Game Pass Growth / FaZe Acquired / Netflix’s Game Plan

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dyon with me I also wanted a friend so uh we have some good topics today though as far as the news goes just not a lot of them um Microsoft with an interesting one around uh their Milestones I guess for for pay bumps or bonuses uh around Xbox should be interesting to dig into that uh fazeclan fortunately maybe Happ been ending for them maybe not uh and then Netflix still trying to act like they know what they're doing and so we'll dig into that a little bit shots fired already we we'll get into the topic but let's just start with Microsoft's one a little softball topic for uh for Dave there uh what's going on with the CEO all right we we'll ease into things here before we get to the big stuff um okay so for the first time in three years the CEO for Microsoft does not have a specific growth Milestone Target for uh Xbox game pass now when you look at uh targets especially when uh a CEO's pay

base is based on performance-based uh targets and I think uh it does targets is something like 90% of his pay is based on him hitting targets um you know that is the way for the company the board directors them to steer you know what or or really visibly post what the uh targets are for uh the company or what's important for the company over the course of the next year so the fact that Xbox game pass is been pulled from that um now starts to raise a few questions in terms of where does game pass it inside of uh it's the overall importance for the company so is this a case of uh they feel that game pass has um you know reached its goals and it's time for you know to set some new goals set some new um areas of uh of you know Focus for the CEO uh uh or is it

something else now one of the questions that I have is um is The Game Pass really you know really getting to where they want it to go so uh last year Microsoft aimed for about 70 73% growth for their subscriber numbers for Game Pass and the actual result was around 28% so for me the question is you know is this something that you know Xbox has seen we've done a good shot at Game Pass um and we're kind of kind of see where it goes from here or um you know do they actually feel like they've they've kind of reached their uh their level that they're happy with and are now going to focus on other parts of the Xbox uh business overall um now Xbox accounts for about uh 10% of nadella's overall targets I think one of the cloud areas is uh his largest Target region about 30% um but still I mean 10% is a a a good chunk when your pays in the 40s to

50s of millions of dollars you know uh it's always good to be able to earn that extra $5 million if you if you're able to hit your targets um so I'm curious you know what uh what Maria and Devin what you guys think you know is the Xbox game pass you know Solly being um you know not something that they're going to you know do away with I think it's it is still a very successful program for them but is it now out of the spotlight do they feel comfortable with where it is or is it something else so you mentioned the accounts does the CEO still have other targets related to Xbox um I think it's overall growth probably I didn't take a look at what uh all the individual components were but um typically Xbox as a whole is about 10% of his uh performance pay and that's what was been removed with the with the game pass the Game Pass specifically has been removed as

one of those targets like one of the other targets was also that growth of the uh of the Xbox game division Revenue by 4.4% and I think they and they reached like 7% so yeah um they do I there are a number of components inside each of those performance things but yeah the Xbox game pass was something for the last three years um and it could very well have been hey you know we don't need this on the CEO's Focus maybe this just is now entirely on Phil's plate and it may be up to Phil Spencer to to cover that entirely um but uh you know the fact that it's it was on the CEO's plate for three years it's now been removed um for me is a is an interesting point especially now that uh they've got a whole whack of new games about to start coming up on a game pass with h the Activision um purchase finding closing this to me is aligned I have two things going through my mind that it

could be a negotiation a renegotiation to get targets that are potentially you know more reasonable to hit um and looking at Xbox game pass specifically perhaps was not the best incentive or the right place to focus and it comes back to I think we had this discussion uh last time or one of the last times I was on the panel about what role does Xbox game pass actually play in Microsoft and so it could be that that specific growth Milestone trying to keep on pushing it perhaps will it be a you know a perverse incentive and lead to not the best decisions for the business overall it could be playing a role that is best measured with growth in other areas for example Cloud that you mentioned and I I personally I'm not reading into it that the growth of Xbox Xbox game pass itself is no longer relevant we saw it starting to Plateau

but its role and performance may have changed and that's being measured through other compensation targets I guess the question I I have too is is whether or not uh the so the targets you know for growth but what's like the penetration rate uh versus like the number of people that own Xbox right because uh that's I would think the real goal right is to like have a higher number of Xbox owners on The Game Pass like they changed the gold membership for example to kind of merge it with that sort of thing I I can't imagine they're trying to Target non Xbox owners that are just on Windows I I personally have an Xbox game pass and I'm and I don't own an Xbox past the 360 but I do use it for like the cloud stuff and and for new games and things like that so like I but I I'm not the average target market I don't think so I I'm wondering if they've already kind of hit those numbers in terms of like penetration of that like percentage of that and they're like okay well now we don't need need to worry about the growth as much because

that was the important part of it it's just making sure that maybe a majority of Xbox owners are getting that game pass but then I Al also have to wonder if like they don't want to be overly aggressive with that in the sense that if it's cannibalizing game sales to some extent too like they don't want everyone relying completely on that like if growing it overly aggressively starts to then take away from people buying stuff because they go well I have the game pass I'm not going to buy games like obviously like Starfield might might have been a really interesting one to see if they had like numbers in terms of I mean they had good sales numbers right but I would love to see like how many people either tried it first on there like for free or people that just straight up decided not to buy it by playing it on there uh you know especially if they were just kind of not happy with what they they played and it's like no I'm not GNA buy this uh obviously games don't stay on there forever kind of like how Stuff rotates off Netflix so there is you know like some protection I think against some cannibalization but by the time a game comes off if it was like day one release like they're not going to get a sale that

