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Netflix is happy building its gaming business quietly, but that doesn't mean the effort lacks ambition, the company's head of gaming, Mike Verdu, tells Stephen in Los Angeles.

Why it matters: Netflix's gaming efforts have been a headscratcher to some and a no-brainer to others. But its success so far has been low-key, at best.

What they're saying: "Netflix doesn't make a lot of big bets," Verdu says. "The company's been patient around those bets and put the work in to get it right. And this is one of those."

"It's not, you know, put your finger in and dabble a bit. You make a commitment, and you do it right."

Context: Last month marked the second anniversary of Netflix as a gaming provider. The company has released more than 80 games — all free to subscribers and exclusive to mobile.

In that time, Netflix has built two game studios and purchased four others. In a year of thousands of game industry job cuts, Netflix's gaming teams have had none, Verdu says.

The company now has more than 10 games in development in-house and, through deals with external teams, a total of 90 in the works, says Verdu.

Existing titles range from indie darlings like Into the Breach and Storyteller to Netflix spinoffs of the hit Love is Blind and Too Hot to Handle.

Verdu called that last one an "upside surprise," as users seemed to enjoy "playing a game where you can, like, immerse yourself in that show." (A Squid Game video game spinoff is also forthcoming.)

Between the lines: The streaming giant has more than 240 million global subscribers, but it doesn't say how big its game team is or even how many times its games have been downloaded. (Tim offers some third-party download data below.)

The numbers crunched by outside firms indicate that only a tiny percentage of Netflix subscribers are downloading games. The company's offerings, promoted mostly through a carousel of titles in Netflix's mobile app, are easily missed.

"We're not going to do a giant marketing campaign to say, 'Games are on Netflix,'" Verdu says.

Why not? "The games live inside of Netflix, which has a huge distribution footprint, for sure. The key is to connect our members with the games that they'll enjoy. And it doesn't have to come all at once."

Zoom in: Over the last two years, Netflix's gaming operation has slowly become more, well, Netflix-y. Games tied to Netflix shows have increased and will expand even more thanks to some of its first-party studios. (Verdu stresses that non-Netflix IP will continue to be part of the portfolio.)

It has tested streaming games to subscribers' TVs and computers, as it does its shows, with players using an app that turns their phone into a game controller. 

"The results are encouraging, but it's on a very small scale and it's going to be a while before you see that deployed much more widely," Verdu says.

It has begun harnessing its famous algorithms to offer personalized gaming recommendations.

It's even removed a couple of games from its library. "I would expect to see movement in and out of the catalog," Verdu says.

The intrigue: Netflix has also announced that its new Los Angeles studio, helmed by developers who've made big-budget console games, is making a AAA (industry jargon for big-budget) game for PCs.

"If you fast-forward into the future when we do have a gaming experience that's frictionless and ubiquitous and very approachable, then you know we're going to want to serve up some core experiences on that platform," Verdu says.

💭 Stephen's thought bubble: A Netflix gaming offering that is "frictionless and ubiquitous" is one that streams games onto any screen. That will put Netflix in direct competition with gaming's traditional powerhouses in the console and PC market.

What's next: Netflix gaming won't have a quiet Thursday. Tomorrow, it will release three iconic Grand Theft Auto titles from Rockstar Games on mobile, exclusively to its subscribers.

1 big thing: Netflix wagers on gaming

Mike Verdu, Netflix's vice president, games. Illustration: Tiffany Herring/Axios; Photo: Netflix

Netflix's gaming growth is outpacing its increase in new game development as executives have brought more visibility to the service in recent months, Tim writes.

The big picture: Netflix's gaming downloads more than doubled during its second year, according to data from Data.ai.

Netflix had 52.7 million downloads from November 2022 to October 2023, an increase of 119% compared to 24.1 million in the preceding 12-month stretch.

And in November, Netflix reached 9.5 million game downloads, over 4x higher than two years ago.

Meanwhile, according to data from mobile app firm Apptopia, Netflix released 35 games between November 2021 and October 2022. From November 2022 to October 2023, Netflix released 44 games.

Last month, Netflix released four more titles.

Between the lines: Half of Netflix's most popular titles are based on IP from its shows, including "Too Hot to Handle" and "Stranger Things."

Too Hot to Handle is Netflix's most popular game, with 7.1 million downloads. Its second edition is Netflix's eighth-most popular game, with 2.8 million downloads, per Data.ai.

Indie game Storyteller, which Netflix released in September, was the streamer's sixth-most popular title with 3.8 million downloads.

Of note: While the U.S. is the biggest market for games, it's not a runaway leader.

Per Data.ai, the U.S. accounts for nearly 17% of all downloads globally, with 14.6 million.

Brazil is the second-largest market, with 11.5 million downloads, accounting for 13.3% of all downloads. France, Mexico and the United Kingdom round out the top five.

2. Charted: Netflix growth in gaming

Nearly every Big Tech company made big bets on video games in recent years. But the investments haven't always panned out, Kerry writes.

Why it matters: No matter how deeply resourced a company might be, the gaming industry is difficult to crack.

What's happening: Alphabet and Apple are leaders in mobile games — through their app stores — but that doesn't involve much gaming prowess.

Apple launched its game subscription service Apple Arcade in 2019 and has added more games as part of its software services push.

Alphabet's other gaming foray crumbled. Google Stadia shut down in 2023, about three years after launch, citing low traction. Google's YouTube, however, is a top destination for watching gameplay and analysis.

Amazon's gaming success has yet to be determined as it explores similar investments as Alphabet.

