Netflix (NFLX) is launching the beta for its video game streaming service in the U.K. and Canada. Yahoo Finance Tech Editor Dan Howley breaks down what Netflix's first steps into cloud gaming could mean for the future of the streamer and whether has the potential to stack up against mainstream gaming companies, such as Microsoft (MSFT) and Sony (SONY).

Video Transcript

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AKIKO FUJITA: Netflix is launching a test of its video game streaming services in Canada and the UK starting today. Yahoo Finance's Dan Howley has the details. Dan, this is still a very limited release, but certainly marks a big step in terms of the company's ambitions in gaming.

DAN HOWLEY: That's right, Akiko. This is still a beta. It's as you said limited. Only certain users in the UK and Canada are going to be able to access it. But what they're going to be offering are two different games. One is called "Oxenfree," and the other is "Molehew's Mining Adventure."

Now, these aren't the most aggressively graphics-intensive games on the market. But what it does show is that Netflix is moving forward with their gaming ambitions. They already offer mobile games on mobile platforms. If you load up Netflix on your smartphone, chances are you'll see some of the games that they offer there alongside the movies and shows that are already on there.

But this is a different kind of animal. This is where you would actually be streaming the game from Netflix servers to your device. The benefit of cloud gaming is that you don't need a powerful system to run video games. You don't need a high-end PC. You don't need a pricey console. You can do it on your TV, your smartphone, your tablet, a Chromebook, an older laptop or desktop, things along those lines. And you can still get high end graphics and everything that goes along with that through cloud streaming.

We see other companies in the space, but Microsoft-- sorry-- Netflix being here really is the one that we were waiting for. Everyone that has a kind of cloud gaming service, whether that's Microsoft or Sony, I generally refer to it as kind of Netflix style gaming, and now we actually have the Netflix of gaming.

We still have to wait, though, to see whether or not they're going to roll out high-end games-- AAA games is what they're called. The "Call of Dutys," things along those lines. But this is a seemingly good start for them.

SEANA SMITH: Dan, how much disruption do you think Netflix is going to bring to this space? And you mentioned some of the players that have already been in gaming right now. Are they going to be able to compete with Netflix now one of the big entrants within the industry?

DAN HOWLEY: Yeah, I mean, look, Microsoft is the leader bar none at this point. They have their Xbox Cloud Gaming. It's part of their Xbox Game Pass service. You have to get the highest level that they offer. But Sony also has its own cloud gaming offering as well. The difference between Microsoft and Sony is that Microsoft is first party Microsoft games, games that they develop or are developed by studios that they own. They put out the same day that they hit retail on their cloud gaming service. So that's a benefit for Microsoft to really say, look, we are the preeminent cloud gaming platform available.

Sony is not doing that, but they are starting to work on getting PlayStation 5 games on their cloud service. There's also Nvidia and Amazon, by the way. They also have their own cloud gaming services, but it's not easy. Google had tried to run its own cloud gaming service called Stadia and folded that entirely. Now it's potentially looking at putting some kind of cloud gaming in YouTube according to the "Wall Street Journal", but it's not something that is necessarily easy even for companies with seemingly limitless coffers like Alphabet.

So Netflix is going to really need to prove that this technology works. And even when it comes to Microsoft and what they have to offer, if there's any kind of slowdown in your internet connection, if you don't have a fast enough internet connection, or there's a lot of usage in your area and you start to run into lag, then it throws off the entire experience.

It's not like where you can sit there, pause it, and let it buffer like you could do with a show or movie, this is a game that you're actively playing. And if you press a button and it doesn't respond properly you know, that instant on screen, then it's a wasted experience. So we have to see how Netflix manages to do that and what the experience is like to see if eventually they'll be able to do what Microsoft can do.

And I think one of the important things to point out just real quick is, Microsoft you can use your Xbox controller. You can also do that with the Mac or PC, you can plug-in your Xbox controller. Same thing with Sony, you can do it on your Mac or PC with your PlayStation controller.

Netflix isn't offering a controller. They're letting you use your smartphone. So I don't-- it's going to be tough if they end up going into more hardcore gaming, more AAA games to be able to do that with a smartphone controller, so we'll just have to see if eventually they provide support for peripherals like an Xbox controller or a PlayStation controller down the line. But, as I said, this is a big step for them. And if it does end up working out, we could see a whole new revenue stream for them down the line.

AKIKO FUJITA: Dan, I have a feeling some of those challenges you talked about with gaming drawn from personal experience, right?

DAN HOWLEY: Just a little. Just a little.

[LAUGHTER]

AKIKO FUJITA: Just a little. Just a little. Points to a lot of frustrations there as well, though. Dan Howley, thanks so much as always.