late into the cycle anyways right which is why games get super discounted so I guess I wonder if if you have any insight there Dave on whether or not like there was some good penetration and they're just pulling back or if it's just like refocusing yeah I don't think they've hit quite the attach rates that they want to um you know they they were hitting some pretty aggressive targets uh last year and they fell well short of that um so I don't think they've hit the their attach rate yet um I do expect that they will continue trying to push it I do think that it still will end up being part of what Phil and the Xbox team are going to focus on um in part because it is a it's a bit of that differentiation between themselves and Sony uh and Nintendo you know Nintendo and Sony both have their own versions of it um but they both do not have you know that day one uh release uh for for first- party titles that Microsoft has um I'll admit

I play Starfield on my Xbox game pass um it uh so I do think it is still very much a very important thing Maria I think you're right that I think Microsoft as a whole just went you know there are bigger fish for them to fry in terms of where an adel's uh um you know focus should be and needs to be U but I do think it'll still be part of Phil's uh Phil overall Target to try to continue uh continue growing that um and I do think the the addition of the the Activision tiles will certainly help along those lines as well I can only imagine if people play if people were able to play Diablo 4 on that like and there was like a high attach rate like that that could have potentially hurt the sales of that game because people wanting to just be like I don't know I'm skeptical now of like Blizzard after you know Diablo mortal like I kind of want to try that I mean I been kind of think in a previous episode here that like I had ended up just refunding payday 3

without even playing it because I realized I could just I from Steam because I realized I could just play it on the The Game Pass and decide first after seeing a lot of the the negative reviews um and I can't imagine that's like you know going to be that uncommon of a thing to do if people are skeptical where like you know the the amount of uh people that buy things like a pre-order right for baa access things like that and then end up maybe like a little bit burned um maybe that helps avoid that or mitigate that but the the other question I have for you D is uh you know I know the cloud stuff is also part of like a big part of what he's uh getting the bonuses for and stuff now I do wonder if if that includes the xcloud stuff for the Xbox game pass right because that's all Cloud stuff as well running on their servers or is it just like we're talking like Azure stuff and those kinds of things yeah I know that was Enterprise okay Enterprise side of things yeah yeah I wonder how much overlap there is in the uh the actual company as well right because those like they do try and use those Enterprise servers As game servers and stuff right as well like they'll try

and get um game developers to use those so I imagine there's like some overlap but probably maybe maybe not with the cloud side of things they would separate those out in terms of business units like the um because that's a service that's being provided to others versus okay games that they're actively you know either publishing or releasing some makes sense and and when did it like did it say when this actually happened meaning like uh if he was getting his bonuses like say at the end of the year did they do that like immediately at the start of this last year like when did this happen their fiscal year ends uh end of June okay so just like right at the end of that I mean like like as soon as the next fiscal year started they generally yeah the fiscal year with the fiscal year generally they start working on what the what the performance targets are yeah I just ask because like obviously like they made that decision at a certain point in time so I wonder if like you know by say June they'd kind of hit those tets obviously Microsoft had even finished its acquisition yet of Activision Blizzard but that you know that was like a a year plus uh process

so I at some point they were probably like all right that's enough time you know to wait for that as I I don't think we're getting most of those games uh from what they said until 2024 on Game Pass anyways uh and 2024 is kind of a rather large span and as we know like when most people say a date range like that they usually mean the end of it so I'm like expecting December 2024 we'll finally get the games for this year I think they'll probably trickle them in um I don't think they'll just do one giant batch uh it'll take time for them to put in and all of the Xbox Live uh login information and uh make sure that that's all sorted out appropriately it would be interesting to see if they were able to to use that to try and get people back and say let's say uh from what I've heard like 99% of people have turned off Diablo 4 right I don't know how true that is and I don't know if that changed when season two launched recently and steam picked up but I do wonder if like that could be a way to try and bring players back later on try and get them to purchase season passes again like with if they've churned uh to get people to come back like well I got the Game Pass pass anyways and technically it's free to play and then

they like dip back in uh that might be something that's useful for for blizzard and blizzard really having like a lot of trouble with their live service in general so I don't know maybe some opportunity there I guess we'll see what Microsoft does or doesn't do with the company as they run it but yeah some interesting stuff uh as well on on uh some gaming stuff that's uh working out or not working out in terms of finances phase uh who we've seen go through a bit of a cycle uh finally managed to get picked up but not for I don't think the price they were hoping for yeah well we can go more into that I'll do a very quick overview of what my conclusion was um and then you know if the conversation leasts there we can dive into more of the specifics so Face Clan was acquired it was an all-stock deal by for 17 million by games square and I started my analysis you know based on how their valuation when they went public with the spack I wanted to

understand like how good is this deal to get face for 17 million because a low number but what's the actual value that that they're acquiring and my conclusion was it could be a bargain um if game Square strategy um of appealing to Brands uh gets executed but for them to do that they really need to um get phase Clans operations running smoothly and do cost reduction because it's in the losses really and so yeah if they can restruct Ure phase rapidly um and the original Founders are now rejoining as a leadership of phas if that mix goes well there are some concerns there we can discuss them in in a little bit if that goes well um I'm actually really excited for the next steps of of fa I think it could become a lean independent arm of game square that specializes in attracting and engaging uh players well consumers of gen Z in general Alpha because games Square

