In today’s Finshots, we tell you why Netflix killed its AAA gaming studio.

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The Story

A few years ago, Netflix decided to dip its toes into the gaming world. This was a completely uncharted territory for the streaming giant. But with streaming wars heating up and subscriber growth slowing, Netflix needed a fresh way to attract more users.

So, it turned to gaming. Instead of offering just movies and shows, subscribers could now play games, without paying anything extra.

And things moved quickly. Netflix rolled out a whole catalogue of games by setting up its own gaming studios across the globe. It even went on a bit of a shopping spree, acquiring companies like Finland’s Next Games, Texas-based Boss Fight Entertainment and Seattle’s Spry Fox.

Then, Netflix didn’t just stop at games which were based on its hit shows like Stranger Things. It also teamed up with big players like Rockstar Games — the folks behind Grand Theft Auto (GTA), and Hardlight Studios’ Sonic Dash series.

Things seemed promising. In 2021, Netflix games had over 5 million downloads. By 2022, that jumped to 28 million. And last year it hit a whopping 81 million downloads, which was a massive 180% year-over-year growth!¹

Riding high on this success, Netflix set its sights even higher. It wanted to create brand new, multiplatform games that could be enjoyed on consoles, computers and mobile devices. These games wouldn’t be based on any of its existing shows or concepts, but something fresh and original.

But fast forward to today, and Netflix just pulled the plug on Team Blue, its AAA (Triple-A) gaming studio in Southern California, without ever releasing a single title.² In simple terms, Netflix won’t be making any original blockbuster games anytime soon.

So, if Netflix wanted to go big on gaming, why would it hit the brakes like this, you ask?

Well, the truth is that Netflix’s gaming ambitions are still alive and kicking.

In fact, shutting down Team Blue might have been a wise decision after all.

You see, creating AAA games is no small feat. These are the big-budget titles produced or distributed by major publishers. And the term ‘AAA’ isn’t an acronym, it’s just a label for top-tier games. Developing them can get pricey. You need a standout game idea, a huge team of skilled developers and another army of people behind the scenes. Plus, there’s serious investments in graphics, visual effects and tech to make these games immersive and lifelike.

But here’s the thing. There’s no guarantee that they’ll be a hit. For these games to truly succeed, they need to resonate with gamers and be embraced as favourites.

Take GTA, for instance. It’s the poster child for AAA games or a blockbuster franchise that raked in over $9 billion from just its last two versions — GTA IV and GTA V.³ That’s around 25 times what Rockstar Games, the developers, spent on producing it! And that’s also why the GTA franchise was a key factor in Netflix gaming’s early success, accounting for about 17% of the platform’s gaming downloads in 2023.

But here’s the thing again. If Netflix’s AAA gaming experiment flopped, all that money spent on creating something fresh would go down the drain, especially considering the star-studded team it assembled. For context, it lured in heavyweights like Chacko Sonny, former executive producer of Overwatch, Joseph Staten from Microsoft’s Halo franchise and Rafael Grassetti, who was the art director at Santa Monica Studio, best known for God of War.

However, with all these high-profile employees now having left the streaming giant, Netflix may have realised something important. Pouring more money into replacing these key people and expanding the team to develop expensive games just doesn’t fit with its current strategy.

That’s because Netflix isn’t exactly going all out on producing new content right now.⁴ Sure, it has set aside about $17 billion for new projects in 2024, which is a solid one-third more than what it spent last year. But that’s still quite near or less than its peak spending of $17.5 billion back in 2021, during the pandemic’s heyday.

A big reason for this is the Hollywood Writers’ Strike. Writers felt that studios were cashing in big time on shows by distributing them to OTT platforms and other distributors, while they weren’t getting a fair share of these profits. This dispute slowed down content production across the board, impacting major players like Amazon, Disney, Fox, Warner Bros. Discovery and yes, Netflix too. As a result, Netflix released around 130 fewer original programs in 2023 compared to 2022 — a drop of about 16%.

But by slowly and gradually increasing its content budget, Netflix is probably embracing the “less is more” philosophy. That way instead of pouring money into a flood of average shows, it could create high-quality content that really makes an impact.

This approach also allows it to shift focus from simply adding subscribers to keeping viewers engaged.⁵ Think about it. When people find shows they love, they’ll stick around longer, recommend Netflix to their friends and see greater value in its service.

That’s also why Netflix has decided to stop publicly reporting its subscriber growth starting in 2025, and instead focus on metrics that highlight engagement. It’s all about creating a lineup of exceptional content that keeps audiences coming back for more.

And maybe Netflix wants to apply this same strategy to gaming as well. After all, it’s often cheaper to licence popular franchise games that gamers already adore than to gamble on developing original titles in-house. This way, Netflix can keep gamers engaged on its platform without a massive budget risk.

And who knows? This could translate into more subscribers and increased revenue, especially since only about 1% of Netflix’s subscribers currently play games.⁶

So no, Netflix isn’t throwing in the towel on its gaming ambitions. If anything, it’s taking a slow and steady approach to growth. And we’ll only have to wait and see how it all pans out.

Until then…

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Story Sources: Tech Crunch [1], Game File [2], Visual Capitalist [3], Sherwood [4], The Wrap [5], CNBC [6]

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