Netflix’s foray into video video games is ‘ill-advised,’ Wedbush analyst says
Netflix’s subscriber growth has stalled in recent quarters as new streaming services came into play. To attract new members and reduce churn, the company is expanding into the world of video games.
The move builds on Netflix’s extensive content library and would allow the company not only to expand its proprietary intellectual property, but also to gather vital data about its users. These games could boost future Netflix shows and movies and add to the brand’s appeal to their customers.
While subscribers may be amazed at the prospect of games based on hit shows like “Stranger Things,” at least one Wall Street analyst is suspicious of Netflix’s foray into video games, calling it an “unwise foray”.
“As it burns money, the company has decided to add podcasts (we think that’s smart) and games (we don’t think that’s smart) to its content offering,” Wedbush analyst Michael Pachter wrote in a research note Wednesday.
Pachter said podcasts are inexpensive to produce and would allow Netflix subscribers to consume additional content on the go. However, video games are not an inexpensive opportunity.
“While Netflix commented that it will initially focus on mobile games, we wonder if the company has any idea how difficult the mobile game business has become,” he wrote. “The business graveyard is littered with the corpses of content companies that failed to develop mobile games, with Disney being the most prominent mistake. Even video game publishers like Activision, EA, Take-Two, Ubisoft and Nintendo have spent years trying to create compelling mobile content and each has only achieved lasting success through acquisitions. “
Netflix said its video games would be offered as part of its existing subscription plans at no additional cost, but has not disclosed when this new service will launch or what specific games it will develop.
Pachter said Netflix could face “significant hurdles” when it comes to attracting new audiences to its games, especially when it comes to attracting new users.
“If the company is developing mobile games, it is unlikely that it will develop more than a handful per year related to the over 40,000 new mobile games produced each year,” he said. “Few of the 3.5 billion mobile phone gamers worldwide will add a subscription to Netflix to access its 2 to 3 new games each year.”
When Netflix finally gets into more sophisticated games, it also faces technological hurdles. Most video games are only available on dedicated consoles or PCs. So Netflix would need to develop a way to seamlessly stream games online.
“To the best of our knowledge, only Sony, Microsoft, Google and Amazon have made progress in streaming games, with Sony acquiring two companies (Gaikai and OnLive) that have cumulatively spent over $ 1 billion on attempts (and failures), and with Microsoft, Google and Amazon the three leading cloud service providers in the world. “
Pachter said that if Netflix figures out how to stream games, it will also have to provide users with a game controller that works on different platforms. After all, Netflix users access content in a variety of ways.
“This is complex stuff, and we think that while Netflix has big plans for gaming success, it started its endeavors with half-sized ideas,” he said. “In our opinion, investors have given Netflix far too much credit for pulling off this ambitious (some might say bold) endeavor.”
Netflix is likely to rely heavily on Mike Verdu, who most recently held the position of vice president of augmented reality and virtual reality content on Facebook. The company announced it had hired him last week. Verdu also worked for the game companies Electronic Arts, Kabam, Zynga and Atari.
Patcher also criticized Netflix’s choice for Verdu.
“Mr. Verdu is a seasoned game designer but has not made games in about 20 years,” he wrote. “His oversight at other game companies has been mixed (stops at Atari, EA, Zynga, a startup, Kabam, EA again, and Facebook) with five of these jobs in the past 12 years. While working for mobile developers, his experience is limited as Zynga produced his first mobile game after leaving the company, Kabam was sold just two years after he arrived, and he was with EA during a period of no growth.
Netflix could also struggle to capitalize on its own intellectual property, Pachter said. With 20 years of experience in the video game industry, he said that successful games based on TV shows were limited.
“While there are some based on TV spin-off books (The Witcher and Game of Thrones), the number of successful games based on TV shows is pretty limited,” he said. “Similarly, the number of successful games based on movie franchises is almost as limited, with games like Harry Potter, Star Wars and Lord of the Rings based on iconic movie franchises.”
“We’re not going to hold our breath and wait for Netflix to deliver the next iconic film franchise,” said Pachter.