Netflix’s foray into video games is “inadvisable,” says Wedbush analyst

Netflix subscriber growth has stalled in recent quarters as new streaming services have entered the competition. In an effort to attract new members and reduce the number of people, the company is expanding into the world of video games.

The move is based on Netflix’s huge content library and would allow the company to not only expand its proprietary intellectual property, but collect important data about its users. These games could fuel future Netflix shows and movies, reinforcing the brand’s appeal to its customers.

While subscribers may be excited about the possibility of games based on hit shows like “Stranger Things,” at least one Wall Street analyst is wary of Netflix’s foray into the video game space, calling it a “raid.” inadvisable “.

“As it burns cash, the company has chosen to expand its content offering to include podcasts (we think this is smart) and games (we believe this is not smart),” he wrote. Wedbush analyst Michael Pachter.

Pachter said podcasts are cheap to produce and would allow Netflix subscribers to consume additional content while on the go. However, video games are not a low cost opportunity.

“While Netflix commented that it will initially focus on mobile gaming, we wonder if the company has any idea of ​​the difficulty that has become in the mobile gaming business,” he wrote. “The business cemetery is full of corpses of content companies that have failed to make mobile games, with Disney the biggest failure. Even video game publishers like Activision, EA, Take-Two, Ubisoft and Nintendo they have tried for years to create attractive mobile content, and each has had lasting success only through acquisition. “

Netflix said its video games would be offered as part of its existing subscription plans at no additional cost, but has not revealed when this new service will be released or what specific games it will develop.

Pachter said Netflix could face “significant hurdles” in trying to attract new audiences for its games, mostly because it aims to attract new users.

“If the company creates mobile games, it is unlikely to create more than a handful per year in the context of more than 40,000 new mobile games produced each year,” he said. “Few of the world’s 3.5 billion mobile gamers will add a Netflix subscription to access their 2 or 3 new games each year.”

If in the end Netflix moves to more sophisticated games, it also faces technological hurdles. Most video games are only available on dedicated consoles or personal computers. Therefore, Netflix should develop a way to stream games smoothly online.

“To our knowledge, only Sony, Microsoft, Google and Amazon have advanced in streaming games, with Sony acquiring two companies (Gaikai and OnLive) that spent a cumulatively spent more than $ 1 billion trying (and failing) and with Microsoft , Google and Amazon, the world’s top three cloud service providers, “Pachter said.

Pachter said that if Netflix finds out how to stream games, it will also need to provide users with a game controller that will run on different platforms. After all, Netflix users access content in a myriad of ways.

“These are complex things and we believe that while Netflix has big plans to succeed in gaming, it has started its efforts with half-vast ideas,” he said. “In our view, investors have given too much credit to Netflix for pushing this ambitious effort forward (some might say bold).”

Netflix is ​​likely to rely heavily on Mike Verdu, who recently served as vice president of augmented reality and virtual reality content on Facebook. The company announced it had hired him last week. Verdu also worked at video game companies Electronic Arts, Kabam, Zynga and Atari.

Patcher also criticized the choice of Verdu for Netflix.

“Mr. Verdu is an experienced game designer, but he hasn’t produced games in twenty years,” he wrote. “His oversight at other gaming companies has been varied (he stops at Atari, EA, Zynga, a startup, Kabam, EA again and Facebook) with five of those jobs in the last 12 years. for mobile developers, their experience is limited, as Zynga produced its first mobile game after leaving the company, Kabam was sold just two years after arriving, and was at EA for a period without growth “.

Netflix could also struggle to capitalize on its intellectual property, Pachter said. With 20 years of experience in the video game industry, he said successful games based on TV shows have been limited.

“While there are some based on books with television derivations (‘ The Witcher ’and‘ Game of Thrones ’), the number of successful games based on TV shows is quite 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 created based on iconic movie franchises.”

“We’re not going to hold our breath waiting for Netflix to deliver the next flagship movie franchise,” Pachter said.

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