Did Netflix Just Stop Playing Games?

Everyone's celebrating the death of Qwikster this morning.

Investors are bidding Netflix (NAS: NFLX) shares higher. Disgruntled subscribers -- and ex-subscribers -- are still venting on Netflix's blog, but they'll mostly come around once they weigh the alternatives.

However, there's still one meaty question left unanswered in this swift shift: Are video game rentals still coming?

One of the few good things -- if not the only good thing -- to come out of the shocking Qwikster migration orders was that the mail-based service would be adding video games to its library of DVDs and Blu-ray discs.

Judging by what CEO Reed Hastings is saying -- or rather not saying -- in this morning's blog post, it seems as if gamers are out of luck with Netflix's return to business as usual.

"We are going to keep Netflix as one place to go for streaming and DVDs," he writes. "We value our members, and we are committed to making Netflix the best place to get movies & TV shows," he concludes.

A Netflix rep tells SplatF's Dan Frommer that the company is "still considering" video game rentals, but that's the breakup equivalent of "we can still be friends" to soften the blow of a relationship that is never going to get steamy again.

Just like that, it seems, video games from Netflix or Qwikster appear to be toast -- unless Netflix promises otherwise.

Game theory
I realize that most Netflix subscribers probably don't care about receiving console games by mail. However, it took Netflix just a couple of months to top a million Xbox LIVE Gold members downloading and activating the Netflix streaming application three years ago. That was more than 10% of Netflix's entire user base at the time.

Microsoft's (NAS: MSFT) Xbox owners also went through 1.5 billion minutes of movies and television shows in that time, long before streaming became a mainstream service. Early pioneers needed a TiVo (NAS: TIVO) , Roku box, or an Xbox 360 to stream Netflix in most cases. The PS3 and Wii followed, largely because gamers and video consumption do go hand in hand.

If non-gamers need one final appeal, let me put it this way: If I'm holding on to Gears of War 3 or the original Halo as a rental for a few weeks, that's one more copy of Bridesmaids or X-Men: First Class to go around for you.

Ruptured discs
Games matter more than you may think.

Why do you think that DISH Network's (NAS: DISH) Blockbuster and Coinstar's (NAS: CSTR) Redbox now offer video games as well as movies on disc? Why is video game-by-mail specialist Gamefly ramping up its television ads? Any answer other than "it's what the customers want" is wrong.

If you think that Netflix can do just fine with just DVD and Blu-ray discs by mail, let's revisit last month's revised guidance.

Netflix lowered its outlook for stateside subscribers by the end of its third quarter last month. Despite the hubbub over its summer rate increase, Netflix expected the number of subscribers on its dual plans to remain at 12 million. Since that was the only group subjected to a pricing increase, this was surprising, to say the least. The number of couch potatoes who were exclusively streaming was revised down slightly, from 10 million to 9.8 million. The real hit in the revision came from those who are only receiving discs by mail, with the new target going from 3 million to 2.2 million.

Keep in mind that the unlimited-disc-based-plan subscribers were the only ones treated to a price cut in the revised pricing, yet Netflix still saw a 27% decline there.

These 2.2 million couch potatoes were going to be paying $2 less a month come September, so why are they the ones leaving? Could it be that Redbox and NCR's (NYS: NCR) Blockbuster Express kiosks are giving them better value? Those services don't appear to be suffering any kind of slowdown. However, what if it's that Redbox and Blockbuster are now more complete services because they have made the logical optical disc extension to include video games with their DVDs and Blu-rays?

I hope I'm wrong, but something tells me that despite the market's euphoric reaction today, Netflix may be moving away from the one thing that could have saved -- or at the very least extended the life of-- its mail-based business.

Don't throw the gamer babies out with the Qwikster bathwater, Netflix.

If you want to follow this saga, track the latest news by addingNetflixto My Watchlist.

At the time thisarticle was published The Motley Fool owns shares of Microsoft.Motley Fool newsletter serviceshave recommended buying shares of Microsoft, Netflix, and Coinstar.Motley Fool newsletter serviceshave recommended creating a bear put spread position in Netflix, as well as creating a bull call spread position in Microsoft. Try any of our Foolish newsletter servicesfree for 30 days. We Fools may not all hold the same opinions, but we all believe thatconsidering a diverse range of insightsmakes us better investors. The Motley Fool has adisclosure policy.Longtime Fool contributor Rick Munarriz has been a Netflix subscriber and shareholder since 2002. He does not own shares in any of the other stocks in this story. Rick is also part of theRule Breakersnewsletter research team, seeking out tomorrow's ultimate growth stocks a day early.

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