Microsoft’s Strategy to Become the ‘Netflix for Games’

While the prospect has been on investors’ radar for sometime now, Microsoft Corp. (MSFT) is now aggressively positioning itself to be the “Netflix for Games,” a move which puts the +$1 trillion tech giant squarely within investors’ crosshairs. The Xbox creator and owner is slated to release its online game-streaming service xCloud this fall in hopes of making video games accessible from anywhere and at anytime to the world’s 2 billion gamers, according to Barron’s.

“Microsoft is one of the few companies that have the potential to be both a leading content provider as well as a leading platform for gaming publishers,” wrote Evercore ISI analyst Kirk Materne. “Ultimately, we believe gaming can become the next major narrative as it relates to Microsoft’s long-term growth opportunity.”

What It Means for Investors

Microsoft is promoting xCloud as a service that will allow users the ability to stream video games through their TVs, laptops, tablets and even smartphones, just as Netflix does for movies and television shows. That’s important, since among the 2 billion people around the world that play video games, many of them use their smartphone as their main computing device, according to Business Insider.

Microsoft is unlikely to sell Xbox consoles to those 2 billion people, but that doesn’t mean they can’t sell their games to those 2 billion people. But the competition is stiff, as other major tech companies, including Amazon, Verizon, Google, and Sony, all either have or are working on video game streaming services. Google’s Stadia and Sony’s PlayStation Now are perfect examples. 

One of the things Microsoft has going for them, unlike say Amazon, Verizon and Google, is a popular gaming console and a host of already super popular games, such as the entire series of “Halo” games. At the recent E3 video-game conference in Los Angeles, the company unveiled 60 new blockbuster games for both its console and PC, including “Gears 5,” “Batman: Arkham Knight,” “Cyberpunk 2077,” and “Star WarsJedi: Fallen Order.”

“We have as much a shot to build a subscription service as anybody else,” said Microsoft CEO Satya Nadella. “We have a huge back catalog, which is: We have our own games.”

Another asset that Microsoft can leverage is its data centers located across the globe. While a little buffering that causes minor interruptions in online video streaming is not going to break the TV- or movie-watching experience, small stutters in the midst of an action-packed video game will be less tolerable. Having data centers located close to the user will help limit those interruptions. 

Looking Ahead

Video games have evolved into a multi-billion dollar industry, and like the video and music industries, the cloud-streaming model could boost gaming companies and their stocks to new highs. If the release of the xCloud this fall is as successful as Microsoft hopes, the company may well just become the Netflix of video games

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