How games are helping Netflix battle churn

Hey everyone - Joe here - welcome to Edition 104!

For this week's spotlight: Netflix’s launch of Playground - and the impact it could have on building fandom with youth audiences and reducing subscription churn.

Plus Speed Reads of:

Right, let’s get into it ⤵️

Netflix announces Playground - a new space for kids built around games and interactive experiences, bundled into the subscription.

The playground has always been the home for kids to play games - and thats continuing on Netflix.

Netflix Playground will host games built around Peppa Pig, Sesame Street, Dr. Seuss and more - with these games bundled into all subscriptions, with no in-game ads, no in-app purchases and no extra fees.

Against a backdrop where safety and advertising in games is a hot topic, it’s a different approach that should give parents confidence in the experience their child is having whilst playing on Netflix.

But looking beyond that, I see this as another smart addition to Netflix’s flywheel that now spans games, experiences, content, live events and more - all designed to create a deeper connection with their IP, and make the subscription harder to drop.

So to understand why the addition of Playground and games is so powerful, let’s start with the problem they’re trying to solve.

Churn. It’s the word that makes any subscription business shiver.

And it’s something that even a content behemoth like Netflix is not immune to, with Antenna estimating churn (in the US) has increased to ~2.5%, up from 1.8%.

Whilst that’s just under a 1% increase, when you’re the size of Netflix, that equates to millions in lost revenue.

So, in response to this, Netflix has spent the last few years pulling a number of levers to keep people subscribed, including:

And whilst these have all worked to varying levels, many are one-off unlocks or already plateauing.

Which means we’re back to the same question. What actually keeps people coming back?

Whilst content is the core offering, its better thought of as a foundation that everything else is built on. Netflix has been building a much broader ecosystem around their IPs that now includes:

Collectively, these are extending the life of Netflix IP beyond a single viewing session, giving people more reasons to come back, more often.

Because the more time audiences spend across an IP and its surrounding communities, the higher the switching cost becomes.

In Edition 83 we covered Netflix's Still Watching report, which surveyed 9,000 Gen Z and Millennial viewers, and found that 72% of Gen Z say being a fan is core to their identity, with 87% actively sharing what they're watching with friends.

So whilst content remains the hook, we’re seeing that watching is just the starting point. By providing opportunities for subscribers to engage with IP on a deeper level and share in their experiences with friends, the IP can become core to how they see themselves.

Games fills the gap between content launches - offering an always-on alternative as a pose to spikes around releases.

But more importantly, it’s the interactivity and immersion that games offers that makes it so interesting for Netflix as they expand beyond content - with a Livewire report finding 83% of parents reporting no second screen distractions during gaming.

And this is in part why we saw Netflix push into living room party games, targeting the 5 to 10pm family time slot that TV used to dominate - with the same Livewire data finding 74% of families now game together regularly, and co-playing has cut traditional TV time by 40%.

And given the importance of that time slot in maintaining relevance with families, it’s easy to see why gaming matters so much for Netflix.

So in Playground, they have a way to build deep fandom early, and early really matters - with SuperAwesome’s report on Gen Z and Gen A fandom finding the golden age for fandom discovery is around 8 years old, precisely the age group that Playground is targeting up to.

If a child is playing Playground daily, at home and on the move, the household subscription becomes that much harder to cancel - meaning the parent who might have churned after finishing a show now has a kid asking to play their game on a Tuesday evening, or on a long car journey.

Don’t underestimate the power of the ‘nag factor’…

But there’s more of a long-tail around it too. Whilst kids might take a break from Netflix and their IPs as they age-up, Netflix is banking that they can reactivate that connection later in life.

Essentially betting that if you entertain the kid now, you keep the family. And then when that kid grows up, they’ll return.

In some way, shape or form, every brand across the spectrum of entertainment faces the same retention challenge Netflix does.

What I think Netflix is doing well is understanding that whilst live events may drive spikes, and price increases can lift revenue, neither builds the level of affinity that keeps someone engaged over the long-term, or brings them back after they've churned.

But fandom, and the community you find within those fandoms, does.

So my takeaway is to prioritise engagement and active participation with your IPs as early as possible, across as many touchpoints as you can.

Because as Karim Farghaly of Bandai Namco said in our latest episode of The Speakeasy:

“Connecting with the fan is the number one priority - and monetisation comes later”.

Working on anything cool, or have a press release you would like us to cover? Send it in for the chance for it to be covered in next week’s edition!

That’s all for now, everyone - thanks again for reading the latest edition of The SEG3 Report. If you found it of interest, please do consider sharing with a colleague or friend who’d enjoy it too!