It released cloud gaming service Luna in 2022. Twitch, which it acquired in 2014, is known for gaming live streams and has cultural clout with events like TwitchCon.

But this year, Amazon announced strategic changes to its gaming division, nixing its own Twitch content and its game marketing effort. The company cut 100 gaming jobs in April and 180 in November.

Amazon has published games and has struggled with some, like Crucible, but hasn't given up with plans for the next Tomb Raider and a Lord of the Rings game.

It has also committed to gaming IP with the upcoming "Fallout" series.

Meta had its gaming moment with Farmville on Facebook, but other bets haven't been as viral.

It ended its Facebook Gaming app, a Twitch competitor, in 2022.

Its metaverse push has centered on gaming with virtual reality games, but VR adoption has been slow.

Microsoft stands out through its long history in gaming and continued success.

Recent smart bets include Game Pass, its subscription service, and its Activision acquisition.

Yes, but not every one is a winner. It shut down Mixer, its Twitch competitor, in 2020.

Meanwhile, Chinese tech giant Bytedance scaled back its gaming ambitions.

Reuters reported last month Bytedance is winding down Nuverse and "has no plan to return to the $185 billion global video games market."

The intrigue: Netflix's Verdu told Stephen in their conversation that some tech firms launch an MVP, or minimum viable product, and get spooked if it flops. By contrast, he says, "Netflix thinks about: 'What does the world look like in five or 10 years, and where do we need to be?'"

3. Big Tech's gamesmanship

Want more media deals? Check out the Axios Pro Deals Tracker on desktop.

• Essential AI, an SF-based developer of full-stack AI products, raised $56.5m in Series A funding. March Capital led and was joined by AMD, Franklin Venture Partners, Google, KB Investment, Nvidia, and Thrive Capital. https://axios.link/46S2gid

• Verswire, a Los Angeles-based VC-like music fund, raised $12.3m in seed and Series A funding. E.O.A. Productions and idobi Radio led and were joined by Warped Tour founder Kevin Lyman and Foo Fighters tour manager Gus Brandt. https://axios.link/3RhTpRf

• Chalk, an SF-based machine learning company, raised $10m in seed funding led by General Catalyst, Unusual Ventures and Xfund. https://axios.link/48gDFVE

• Laredo, developer of an AI-driven platform for code generation, raised $8.5m in seed funding co-led by Radical Ventures and Horizons Ventures. https://axios.link/46XLTAC

• Hipgnosis Songs Fund sold 20,000 unspecified "non-core" songs for $23.1m, a 14% discount to their Sept. 30 valuation. https://axios.link/3REySrj

• Perion Network Ltd. (Nasdaq and TASE: PERI) acquired Hivestack, a Montreal-based digital out-of-home company, for $100m in cash and up to an additional $25m in cash and equity. https://axios.link/3RCrXyS

• Penguin Random House acquired Hay House, a self-help and health and wellness publisher. https://axios.link/3NrL0cS

• Rogers Communications (TSE: RCI) agreed to sell its stake in Canadian telco Cogeco Communications (TSE: CGO) to CDPQ for C$829m. https://axios.link/3NrNl7I

• OpenAI signed a deal with Axel Springer for access to the German media conglomerate's publishers, including content from Bild, Welt, Politico and Business Insider, Sara Fischer reports. https://axios.link/47WYky4

4. Deal flow

• David J. Lee, previously COO and CFO of Impossible Foods, was named CFO and COO of WEBTOON Entertainment Inc. and Yongsoo Kim was promoted to CSO. https://axios.link/3RicxOV

• Kat MacLean Daley was named VP and head of publishing of Death Row Records. https://axios.link/41oDWDI

• Datwon Thomas was named executive producer, talent at Dick Clark Productions. https://axios.link/48czfPf

5. Movin' on up (or out)

📺 Netflix releases first-ever engagement report (Axios)

"Action-thriller 'The Mother,' starring Jennifer Lopez, was the most-watched movie for the first six months of this year, with 249.9 million viewing hours," Rebecca Falconer writes.

🎮 It's game over for the E3 videogame expo (WSJ)

"Once a mecca for gamers and industry leaders showing off the newest innovations, the trade show never recovered from the Covid-19 pandemic, holding its last gathering virtually in 2021. The ESA had planned to host an E3 expo in June but canceled it," Alyssa Lukpat writes.

💸 Musk's X 2023 ad sales projected to slump to about $2.5 billion (Bloomberg)

"X generated a little more than $600 million in advertising revenue in each of the first three quarters of the year, and is anticipating a similar performance in the current period," Kurt Wagner reports.

6. Channel surfing

an illustration of a hula dancer figurine on top of a vintage television set

You've made it to Wednesday! As a reward, enjoy this takeover collaboration with Axios Gaming's Stephen Totilo on the state of Netflix's gaming efforts. 

🎮 Grab your controller, and let's get to it. 

@stephentotilo: "Zombies" franchise on Disney+. The first live-action musicals my kids have ever been into. Bracing myself for what comes next. (Editor's note: Be strong.)

@tim_bays: NBCUniversal holiday party in NYC. The best view of the Rockefeller Center Christmas Tree is from the 9th floor of 30 Rock (i.e. away from the crowds).

@kerrymflynn: "Fourth Wing" by Rebecca Yarros. Juggling two dragon-riders books at once, with "Murtagh" in print and this via Audible. 🐉

✏️ Thanks to George Moriarty for editing and Katie Lewis for copy editing this newsletter.

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December 13, 2023

1 big thing: Netflix wagers on gaming