strategy is to create an endtoend Tech and data platform that Brands can um create Partnerships with so they have the content creators um they have the tech and so what you know a lot of traditional brands are now struggling with is to understand the motivations the interests the culture of these younger generations and so bringing phase in and having that partnership within games Square I think is yeah a very strong proposition to brand of hey you know we have a turnkey solution end to end and we have content creators that are integrated in Esports uh and they have proven track record of being able to create new Esports stars and um new content stars and that can attract and appeal these younger generations and then I was also looking at games Square's history and it was really interesting it was a good opportunity because you know it's from my fellow country and your Country David you know can let's go Canada uh and I was looking at the history of m&a of uh gamesquare

and how they've been able to integrate operations effectively and then also they have a proven track record of being able to reduce costs and they are showing that you know quarter on quarter with um being able to get that journey into profitability and then when you look at all of the businesses that at least contain Esports in their business model I think like gamees Square seeing gamees square and then the acquisition of complexity and seeing them diversify their portfolio they knew that content Creation in Esports is not a sustainable business model and diversifying it towards having this end to end Tech platform having a data platform that allows you to do attribution and understand the return on investment of these content brand Partnerships it makes me hopeful that you know phas is now now with a parent company that knows

what it's doing understands the business model of the market um and is integrated in you know in this more sustainable business model and so yeah do you have any thoughts about um the phase acquisition where going into more detail I mean I'm just curious if if FaZe said it was a good deal like when they were you know announcing it obviously like a lot of times in these kind of deals they do like be like oh yeah we're so happy this was like a wonderful thing for us but like was it a pretty positive spin coming out of faas or was it like well we just took what we could get I mean it was silence FaZe has FaZe um in September it was a chairperson of the board exited the CEO was also likeo the contract was terminated a few days later and now it's come to lie that it was part of the acquisition deal that the CEO had to exit um the original Founders well you know we go back to the controversy of the original Founders because uh a big portion of the

depreciation of phases value is associated to the original Founders being very public in their critiques of the leadership because they brought in you know air quote the suits um and then the suits decided to do this back when clearly the business model and their expectations to become profitable were truthfully unrealistic um even in a bold crypto market and then it didn't go well and they started to move away from you know Esports and they were focusing on because like phases culture was about bringing people into the culture of FaZe becoming brand ambassadors because they loved what FaZe was doing their connection with the community the content that they were creating and again air quote air quote the suits we're more focused on let's bring in these really big names and let's pay them like Snoop Dog and a soon as soon things started to go bad in terms of the

money that they were making the people that were being paid left um and they were you know focusing their attentions on brand Partnerships that weren't you know specifically content creation for for Esports anyway and then there's more controversy about toxic culture Mass layoffs um misogyny and I won't go into all of that has been discussed to a great great lengths and so the original founders were very public and they're critiquing of the leadership and there was just a brand downfall honestly like phas before you would be in a meeting discussing oh we want to do a brand partnership and activation with Esports and content creators and everyone would think yeah FaZe FaZe is the right person to do it with and by the end of um yeah I don't know this campaign no one you know really wanted to f a stick out phas because of all the the pr brand image nightmares that they were going through

and so there there is um there are a lot of great discussions happening about this and we'll have to see I more positive um in my belief that game Square this is an acquisition and so even though the original Founders are leading it uh games Square's business model is all about the brand Partnerships and though they have to clean up the image of phase but I think yeah to answer your question D Devon it was a message of Silence from fa there was a celebration that the original Founders are now back um the suits air quotes have left and now it's you know in phases hands to rebuild their image and their culture yeah for me I think the the biggest questions and something I think you POS at one point right is the um is it a a a marketing thing or is it like a a big business for profit thing like what what is Esports trying to be I mean there's there been the comparisons between Esports and uh you

know traditional Sports um but I think the biggest problem is as you look at Esports as a whole is that some of the games are treated as um actual business you know we you know the games were created um the the the leagues and everything were created in order to ensure that um there's the opportunity for players to make money for you know the the games to actually be seen as a sport in another case is they you know the companies treat the games as uh or Esports versions of the games as marketing exercises that's all that they're looking for it's just a it's not a um Revenue Jenning uh area business it's it's a cost center um and I think part of the challenge Esports has as a whole is that you've got those two different styles of business models all being mixed into you know into the same conversation uh you know and some ways it's almost the same as if uh you know

the the Dallas Cowboys they were a for-profit uh football team and they're going to do all that they can to win uh and the Miami Dolphins they do it just because it's a fun marketing exercise and everyone wants to party in Miami anyways so let's just bring everybody there to party you know but that's not how you know real sports are worked that's not how those organizations do well those organizations do well because everyone is trying to put the best product they can onto the field and make money as as part of an actual business Dar as just a marketing exercise and I think that's where you know some of the the promise around orts is that there you do have those opportunities to bring in Mass groups of people and large chunks of money like if you look at uh you know the prize pools that uh um that valve was able to bring in for Dota 2 like the what was it the the international I think in 2021 was like 40 million million dollar prize pool which is

fantastic now at the same time valve came up with a fantastic system where the players actually feed in the majority of that prize pool money themselves rather than valve putting it up but um you know I think people look at that and say okay well this is something we can carry across all of Esports but that's not what everyone is trying to do it's different different objectives for different company definitely and that's why gamees Square's history is very very interesting they they know that and they diversify it into a sustainable well towards a sustainable business model we look at Riya they announced this year that they're still not profitable with their Esports and it's League of Legends if League of Legends can become profitable with Esports like truthfully this is a marketing spend and we need to embrace that it is a marketing spend and even if there's tournaments and prize pools the prize pools are for your players and you can't depend on making you know having it as a a sustainable

