Netflix (NFLX) - Get Netflix, Inc. (NFLX) Report hinted at a potential video game based on its top show "Squid Game" late Tuesday and added that it has made progress in building its offline consumer product offerings as it seeks alternate revenue streams to add to its subscription service in a bid to compete with rival Disney (DIS) - Get Walt Disney Company Report.
Netflix Co-Chief Executive Reed Hastings, who wore a Squid Game inspired track suit to the earnings call with investors following a stronger-than-expected third quarter report, told investors that new seasons of the dystopian hit could include gaming options.
" ... maybe imagine three years from now and some future Squid Game is launching, and it comes along with an incredible array of interactive or gaming options and it's all built into the service," Hastings said. "And then, of course, you've got your off-Netflix aspects, the experiences that we're building out, consumer products, all of that coming together."
"So a company like Disney is still ahead of us in some of those dimensions of putting that whole experience together, but boy, are we making progress," he added. "And so exciting over the next three to five years, kind of closing that gap."
Netflix shares on Wednesday closed 2.2% lower at $625.14.
Netflix reported earnings of $1.44 billion or $3.19 a share, well ahead of the Street consensus forecast of $2.56 a share and up 83% from last year. For the three months ended in September, Netflix said revenue rose 16% from last year to $7.5 billion, largely in line with analysts' estimates.
The success of its Korean hit show, viewed by 142 million households, could bring in nearly $900 million for Netflix, more than 40 times its cost of production, Bloomberg News reported last weekend.
The Los Gatos, Calif., company said that it has begun testing its games offering in select countries, in a letter to shareholders. Netflix executives present on the call also said the company will definitely want to be part of the intellectual property right for its games.
"And mostly what we've done to date is about essentially making sure that all of our systems are working as we expect. So it's really about proving to ourselves that we can do the delivery in the way that we want," said Chief Operating Officer and Chief Product Officer Greg Peters, also present on the earnings call Tuesday evening.
"So, we're really just sort of checking off the first bits of that process, and that's going well. We've got a positive trajectory," Peters added.
Netflix has a deep slate of films with big names arriving in the next couple months, including “Red Notice,” starring Dwayne Johnson and Ryan Reynolds, and “The Power of the Dog,” featuring Benedict Cumberbatch and Kirsten Dunst. It will also release new seasons of hit shows “The Witcher” and “Cobra Kai.”
"We're creating all these amazing universes and worlds and characters and storylines, and we can attach to the passion and fandom that our members have on viewing those on the video side with game experiences and allow them to go deeper and explore spaces that they wouldn't have otherwise seen on the video side," Peters said in a video recording.
Netflix bought video game creator Night School Studio in September and launched five mobile gaming titles in select European markets. The company has said the games will be included as part of a Netflix membership with no ads and no in-app purchases.
"We're excited about the idea that by taking away what we see as distractions from the core enjoyment experience associated with other models like advertisements or in-app monetization, per-title costs that we can really give our members a much easier, direct enjoyment experience with games, just like we have with TV shows and movies," Peters said.
Peters added that Netflix will take everything from license to partner-produced, to self-produced, approach to games, including an internal game development capability.
"I believe that the consumer products is really a great way to enhance the relationship with content and fans...we have it in our wheelhouse to be able to do it and to grow it big," said Co-Chief Executive Officer and Chief Content Officer Ted Sarandos in response to a question by Fidelity analyst Nidhi Gupta.
"Demand for consumer products to celebrate the fandom for Squid Game is high and those items are on their way to retail now," the company told shareholders after reporting third quarter earnings.