On Tuesday, the video streaming giant announced that it will offer video games in its existing subscription plans at no additional cost. Confirmation of the long-awaited expansion came alongside the release of its latest earnings report.
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This confirmation of the long-awaited expansion of games came alongside the release of Netflix’s latest earnings report. This financial breakdown showed that the video service added 1.5 million subscribers during the April-June period.
This is slightly better than the modest increase expected by management after the service got off to a slow start during the winter months, but still well below its growth rate in recent years.
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The 5.5 million subscribers Netflix gained in the first six months of this year represents its weakest first-half performance since 2013 – a time when the company was still rolling out more original programming instead of licensed from old TV series and movies.
Now, Netflix is taking a new step by offering video games. The Los Gatos, Calif., Company telegraphed the decision last week when it revealed the hiring of video game veteran Mike Verdu to explore potential opportunities in another area of entertainment.
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“The reason we’re doing them is to help the subscription service grow and be more important in people’s lives,” Netflix co-CEO Reed Hastings told investors at a discussion Tuesday.
Greg Peters, Netflix’s chief product officer and director who will oversee what he described as a multi-year expansion, said the company would initially focus on mobile games before expanding to consoles and TVs as well. The games will initially tie into Netflix’s most popular lineup, Peters said, but standalone titles can be added to the mix as well. He even speculated that Netflix could possibly make a TV series or movie based on one of his video games.
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“There’s a big, big prize here, and our job is to be really focused,” Peters said.
Despite slowing growth this year, Netflix remains by far the largest streaming service in the world in an increasingly competitive field that includes Walt Disney Co., HBO, Amazon and Apple. Netflix ended June with 209 million subscribers worldwide.
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The weight of Netflix also generated stable profits. The company earned $ 1.35 billion, or $ 2.97 per share, almost double from the same period last year. Revenue increased 19% from a year ago to $ 47.3 billion.
But the lackluster first half numbers are a dramatic reversal from last year, when government-imposed lockdowns across the world caused people to watch frenzies while locked at home. Already the world’s largest video streaming service when the pandemic began in March 2020, Netflix garnered 26 million subscribers in the first half of last year.
While no one expected Netflix to keep up this breakneck pace, the decline in subscriber growth this year has been more severe than expected. Netflix shares are down about 10% from their high of $ 593.29 six months ago. Shares edged higher in extended trading after Tuesday’s news broke.
Netflix management blamed part of this year’s slowdown on pandemic-induced production delays that have left its video service with less proven success. The company expects this problem to fade in the second half of this year with the release of new series of popular series such as Sex education and The witcher, as well as films starring stars such as Leonardo DiCaprio and Meryl Streep.
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Despite this, Netflix let investors down with a forecast calling only 3.5 million additional subscribers in the July-September period. It was well below analyst estimates for a gain of 5.6 million subscribers in the third quarter, according to FactSet Research.
Conservative outlook suggests that Netflix doesn’t expect an immediate boost from its foray into a highly competitive area of video games already contested by much more seasoned companies such as Epic Games, Microsoft and Electronic Arts.
But if the switch to video games pays off, it could potentially give Netflix more leverage to raise its prices. The company has already gradually increased subscription costs in recent years, helping to increase its average monthly revenue per subscriber to $ 14.54 in its largest market consisting of the United States and Canada. That’s a 16 percent increase from $ 12.52 a month two years ago.