Revenue stream um and then additionally if we're looking at at Esports it's about the creation you could focus on trying to get diamond in the rough players and then you sell them but that that's not really scalable and it's also a bit luck of the draw and so again I think it's very interesting how game square is focusing on we have Esports as a content creation tool we have public personas who are known and beloved by players and create a following through eorts you know other content creators create a following through other means and then we're going to do brand Partnerships for example they announced that they're in progress to close a deal with a Betting Company who is going to do activations with their Counterstrike teams because Counterstrike has a large population of players who are interested in betting

like that makes sense yeah I can see how how uh this business model works so that's my takeway we've discussed that many times here on the podcast and so I I don't want to go too deep into it but it's time to accept that Esports is not traditional Sports the phase valuation at the time was only acceptable through the lens that it was a traditional sports team it is not um it's a marketing span and you know companies need to find sustainable business models if they include orts yeah I think at the end of the day like the the orts are not the same as regular sports that kind of has to be the the important part to focus on in the sense that like people are trying to try and adapt a lot of sports models to it and like there's parts of it that work like merch right people get okay merch team merch you sell that uh but all the other parts of regular Sports were just built around a very different idea they're not run by necessarily like the developer of that game in physical Sports they not like run the same way in terms of like the

same business interests like as a marketing vehicle for example uh they just they're just very different businesses and I think the important part of that towards the like thinking about towards the end of Esports as it is right now right where it's not like over but it's clearly going in a direction where people are finding out that if they didn't already realize it that business model was not really feasible long term like if if you know as as you said if if legue of Legends can't make it work then at this point like maybe it actually just doesn't work like that um but the the part that I found interesting especially in regard to faze was they were one of the uh the companies that that uh during and I know I bring up Rainbow 6 Siege a lot but the only that's only because I was very close to it for a long time and and got to see a lot of stuff one of the things I thought was interesting was that a couple of the big orgs would specifically like FaZe would pick up Brazilian teams uh partially because the game was very big there but also partially because it was very cheap they could pay them like a very low salary uh and it would go much farther there now it was still not good going that well there I mean it was still pretty low pay like they were still like not doing

great and their computers were you know pretty old and things like that so it wasn't the best but the part that was interesting about that that I think is kind of maybe towards where the future of this goes and some you mentioned about uh gamees Square was the idea of where these players because they're being paid so little would actually realize at some point they would make more money by being an influencer by by starting their own twitch stream by doing that sort of thing and that's not the same thing you can have in traditional Sports you're not going to have like Joe Montana like playing football in his backyard and live streaming that and that's like how he's making all his money is people like subbing to his backyard football right it's it doesn't work that way but it does in in uh electronic Sports in playing video games at home especially postco right like where we had that whole transition where everyone was playing them from home uh and like even Esports tournaments were were Run online and so it's this sort of situation where if people are making more money that way and you're starting to see more of these brands have content creators they're sponsoring rather than just players they're starting to be like oh yeah I I

play for phase but I'm not like a player I'm just a content creator or like I'm just sponsored on my stream at some point it starts to make me wonder if maybe we go away from the the athletic team model and more around people that perform well but are performing well on their personal streams and are more content creators and it's more of a a brand uh sort of thing rather than a team so because you see the issues with people transferring between teams trying to manage like personalities doesn't really quite work the same as it as official Sports we don't have like drafts quite the same way and things like that and so I think just that sort of Disconnect may lead that direction but I don't know that's my that's my personal take is the direction I've seen it go is everyone just being influencers and that's where the real money's at both for these organizations and for the players and this idea of like everyone making money off of the game developer sponsoring these tournaments clearly isn't where it's at which I mean it's ironic because like one of the bigger ones is like Counter-Strike and valves like extremely hands off with that right they're not even running it it's just

like when people run tournaments because it's just a popular game and you look at some even the big tournaments where it's just influencers like twitch Rivals and those kind of ones where it's not even really technically the athletes it's just celebrity tournaments like a celebrity golf tournament kind of thing so that's just my two cents on I think where maybe it could go to be business model if it's just going to be marketing anyways but maybe maybe not funded by the games maybe it is like a little bit but maybe more so by these Brands and I just love that you just suggested that we Mash two old school games Backyard Sports and Joe Montana football I see a wi it's a new mag right there yeah for sure I don't even know who Joe Montana is I'm imagining a cowboy because it has Mount Montana and it's a bounty quarterback for the San Francisco 49ers got it got it that's not new that if we look at for example tennis you win a championship and tennis and then you're going to make more money from the visibility and the

