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Netflix Makes an Apple and Amazon Mistake it Can't Afford to Copy

The streaming giant keeps doubling down on a strategy that's not going to work.

People subscribe to streaming video services because they want to watch shows that are exclusive to that platform. It's a simple formula that Netflix (NFLX) - Get Free Report used to understand really well.

In the early days of Netflix evolving from sending people DVDs to providing streaming programming, the company did that by licensing existing content that people wanted to watch. Back then, it was novel to be able to watch "Friends" or other old shows whenever you wanted.

At the time, you could only see shows when they aired, in syndication, or by buying expensive DVD collections. Making popular programming available on an on-demand basis was novel and valuable, which drove people to subscribe.

As other players entered the streaming space, Netflix drew new customers by creating original programming and treating it differently than the broadcast networks did. There was an implicit promise that the streaming giant would not quickly cancel shows, making investing your time in them a safer bet.

Netflix built up its huge customer base by giving them shows and movies to watch that they could not see elsewhere. That's a simple business that the company has somehow moved away from.

Stranger Things Game Netflix Lead JS

Netflix Makes a Big Hire in Gaming

Netflix has been investing heavily in games. That's something that hasn't appeared to pay off, but the company is continuing to grow those efforts, according to a recent Game Developer article.

"Netflix has formed a new internal games studio in Helsinki, Finland, to create 'delightful and deeply engaging original games,' the website reported. "Notably, the nascent opening will be led by former Zynga  (TTWO) - Get Free Report Helsinki general manager Marko Lastikka, who'll serve as studio director."

That seems like a good hire, at least on the surface, but it's hard to see why Netflix needs this. Essentially, it would be a big story if Netflix hired Bobby Flay to run its cafeteria, but people would question why that was needed.

In this case, Netflix appears to have big ambitions in gaming, even if that doesn't really seem to be something its members want.

"This is another step in our vision to build a world-class games studio that will bring a variety of delightful and deeply engaging original games — with no ads and no in-app purchases — to our hundreds of millions of members around the world," the company shared in a press release.

Netflix Needs Quality (Not Quantity or Games)

Blame Apple (AAPL) - Get Free Report and Amazon (AMZN) - Get Free Report for Netflix losing its focus. Both of those companies decided that expensive video services were needed to support their core products. In Apple's case, Apple TV seems like a vanity project because Tim Cook wanted to meet more celebrities. Amazon Prime Video makes just as little sense because absolutely nobody pays for Prime because of it.

Both Apple and Amazon produce some excellent shows ("Foundation" and "The Boys" being personal favorites) but the existence of those shows has nothing to do with whether I buy an iPhone or pay for Amazon Prime. That's the mistake Netflix is making.

The company may very well create excellent games. Who wouldn't want to play  "Squid Game" or try to break out the prison from "Orange Is the New Black?" But, will anyone subscribe to Netflix because of that? The answer is basically no.

Netflix could have licensed its strongest intellectual property for use in games the way it licensed "Stranger Things"(which was one of the company's first mobile game efforts). Spending money creating games as a subscriber retention tool shows that the company doesn't understand its own business model.

Hit shows and movies that members can't get anywhere else drive Netflix subscriptions. If the company delivers more of that, it will grow. If it keeps pumping out shows nobody wants to watch while wasting money on video games, then the company's troubles will continue.