Netflix Takes Microsoft + ActiBlizz Deal as an Endorsement of the Subscription Model

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Earlier this week, during the Q4 2021 earnings call, Netflix COO and Chief Product Officer Greg Peters commented on the news that shattered the games industry: Microsoft's deal to acquire Activision Blizzard for nearly $70 billion.

Peters took it as an endorsement of the subscription model that Netflix has long championed in entertainment.

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Well, I mean, it was exciting to see the activity in the space. And I think to some degree, it's an endorsement of the core thesis that we have around subscription being a great model to connect consumers around the world with games and game experiences.

Indeed, Microsoft's primary driver behind this acquisition (behind all of the many acquisitions they've made since 2018, really) was clearly Game Pass. Head of Gaming Phil Spencer immediately said Microsoft would offer 'as many as Activision Blizzard as they can' to Game Pass subscribers once the deal is closed.

Game Pass itself was, after all, openly modeled after Netflix. In October 2017, Microsoft CEO Natya Sadella stated:

I would say from a Gaming perspective, one of the bigger changes that has happened in the last, I would say, couple of years is one, of course the vibrancy of the Xbox Live network across the PC and the console and now increasingly even on the phone because of titles like Minecraft. And once you have the network, you have plenty of different opportunities. In particular, we now have a subscription offer with Game Pass that's off to a good, very good start and our goal is to be able to have essentially a Netflix for games, so that we can have the game subscriptions that people can use across all of the devices that they play in.

Of course, Microsoft still has a long way to go before it can lay a meaningful claim to being 'the Netflix of games' with Game Pass. Microsoft's gaming subscription service just surpassed 25 million subscribers, but Netflix itself now boasts over 222 million subscribers globally.

Additionally, the company headquartered in Los Gatos, California, has officially entered the gaming space in late 2021. Its initial offering includes mostly mobile titles, though Netflix did acquire Oxenfree developer Night School Studio.

In the future, though, COO Greg Peters said the company is open to licensing and accessing large, recognizable game IPs.

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We’re open to licensing, accessing large game IP that people will recognize. And I think you'll see some of that happen over the year to come. But we also see back to test like building out a whole cloth and the ability to take the franchises or the big titles, let's call it, that we are excited about and actually develop interactive experiences that are connected to those. We see a huge long-term multiyear opportunity in that, too.

So we're very open. We're going to be experimental and try a bunch of things. But I would say the eyes that we have on the long-term prize really center more around our ability to create properties that are connected to the universes, the characters, the stories that we're building in other places and sort of magnify that value for the fans of those stories.

Later in the earnings call, Netflix founder and CEO Reed Hastings hinted that it might take a while to get there, but the goal is to deliver subscribers the absolute best in the category.

And then gaming, which initially we're focused on the mobile gaming, is a big one. So I would say when mobile gaming is world-leading and we're some of the best producers and like where we are at film today, 2 of the top 10 for our gaming, then you should ask, okay, what's next? Because we're definitely crawl, walk, run and like let's nail the thing and not just be in it for the sake of being in it or for a press release, but we got to please our members by having the absolute best in the category.

We wouldn't be surprised to see other acquisitions made by Netflix in the coming years. Otherwise, it could take a very long time to build up the quantity and quality of gaming content.

Credits for the earnings call quotes go to Seeking Alpha

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