mark how do you call it it's not publicity but yeah the brand Partnerships that you get to wear their Jersey or be in their ads um and it's the same for Esports players that's where they're going to focus on their revenue so yeah I think you're bang on on that Devon well I think the other aspect too is it's it's really hard to have like the personality show in Esports with the way Esports are run right because like you you you'll occasionally see the people on stage you get these occasional interviews but you're watching the game and theame is not the physical people like it is in sports you could see the the physical Sports you can see people do a touchdown dance and the touchdown thing they could show off their personality whereas in like Esports you're just seeing the characters they're playing as most of the time and I think that again is like another disconnect on that exactly what you're saying about like trying to carry their personality out in the other whereas if they're an influencer kind of person or like a personal streamer like they get to show their personality the whole time like obviously in tennis like they're an individual it's not a team sport most of the time so like it's a little easier for like someone that's just you know one of those angry players or one of those other people with a lot of personality to show that off uh it's

just it doesn't I mean I know like in Rainbow Six it was it was one of those things where it was like there was a few really strong personalities and like it got to the point where Ubisoft was like let's lean into that because that's the only way we can kind of like keep people really interested in this is to have some like one players would just even decide I'm the heel of this game if you're familiar with the term from wrestling like it's just like I'm the heel I'm gonna play the bad guy kind of thing so Dennis defin definitely has a few heels as well and they're fun to watch we'll see I and I feel like this is a discussion we'll kind of come back to occasionally just because like it's a it's a sort of tangential business to video games that uh you know we've seen a lot of struggles in marketing in general in games on different platforms and this was one Avenue for it and influencers have obviously really changed how games are marketed in general like we're we're not we're past the days of running commercials or ads in comic book mag like comic books and and things like that it's it's very much getting people to play your game on their twitch streams and stuff now so wouldn't surprise me if they just take a different angle on it when they're when they're looking to Market their game and

maybe move away from let's just force this to be an ort but anyways speaking of people having to shift their business models trying to do things new and interesting whether they're a good idea or not we'll see uh Netflix continuing to also try and be part of games so Netflix uh had a great third quarter uh they added more subscribers than anyone was expecting uh they added in 8.76 million Global subscribers uh in the third quarter um and they did better in terms of earnings uh so overall they had a great third quarter better than uh the street was expecting now in part of their investors call afterwards uh they did start addressing the games business overall um and uh the two the co-ceos had a number of things to say about the business where it is today where where they see it going and uh and some of their strategy towards it so they

referred to it as the crawl walk run uh cycle and they believe they're really just in the crawl stage right now so comparatively they don't see themselves of spending a lot of money towards the division yet um and they they do recognize that it's not uh you know you know driving up like a rocket ship they're not increasing their game sales is quickly as they are they're uh adding new subscribers um and they certainly did try to put uh sort of the the Netflix view to it uh they did claim that the trajectory for adding players is not dissimilar to what they've seen when they've gone into new regions where uh you know traditional Western media may not be the strongest such as going into a country like Japan or going into Latin America um so they see themselves as you know this is something that they're going to take their time uh and they're

going to build out uh um you know as they go with uh with realistic expectations in terms of of growth there now they do also suggest that they feel they have especially in terms of the mobile side of things uh been able to actually solve uh some of the challenges around Mobile in terms of user acquisition and Discovery um and they believe that they're able to do that through their recommendation platform so this is the same technology that uh recommends you know based on what you've watched new TV shows to watch new movies to watch uh through the Netflix platform you know they're going to be recommending uh games now one of the challenges they have o overall with that is that the games so far have been uh almost entirely mobile um and uh 75% of their user base or their us uh uh users uh use not mobile for for

consuming Netflix so they're uh mostly watching it through their television some watching it through their PC um but only a fraction of the overall users are uh consuming Netflix content through their mobile phone and with that you're also starting to see now you know some of the reasons for why they are expanding out and trying uh to get the games uh onto smart TVs uh and other smart devices um so that started off with a a small um you know beta launch inside Canada that launch is now expanded uh out to a small number of uh of subscribers in the United States um so you're now seeing being able to play uh only a couple of Netflix games uh on your television uh using your mobile phone as your controller uh so they do recognize where their viewers are and they are starting to try and get the games to where those

viewers are um or where the majority of the viewers are so but they are seeing is taking a bit of time now the other part that they also see have seen as challenge is the types of games so when they were first acquiring games for the Netflix games platform um they were really you know it was it was a bit of a challenge because you had an unknown group of people or or people that are very much experienced in the world of television and film you know reaching out to game developers and saying hey you know come make games for us and as you can imagine there were a lot of people that were reluctant initially especially at that time it was still very much a boom cycle for uh the mobile business um people were a little reluctant to make games for subscription business where it was unknown as to what the uptake would be by the subscribers um and uh they had a very short time period in order to get some of those initial games made so um you know Netflix was building out the

portfolio as best as they could in the beginning they're now at a point though where they've got um some data in place and they're starting to see well these are the types of games that our players are interested or subscribers are interested in playing and you know Netflix is known for many things but one thing they're definitely known for is uh the creation and using of data and uh they are certainly going to be using that to really refine the games that they start bringing into their portfolio and start servicing to their players um and having a better understanding over time you know what works better for their mobile players what works better uh for their TV players um so you know over time I think we'll we'll really start seeing a a well-refined machine now one of the big challenges they have is um one of the reports uh inside the last couple days is that uh Netflix is still about only about 1% of their overall subscribers are playing

