Netflix’s cloud gaming plan is a tall order. Just ask Google

Netflix (NFLX) delves deeper into gaming. During Disrupt TechCrunch earlier this week, VP of gaming Mike Verdu said it is “seriously exploring a cloud gaming offering.”

Sounds like a surefire win right? Not necessary. Have a look on google (GOOG, GOOGL), who announced last month that the stops its own cloud gaming service Stadia due to lack of players.

Cloud gaming is still in its infancy. It requires huge infrastructure, no latency and lots of games. Consumers generally tolerate a bit of a delay when starting a show, but that won’t fly with cloud gaming. Even the slightest delay or lag in your connection can ruin your gaming experience. And while Netflix is ​​a huge organization with huge resources at its disposal, even that isn’t enough to win over gamers

“Google theoretically has a lot of things in place that you would think could succeed in a cloud streaming game service,” IDC research director of gaming, eSports and VR/AR Lewis Ward told Yahoo Finance. “Even [Amazon’s] (AMZN) Luna, 18 months after its official launch date, isn’t really crushing it by any means Amazon either.”

He added, “So I think it’s really hard to make these things work.”

Cloud gaming is harder than streaming movies

While cloud gaming can be a powerful way to prevent customers from canceling their subscription once they’re done with their favorite shows, running a successful cloud gaming business poses major challenges.

Cloud gaming allows users to stream games to low-powered devices such as Chromebooks, phones, and smart TVs. The latency problem can be huge. Imagine you are in a tense stalemate with another player and just as you are about to make your move, your connection freezes for two seconds. Before you know it, your character is dead and the 11-year-old you played is laughing at you in your headset.

Netflix may launch its own cloud gaming service. (AP Photo/Gene J. Puskar)

Even if companies have the technology, success in cloud gaming has proved relatively elusive.

Microsoft (MSFT) and Nvidia (NVDA) seem to perform well in the area, although they don’t disclose exact user numbers. Microsoft’s cloud games expand the library of downloadable games, giving users more options to play and a better reason to stick around. Nvidia lets you stream games you already own.

Both services essentially allow you to play games on your console or PC, then jump to the cloud if you don’t have an available TV or are on the go.

Another growth opportunity

If Netflix is ​​going to use cloud gaming, it needs to make sure it has the technology to do so and offer gamers something akin to the services of Microsoft or Nvidia.

But if Netflix pulls it off, a cloud gaming offering could boost a company that has just pulled out of a post-COVID crisis that has seen customers fleeing and shares plummeting 57% in the past 12 months.

During the pandemic, as millions became one with their banks, Netflix saw its user numbers explode. In the first quarter of 2020the company had 182.86 million subscribers worldwide. By the fourth quarter of 2021, it had 221.84 million. But that growth was unsustainable; among tIn the first and second quarters of 2022, Netflix lost 1.17 million subscribers.

Although Netflix added 2.41 million subscribers in the third quarter, it will have to keep working to keep the subscribers. That’s where gaming comes in.

“The challenge is when the content schedule is a little more uneven, when there’s no content that people are desperate to look at, that’s where you see churn ramping up and people taking a break from service for a while,” Dave Heger, Edward Jones senior equity analyst, told Yahoo Finance Live.

Gaming can keep people engaged with Netflix during those breaks between show debuts. It’s not just about retaining existing subscribers, though. Netflix could also use its cloud gaming business to attract younger consumers who are more interested in gaming than just watching TV and movies.

“They look at trends of where people spend their entertainment time – they see gaming rising faster than linear TV shows, or streaming TV shows, Ward said. “And, by the way, the demographics that are looking ahead will favor gaming in that those users are generally younger.”

That combination has likely led Netflix to view cloud gaming as a growth opportunity, even with its challenges.

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Do you have a tip? Email Daniel Howley at dhowley@yahoofinance.com. Follow him on Twitter @DanielHowley.

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