to come by. Netflix’s portfolio of mobile apps has recorded 192 million total downloads, according to data provider Apptopia, and daily active user counts hover around 1.1 million, each fractional compared with mobile publisher competitors and even smaller in relation to Netflix’s overall subscriber base.

“We’re not yet the Netflix of games,” Netflix president of games Alain Tascan said on Wednesday as he presented at the Game Developers Conference in San Francisco. “But that’s exactly where we’re headed.”

Tascan is a newcomer to the streaming giant, having joined the company in July and replaced its original games chief Mike Verdu a few months later. Under his leadership, Netflix is rethinking its gaming strategy, moving out of direct competition with large game developers and into a more supplemental role for its primary streaming offering.

Going forward, Netflix Games will focus on the development of more games that can be played inside the Netflix app on connected smart TVs, where 70% of Netflix viewership already happens, utilizing phones as the controller via a mobile app. The company also wants to create casual party games that can “replace family game night,” and make more offerings for younger children, who Tascan says make up 15% of Netflix’s linear entertainment viewing hours. And the service wants to build more “interactive experiences” that can extend the life of Netflix’s IP from popular homegrown shows and movies, as it has done with Squid Game and Too Hot To Handle.

That’s a far different strategy from the traditional idea of the “Netflix for games,” under which startups like Blacknut and Shadow, as well as tech giants such as Google (Stadia), Apple (Arcade) and Microsoft (Xbox Game Pass), have built a cloud-based library of games that can be sold for a subscription. Google shut down Stadia in 2023, citing a lack of user interest. Apple and Microsoft have succeeded (on mobile and console, respectively), although primarily as a marketplace for third-party content rather than as a home for original creations.

Netflix’s pivot also seems to remove it from the race to create the next blockbuster game like Fortnite or Call of Duty: Warzone, evidenced first in October by dozens of layoffs and the shuttering of its California studio, which was focused on bigger-budget AAA game projects, before it had published a single title.

“[Netflix] shouldn’t be trying to be something they’re not,” says Jason Chapman, cofounder and managing partner of gaming venture fund Konvoy Ventures. “They’re not a AAA content production house, but they should continue to lean into interactive.”

This evolution from linear, passive entertainment on Netflix to more interactive experiences makes a lot of sense, in theory. The $180 billion gaming industry now dwarfs the size of traditional Hollywood movies and television (estimated at $100 billion annually) and has become the preferred pastime for younger generations. As far back as 2019, Netflix co-CEO Ted Serandos cited Fortnite as its major competitor for user attention—no doubt one of the reasons the company hired Tascan, who worked previously as an executive at Epic Games on Fortnite.

However, Netflix’s early efforts at line-blurring interactive content—such as the headline-grabbing Black Mirror: Bandersnatch—did not catch on, and in November, the company announced it would be removing dozens of similar titles from its library entirely. (Bandersnatch is one of only four that remain.)

To date, Netflix has yet to create a game, or any game-like experience, that has captured and maintained the interest of the broader public over an extended time. Even Squid Game: Unleashed, which the company touts as one of its biggest success stories, hit six million downloads when it debuted in December, peaked at nearly 13 million downloads in January and then fell to 700,000 in February and just over 100,000 in March, according to Apptopia data. That game, notably, is the first not to require its players to have a Netflix subscription to play.

Netflix’s answer, in the short term, has been licensing. In December 2023, the company announced it would be offering three old Grand Theft Auto titles to anyone with a Netflix subscription, and to date, GTA: San Andreas has been its most downloaded and played game by far.

Internally, Netflix says it has its own set of criteria for games success, such as subscription acquisition and retention, and the ability to drive engagement back to its linear programming. With Squid Game: Unleashed, the developers experimented with a “watch along” feature that unlocked certain rewards for players who had viewed Seasons 1 and 2 of the show.

“Those effects are relatively small currently, but frankly so was our investment in games relative to our overall content budget,” Netflix co-CEO Greg Peters said during the company’s earnings call in January. “And we’re going to stay disciplined about scaling that budget as we see continued scaling in member benefits.”

What Netflix Games has in its favor is the time and resources to experiment. The company grew its overall revenue by 16% in 2024, generating $10 billion in operating income and nearly $7 billion in free cash flow.

In MoffettNathanson’s recent analysis, it projected continued revenue growth, stronger margins and a higher stock price, all without mentioning the gaming division once in the 26-page report.

“Do I think games are a core focus for them? Absolutely not,” says Chapman. “But this isn’t a throw-away or a Hail Mary pass for them. They’ve put too much money into this.”

In the not-too-distant future, Chapman predicts, Netflix will begin to implement monetization strategies such as in-app purchases and ads—drawing on lessons learned and infrastructure created by the company’s push into linear advertising in 2024—that would bring the viability of the games division into sharper focus. Until then, he says, the company can afford to continue searching for its place in the market.

Tascan acknowledges that is a privileged position to be in in a games landscape that faced industry-wide layoffs, budget cuts and company closures in 2024. “I say sometimes to the team, ‘We have a golden ticket,’” he said. “What are we going to do with it?”

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