games on a on a daily basis so even though Netflix has um you know basically tripled their number of Titles since last year uh they're still needing to work on how do they get their subscribers uh playing the games now part of that is getting it off of Just mobile um where you know instead of uh you know if they've got 200 around 200 almost 250 million subscribers um you know if you're only able to access 25% of them on on mobile then uh you know obviously going to different platforms will allow you to get to a lot more subscribers um and I think if you look at an overall picture you know why is it that Netflix is really pushing into Mobile or into games I should say sorry um probably the very similar reasons to why they're also pushing in some other areas uh into the retail streams into uh Sports uh one thing that an Insider intelligence analyst pointed out is um the more revenue streams that

Netflix is able to point to the better they'll look to uh to Wall Street uh as they start uh you know tapping out the number of total subscribers they can have uh they need to be able to point to some good news in order to make sure that the U the stock prices keep going up and up and up so the more revenue streams the more areas they're able to make money the better um and uh in addition to that they're still trying to work on engagement you know they still see mobile games as being or games in general as being the opportunity for super fans to engage with their content in between Seasons so that's where uh where Netflix is right now so I agree they're very much still on the crawl stage um they've hired on brought on a lot of really smart people I think that they will uh certainly start getting there and they'll start using their um the vast row of entertainment data that they've acquired to uh to Big to to

Big effect they still have the biggest the biggest challenge still for them is that it does require subscription in order to be able to play their games um but you know they've got a very large subscription pool to start playing with yeah you're talking about the different uh revenue streams and I remember reading I just confirmed Netflix doing live experiences so not only the brand Partnerships with um uh brand you know e-commerce clothing whatever that is but also you know a restaurant themed with Netflix and so that that shows that they're exploring now I am concerned they're going to use their recommendation system to recommend me games because they keep recommending Me horror and True Crime and I don't even watch it I just like I always give a thumbs down to try to teach the algorithm I don't want to watch this stop showing it to me and it still hasn't learned and I've been with Netflix for many years um but we'll have to see in terms of the 1% of players

engaging with the games I didn't know about the 75% being a console that's a really interesting data point uh in any case even on mobile I started to play their games when they were first coming out and it definitely felt like they were focused on quantity and not quality of the experiences and so it was very hit and miss like some some games just really felt unpolished and that maybe they received a lumpsum and they got into the store and so I stopped playing them because I got tired of not having a good experience and then Additionally the discoverability is hard it's not even at the top of the app or it doesn't even have a button to get there you have to find it on your mobile where the feed is or or go to the store and so just the ux of finding the games and then even when you find the games there's just this long list of things you can install there's no classification or organization I have like understand

what's going on so there's a lot happening here for that one% I don't think you know it's not just because it's players AR console the experience of c phone mobile is not great and then the quality is also hit and miss um I was going to say something else on U on the mobile I I'm part of code koven which is is a mentorship program that's done in collaboration with Netflix and I have the I've had the opportunity to meet some of the team some of the team that works on Netflix developing games and honestly like they are so intelligent and their processes are so Advanced so I'm confident that they have the talents to make some really good games and I'm you know I'm I'm not as bearish on Netflix and the games that they're making they are in the crawl phase um I do feel like mobile was that experimental ground like you said quantity to get data and understand how

you know their subscribers would interact with it and what their preferences would be to get it running so yeah I'm looking forward to when they get out of the craw phase yeah um and just one point of clarification it's not necessarily console that uh that's 75% it's also like the smart TVs that have the Netflix app that you can play it on so just uh Mobile versus large screen yeah um but that could be through console that could be through Smart Television that could be through like a yeah there's so much that they can do as well through making a more gamified you know have even having achievements per game and showing the completion percentage if I saw that I have progressed I don't know like 60% of the game I might reinstall it or decide oh I haven't found anything that I want to watch on Netflix I'm just going to quickly play this game um and then go to but yeah I think this it's very exciting if they can execute it well and so I'm

hoping they will and that it is just a crawl phase because I do see the potential that they're chasing yeah I mean it I'm not sure if you remember when like the time between when Netflix announced that they were going to start doing games and then when they started publishing games was incredibly short like that was just a situation where Netflix says all right we're doing games and oh six months from now sounds like a good date go and so it was like a mass effort just to try and get games onto the platform um you know I was uh I was on one of the teams that uh that put a game out on Netflix when uh when it was part of the the launch um so it certainly was not a long time period to try and get uh the games into place now that being said uh you know Netflix is stuck with those games and allowed them to continue to

live Ops them so I would suggest you know if if there was a game that you liked for a few minutes in those first in those first days then kind of got tired of it you may want to try and go back and take a look at it because chances are they've actually probably lived OBS some and improved the game um I haven't played but I really want to play the love violin game because apparently is there best performing game I want to find out why well I I I believe I know what the um most uh the game with the highest engagement is uh but it's probably not what you think it is I can't say which one it is but you can't no oh well why tease us because teasing SPS are BL so it's not it's not the dating Sim game got it I'm surprised by that uh but I do think that uh we

