Former Netflix VP of Games Mike Verdu announced on Linkedin that he is now VP, GenAI for Games. In a longer post, he shared that he is “focused on a creator-first vision for [artificial intelligence (AI)], one that puts creative talent at the center, with AI being a catalyst and an accelerant. AI will enable big game teams to move much faster, and will also put an almost unimaginable collection of new capabilities in the hands of developers in smaller game teams.”
The post answers my question from last month: Why did Netflix believe it needed to deliver blockbuster, major-level (“AAA”) games from blockbuster budgets to win?
Verdu’s answer implies that Netflix management realized earlier this year— he stepped down as VP of Games in June—that they did not need to anymore. As Verdu wrote, Generative AI is “a 'once in a generation’ inflection point for game development and player experiences using generative AI.”
In other words, the technology has matured to the point where Netflix is best off taking a blockbuster budget—AAA games greenlit in 2023 for potential releases in 2024 or 2025 typically received development budgets of $200 million or higher—and reallocating it across multiple teams using generative AI tools.
The business rationale makes sense. There are two logical questions:
Is this what consumers want? And,
If so, how is Netflix's competitive future being shaped by generative AI?
Key Takeaway
Netflix VP Mike Verdu’s post does not read like generative AI will “break” either of its gaming or streaming business models. But, the initiative seems to be one big step closer to that outcome.
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Total time reading: 5 minutes
What Do Consumers Want?—Netflix Version
Netflix has launched over 100 games, to date. It told investors in August that it has another 80 in development. The implication is that with over 280 million members,
Co-CEO Ted Sarandos told investors on its Q2 earnings call that its objective with mobile games is to give “the superfan a place to be in between seasons [of a show], and to be able to use the game platform to introduce new characters and new storylines or new plot twist events."
Faster and cheaper gaming production with generative AI will translate to a higher volume of games at a lower cost. In turn, fans of Netflix’s original IP will have more options for engaging with their favorite shows and characters. Higher engagement translates into lower churn between seasons and more “customer delight”.
Verdu’s post also implies that “an almost unimaginable collection of new capabilities” will enable gaming capabilities that consumers have not seen before. The post notes that “AI will enable big game teams to move much faster”, meaning the bet on AAA games is not off the table for Netflix. AAA games can take as long as seven years to develop. Generative AI appears to be able to accelerate that process.
Last, there are headwinds in the broader gaming marketplace. Studios are being shut down following a drop in post-pandemic consumer demand for games. Higher interest rates have made it harder for studios to borrow. Advanced technologies are expensive and consumer expectations for better experiences have driven up development budgets. 10,000 jobs were lost in 2023 and an additional 13,000 layoffs have taken place in 2024, to date.
Netflix’s vision of faster and cheaper game development with generative AI seems to be one solution to this crisis. Like Microsoft (Xbox) and Sony (PlayStation), it has an enormous installed base of nearly 300 million members it can serve immediately upon the release of a new game. It can capture gamers that gaming studios are increasingly struggling to capture.
However, it remains an open question as to whether its members want or need exponentially more than 200 games, and especially games produced with generative AI. “GTA: San Andreas” is Netflix's most downloaded game of all time with nearly 10 million downloads since its December 2023 launch, which is only 3.5% of its membership.
Netflix vs. YouTube & “Flooding”
Games and videos are an apples to oranges comparison. But, in the attention economy they compete. YouTube and Netflix are now locked in a battle for attention and the efficiencies in both video and games production from generative AI content risks “flooding” both platforms with AI content.
The term comes from an interview of YouTube CEO Neal Mohan by YouTube creators Colin & Samir last October. About 25:00 into the interview, Colin Rosenblum shared with Mohan a fear about the threats of AI-generated content to creators:
“I’m concerned about the influx of semi-autonomous content and it perhaps floods YouTube... and there is perhaps an appetite for it and it starts to change what it means for viewers to enjoy the platform and what it means for creators to succeed on the platform, if there truly is so much [content]”.
Chaudry told me in an interview earlier this year for my Medium Shift column. that he and Colin worry that “inauthentic, AI-generated storytelling” will win at the expense of human-created content. The connections between human storytellers and human audiences will be lost.
Netflix’s growing competitive threat from cheaper “premium” content on YouTube capturing audience share, especially on connected TVs, reflects how vulnerable it is to "flooding", too. I wrote in September’s “YouTube Is Forcing Netflix to ‘Break’ Its Business Model”: “The more YouTube pressures Netflix into producing more content at a lower cost, the more Netflix will have “to break [the business]” and undermine the studio side of its model.”
Netflix is unlikely to flood its platform with games at the expense of TV series and movies, even if it substantially increases its production using Generative AI. It would have to increase its game production 60x to match the 6,500+ TV series and movies it offers in various countries around the world.
But, I have also argued in that essay:
“Netflix appears to be getting squeezed into letting ‘fans [become] the producers of the content they want to watch.’ YouTube has redefined ‘premium content’ with the help of creators. In doing so, it has redefined consumers' investment in content and creators from something emotional into something financial.”
Netflix is responding to this challenge by building more games. It is within the realm of possibility that it could leverage generative AI to build fan-first storytelling platforms like Showrunner, too. In either case, it will be producing more fan-driven interactive content in a model with economics closer to YouTube than Netflix’s distribution model for TV series and movies.
What If…
Netflix has offered its subscribers choose-your-own-adventure, interactive video content. It first launched interactive titles in 2017 with Puss in Book: Trapped in an Epic Tale, and was nominated for and won multiple awards with Black Mirror: Bandersnatch.
Earlier this week, Netflix confirmed to The Verge that it is removing all but four of the 24 titles currently on the platform. Both this announcement and Verdu’s LinkedIn post reminds me of an observation made by Chaudry told me earlier this year:
“text-entry search boxes on platforms like Netflix and YouTube have been conditioning users for text-to-video AI-generated content. There are only a few steps between searching for a title using text and creating a video with a text prompt.”
Meaning, Netflix has built and defined the “text to prompt” user experience and is now embracing generative AI for gaming. “Text to video” inhabits the logical territory in between. The implication is that Verdu’s remit may be broader than his LinkedIn post suggests.
I wrote last week in the conclusion to last week’s “Netflix's Risky Pivot To Moments” that “the question in the long-term—and that may be as soon as 2025—is what Netflix’s model will become in the age of AI content generation.” This may be the working answer, for now.
Either way, the announcement emerges as Netflix navigates growing competitive pressures from Silicon Valley to rethink both its business model and broader value proposition for consumers. In September, Co-CEO Ted Sarandos foreshadowed these challenges in a speech to the Royal Television Society’s (RTS) London Convention 2024. He told the audience that Netflix must cannibalize its own business and “constantly challenge ourselves, to break [the business] and move our business forward on behalf of our consumers.”
Verdu’s post does not read like generative AI is “breaking” Netflix’s gaming or streaming business models. But, the initiative seems to be one big step closer to that outcome.