Netflix subscriber growth has stalled in recent quarters as new streaming services have entered the fray. In an effort to attract new members and reduce churn, the company is expanding into the world of video games.
The move builds on Netflix’s vast library of content and would allow the company to not only expand its own intellectual property, but also collect key data about its users. These games can fuel future Netflix shows and movies and enhance the brand’s appeal to its customers.
While subscribers may be excited about the prospect 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 an “unwise foray.”
“Because it’s burning money, the company has chosen to expand its content offering to include podcasts (we think this is smart) and games (we think this is not smart),” Wedbush analyst Michael Pachter wrote on Wednesday.
Pachter said podcasts are cheap to produce and Netflix subscribers can consume additional content along the way. However, video games are not a cheap option.
“While Netflix noted that it will initially focus on mobile games, we wonder if the company has any idea how difficult the mobile games business has become,” he wrote. “The corporate graveyard is littered with the corpses of content companies that have failed to make mobile games, with Disney the most prominent failure. Even video game publishers such as Activision, EA, Take-Two, Ubisoft and Nintendo have spent years trying to create immersive mobile games. content, and each has had lasting success only through acquisition.”
Netflix said its video games would be offered at no additional cost as part of its existing subscriptions, but has not disclosed when this new service will launch or what specific games it will develop.
Pachter said Netflix could face “significant hurdles” in trying to attract new audiences to its games, especially as it tries to entice new users.
“If the company makes mobile games, it’s unlikely to make more than a handful a year in the context of more than 40,000 new mobile games being produced each year,” he said. “Few of the world’s 3.5 billion mobile gamers will add a subscription to Netflix to access the 2 to 3 new games every year.”
If Netflix eventually starts playing more advanced games, it will also face technological hurdles. Most video games are only available on dedicated consoles or PCs. So Netflix should develop a way to seamlessly stream games online.
“To our knowledge, only Sony, Microsoft, Google and Amazon have made any progress in streaming games, with Sony acquiring two companies (Gaikai and OnLive) that have spent more than $1 billion trying (and failing) together. and with Microsoft, Google and Amazon the three leading cloud service providers in the world,” Pachter noted.
Pachter said that if Netflix finds out how to stream games, it should also provide users with a game controller that works across platforms. After all, Netflix users can access content in countless ways.
“This is a complex matter, and we think that while Netflix has huge plans to succeed in games, it started its efforts with half-expanded ideas,” he said. “In our opinion, investors have given Netflix far too much credit for realizing this ambitious (some perhaps daring) venture.”
Netflix will likely rely heavily on Mike Verdu, who most recently held the position of vice president of augmented reality and virtual reality content at Facebook. The company announced last week that it had hired him. Verdu also worked at gaming companies Electronic Arts, Kabam, Zynga and Atari.
Patcher was also critical of Netflix’s choice of Verdu.
“Mr. Verdu is an accomplished game designer, but hasn’t produced any games for about 20 years,” he wrote. “His oversight at other game companies has been varied (stops at Atari, EA, Zynga, a startup, Kabam, EA again, and Facebook) with five of those jobs in the past 12 years. While he worked for mobile developers, his experience is limited, Since Zynga produced his first mobile game after he left the company, Kabam was sold just two years after his arrival and he was with EA during a period of no 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 television shows were limited.
“While some are based on television spin-off books (“The Witcher” and “Game of Thrones”), the number of successful games based on television shows is quite limited,” he said. “Likewise, 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 from iconic movie franchises.”
“We won’t hold our breath as we wait for Netflix to deliver the next iconic movie franchise,” Pachter said.