definitely will start seeing I mean we've already started seeing it now where a lot of people are going talking to Netflix right now they do see the potential in it as a platform for uh for game companies I mean it's it's guaranteed revenue for them so it certainly is something that especially in today's day and age um something that's very interesting for game developers uh Netflix is going to be a lot more choosing now about the types of games they're looking for um because they do now have that beginnings of a library in place and they're going to start looking for the ones that um you know either they they need more data on in that particular genre uh or they know it's a a genre that does well for their users so what surprises me is there's an opportunity that like I would imagine that they would tap into that I don't think they have that I've seen that seems kind of obvious at least to me which is uh you know they know that the SEC the second screen experience is a thing right that people are generally when they're Netflix and chilling they're also on their phones right and

like I imagine that's part of the why the strategy was like let's go to the phones because that's what's competing with eyeballs on our actual screens right but the fact that they're not so like uh Netflix is was one one of the many streaming services that likes to be really pushy during the credit sequences where they're like oh you wanted to watch the credits no no you're going to watch us advertise our other programs uh they take up 75% of the screen and the credits are going to be like and we're going to make it really hard to watch but they don't they don't use that opportunity then to push you to towards games that you might like related to it as a QR code because it's this opportunity where you're on your phone you're like oh hey I'll just scan that boom now I'm in the App Store now I'm now I'm like actually potentially about to download it if it's like tangentially related to it like obviously they push the stranger things games right where they had a couple of those very easy when you hit the end of the season that's the current season and you know they're not like there's nothing more to watch like that's a good time to push people to it right so they could as you said continue to engage with the IP and the experience and a lot of that the statements were like about how they want to extend IP and make IP like more part

of it but it doesn't sound like they're trying to do that in a way that's it's like either parallel with watching the shows or movies or like as as a like sort of tail end of it or even a beginning of it or like some of those games that try and do something that's like interactive with the show like there's a lot of different opportunities that like seem like easy ideas and you know I imagine they might have thought of a lot of the stuff and then tried it in small areas and it just didn't work like it's totally possible if they do tons and tons of data analysis but I did find it kind of interesting that they started leaning into like console type games but like old school ones so like they were touting dead dead cell in there and like one of the games that I had picked up from Netflix just because it was like oh hey it's a free copy of a game that I like was that Ninja Turtles uh shreders Revenge that was like that that retro one and it was like cool like I could play it for free now and it's got the full multiplayer and everything uh just because basically Netflix is subsidizing it for me uh because I already own Netflix it's like it didn't really change anything about my relation ship to Netflix or my experience or anything like that but I was just like all right cool free game but then they're putting out stuff like Shovel

Knight as well and so it seems like like in the The Stranger Things one was very much like a old SNES kind of game so it seems like that sort of like retro like console kind of experience or arcade experience was when they leaned into a lot with more of like the premium style games that weren't like mobile type games they're more like almost like ports like dead cells was very much kind of a port so is the the Ninja Turtles one and I don't know if that's like done well for them or not because I I don't know what the data looks like on that but I found that kind of interesting that that was like something they they gravitated to a lot and I mean I imagine dead sales must have done well for them for them to bring it up uh in that that discussion the interview uh but that's not really tied to any IP that they do anything with right I mean who knows maybe they'll do a show right uh vampire survivors is gonna get a show like uh you know I was just watching some of the the captain laser Hawk one that's like tied to Ubisoft stuff with tons of uh game stuff obviously cyber Punk on on Netflix did quite well as well and I'm sure that's part of how Captain laser Hawk got green lit was off the success of cyberpunk it was so good I just want to yeah stuff like that right like seems

like there's plenty of opportunity for them to sort of tie those things in better and I I don't think Mobile's a problem with that because it just depends on how you approach it the developers you partner with the type of second screen or or or primary screen experience that you're doing obviously yeah like if people aren't playing on a system where they could just suddenly switch into playing a game on that thing and yeah most people aren watching Netflix on their phones unless they're like on an airplane or something and most people I see doing that are doing on like iPad or something like a bigger screen anyways so it's it seems like there's opportunity uh I mean I'm glad they're experimenting with it because like every everyone else is like kind of like doing their streaming Wars thing and just focus on consolidation anyways uh so that probably won't go anywhere I'm not gonna see Paramount plus suddenly trying to get into games I don't think anytime soon right it's just no but Netflix is in the position to kind of be the leader here uh so I do hope they continue with that experimentation like data collection uh and I hope they're like a little more forthcoming with with that because obviously they're they're they're known to keep a lot of their kind of data

close unless they want to brag about it uh and then you'll find out about it when it's you know numbers they want to share but uh but yeah like the nice thing about mobile of course is that like at least with things like sensor Tower and data. AI we can start to dig into that a little bit and see like what the traction looks like like I remember looking at uh one of like the Transformers game they had picked up uh that obviously had kind of not been doing well and it didn't do significantly better after Netflix picked it up but it still managed to kind like keep you know the live Ops going and things like that kind of keep the game around but it also like they end up in situations where they pick up a game like that and they picked up for being like a a a game that was constantly selling iip and they switched to a model that's not that and it gets kind of weird uh no actually it was Apple arcade that was doing that sorry Sim similar idea though where they will they take these games that are normally premium switched over like that and it's kind of a weird shift like the game was designed around pushing the iip and the live Ops and all that stuff and you Swit switch it to a model where it's like not I don't know it's it's going to be interesting to see and I don't know where else they're going to go outside

