Netflix should acquire video game companies to better compete with the wide variety of alternatives available to its customer base.
Investors often mistakenly define Netflix’s business too narrowly. Netflix is in the broadly-defined “entertainment” business and therefore competes for viewers’ attention. Netflix competitors include traditional television, streaming services (video, music, video games), social media, reading (the number of readers is dwindling), live events (presumably they will return) and more. Competition is healthy to say the least.
We are partial to video games as an entertainment medium as they allow for a degree of audience participation that one can’t find in other media formats. New technologies such as AR and VR will further enhance the immersive gaming experience.
Netflix ought to go big game hunting. We are in the midst of a speculative valuation bubble and it is unclear how much longer Netflix will enjoy its current lofty valuation ($228 billion market value). Video game publishers such as Ubisoft (UBI), Activision Blizzard (ATVI), Electronic Arts (EA), Take Two Interactive (TTWO) and Zynga (ZNGA) are all large enough to move the needle. We would stay away from China-based game publishers as M&A due diligence would be a nightmare (we are skeptical of the reported financials).