of mobile like I don't I don't see console like you're not GNA like have a picture and picture unless they make some kind of deal with uh the console makers to like support like a picture and picture kind of thing where you could be playing a game and like in the thing at the same time um we did have the previous discussion about like there's support potentially for cloud gaming and you mentioned earlier with the controllers and stuff and there's definitely some potential there but that that seems also pretty iffy so like I like as we said at the beginning of this like I'm I'm sure they're doing interesting things I just don't know if they know exactly where it's going because that's what they're trying to figure out with the data and so I I hope they figure it out because like there's definitely a a space for these two things to kind of collide as people move away from traditional TV and move towards like further even away from traditional streaming into like these sort of uh shifting experiences where like as we see like a lot of the media based off of games doing quite well on these Services obviously it's mixing with anime and stuff where it's that's you know another big overlap With Their audience uh so that seems to be working well I would keep that up if I'm Netflix

yeah I think one of the bigger challenges they're going to find is that um they don't want to get into Hardware which means that controllers for this moment are going to be things that people already have namely their phones um phones as a controller not the best experience um so I do hope that they are able to Branch out and at least you know allow Bluetooth uh you know um capable controllers let me use my Xbox or my PlayStation controller to play then then I'll be happy seems like something you'd have to organize with Smart TVs right because a lot of people like I mean that's what I'm watching all all the streaming services on is via Smart TVs because I don't want to have to have an external device set up for that uh and like even uh you know the Xbox xcloud stuff doesn't have like its own dedicated external device you have to have a full on Xbox console it's like there's not like you know outside of chomecast and

Amazon Fire stick stuff there's not really like this good sort of image between think and maybe it could be something they set up with Amazon but I can't see Amazon really wanting to be friendly with Netflix given their competing service so that becomes a problem like same with if they were to try and do something with Xbox obviously Microsoft you know is is a competitor there in streaming gaming and stuff like that that makes it kind of hard for Netflix to find a hardware solution sort of thing that that is compatible with outside of maybe if Google decided you know stad didn't work out we're not really competing in gaming uh they could be an adequate partner with chomecast and things like that and like some of that chomecast technology built into TVs they built a really nice controller with the stadia controllers that they eventually started allowing people to unlock into full Bluetooth controllers so maybe there's an opportunity there with Google yeah I Microsoft likes to share more than more than Cloud Enterprise service is their bigger part now I guess they're getting motus on so maybe yeah maybe we'll see the CEO like yeah games aren't as important as cloud and yet yeah maybe they'll say look if you have if you have Bill Gates appear a

young Bill Gates appear in stranger things then we'll work something well now the Dake stuff the young part isn't hard so I mean given what they did with Michael Douglas even in the early days of that in uh like Ant-Man stuff so I think it's pretty doable for for Bill but we'll see like a lot of uh I think a lot of figuring out to happen like just but just like with the Esports we're in like a very transitional period with a lot of these businesses as sort of like Generations grow up with new technology shift over to new things the game's business is in kind of like semi- reinvention sort of stage I think so I mean it makes it exciting for us to have these conversations but also makes for a lot of questions where we're like things are changing things have got to change but we don't know exactly where they're going to go so hopefully we'll see I think over the next couple years like some real good indicators of like maybe some success stories in this and I guess we'll keep an eye on what Netflix does right even if uh you're not a big fan of the games that they're doing I think keeping an eye on which games are picking up uh because they have the data to back that up might be a good indicator I mean it's like same thing

when they start making Adam Sandler movies and you go why are they making Adam Sandler movies and it's like because they do well like they have the data to back that up like you can't go wrong with Adam Sandler movie so like just you know same thing with their games they're they're gonna have data that that proves it whether we think it's intuitively good or not um although I would like to see another bander snatch kind of experiment I'm a little sad that maybe that didn't do super well because they haven't really followed that up but uh Man versus wild seems to get plenty of sorts things so maybe that's doing better than than I think uh but we'll see but anyways uh lots of lots of great stuff uh to to explore here lots of great topics I think this is stuff that I I recommend everyone actually continue to dig into you know check out uh the Netflix games check out what's going on uh see what faas ends up getting up to in the next few months now that they're kind of probably going to Pivot a little bit away from some of the the heavy Esports spending that they've done although I do hope we still get gfuel flavors that's probably the more important aspect of their business um we did manage to get you know one not that long ago that sort of astropop one so opportunity but uh yeah we'll we we'll

look forward to that good stuff uh coming our way hopefully from these businesses but in the meantime want to thank you guys for for joining some good conversations good topics here hopefully uh games news will pick up a little bit as well as we I think we're going through a little bit of a slow period um you know maybe maybe some people do some crazy things uh we can cover but uh in the meantime oh I also want to thank of course the listeners for tuning in and uh in the meantime enjoy your weekend and we'll catch you guys next week [Music] if you enjoyed today's episode whether on YouTube or your favorite podcast app make sure to like subscribe comment or give a five-star review and if you want to reach out or provide feedback shoot us a note at podcast nov. or find us on Twitter and Linkedin plus if you want to learn more about what navic has to offer make sure to check out our website www.nic.edu or contact us to learn about our wide ranging Consulting and advisory Services again that is

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